ECRI Seminar Good Practices of Consumer Protection in Financial Services Brussels, 16 October 2008

1. ECRI Seminar Good Practices of Consumer Protection in Financial Services Brussels, 16 October 2008 Sue Rutledge Regional Coordinator, Consumer Protection World Bank srutledge@worldbank.org

2. Many countries have little access to finance and little experience with financial products Source: World Bank

3. Source: Unicredit Source: Unicredit In emerging markets, rapid income growth has provided consumers with more resources to invest

4. Rapid growth of household credit accompanied by greater difficulty to understand risks & obligations Source: Unicredit

5. Foreign ownership in the banking sector Globalization of financial markets has brought new challenges in financial consumer protection Source: Bankscope, WorldBank calculations Source: BIS, National Bank of Lithuania, Barclays Capital

6. Diagnostic Reviews in 9 Countries

7. Good Practices: Diagnostic Tool • Good Practices released as Consultative Draft • Prepared for 4 segments: • banking • securities • insurance • non-bank credit institutions • Other areas: • private pensions • credit reporting systems • financial capability

8. Good Practices were developed using international benchmarks • European Union Directives • Bank for International Settlements, Basel Committee • International Organization of Securities Commissions • International Association of Insurance Supervisors • Organisation for Economic Co-operation and Development • United Nations • Laws and regulations of EU Member States (ex, France, Ireland, UK) • Laws and regulations of Australia, Canada, Malaysia, Mexico, Peru, South Africa, United States (FTC, SEC, state laws) • Codes of conduct of associations of banking, insurance, other segments

9. Financial sector should provide consumers with: • Transparency: Clear and comparable information about prices, terms and conditions of financial products and services, all written in plain language • Choice: Non-coercive and reasonable practices in selling of products and collection of repayment • Redress: Inexpensive and speedy mechanisms to address complaints and resolve disputes • Privacy: Control over access to personal financial information

10. Good Practices cover 8 areas • Consumer protection institutions • Disclosure and sales practices • Customer account handling and maintenance • Privacy and data protection • Dispute resolution mechanisms • Guarantee and compensation schemes • Consumer empowerment and financial capability • Competition

11. 1. Consumer Protection Institutions • Clear consumer protection rules with necessary institutional arrangements • Balance between prudential supervision and consumer protection • Principles-based code of conduct for financial institutions • Licensing and supervision of legal entities that collect funds or lend funds to the public • Credible judicial system and active media and consumer associations

12. 2. Disclosure and Sales Practices • Written copy of general and product-specific terms and conditions • Key Facts Statement in plain language of key terms and conditions • Financial firms to gather information to ensure product or service is appropriate • Cooling-off periods for products with savings components—or subject to high-pressure sales practices • Borrower can choose the provider for products that are pre-conditions for other products • In advertising, financial institutions to disclose that they are regulated and by which regulatory agency • Staff of financial institutions to receive training suitable for complexity of products or services • Professional associations to prepare standard simple format for financial firms to disclose annual financial results

13. 3. Customer Account Handling and Maintenance • Financial institutions to prepare monthly statements regarding key details of financial transactions • Customers to be individually notified of changes in interest rates, fees, and charges as soon as possible. • Financial institutions to maintain up-to-date customer records and provide ready and free access to customers to their records • Clearing of customer transactions to be based on clear statutory and regulatory rules—or be subject to effective self-regulatory arrangements. • No financial institution—or third party—to employ abusive collection practices against customers

14. 4. Privacy and Data Protection • Rules of information-sharing within credit reporting system set by law • Basic consumer rights re information sharing, access, rectification, and blocking set by law • Financial firms to inform re use of customer information • Customers to have ready and free access to credit reports (minimum annually) • Financial firms to protect confidentiality and security of customer data • Credit bureaus to be subject to oversight with enforcement authority

15. 5. Dispute Resolution Mechanisms • Financial firms to have clear procedures for handling and maintaining records of complaints. • Consumer access to affordable and efficient mechanism for recourse. • Recourse mechanism to act impartially • Statistics of customer complaints to be published • Regulatory agencies to publish analyses of their activities on consumer protection—and propose measures to avoid sources of systemic complaints • Professional associations to analyze statistics and propose measures

16. 6. Guarantee Schemes and Insolvency • Regulator to have authority to take prompt corrective action in event of distress at a financial firm • Clear law on financial insurance or guarantee fund • If no insurance or guarantee fund, effective and timely payout mechanism if financial firm insolvent • Depositors to have higher priority than other unsecured creditors in liquidation of a financial firm • Expeditious, cost-effective and equitable provisions in law to ensure timely refund of deposits to depositors

17. 7. Consumer Empowerment – Financial Education • Teaching of basic financial concepts in schools • Regulators and associations to provide information to mass media to encourage analysis of financial products and services • Financial regulators to publish independent information on costs, risks and benefits of financial products and services • Non-governmental organizations encouraged to provide consumer awareness programs re personal finance • Surveys of financial capability (including consumer financial behavior) needed

18. 8. Competition • Financial regulators and competition authorities to consult with one another • Competition policy in financial services to consider impact of competition issues on consumer welfare, especially limits on choice • Competition authorities to publish periodic assessments of competition in retail financial institutions and make recommendations

19. Future Work • Feedback and comment sought from regulators and other stakeholders • Diagnostic reviews in other countries and other regions • Development of tools to prioritize recommendations • Cross-country surveys on: • Legal and regulatory frameworks for financial consumer protection • Levels of financial literacy and common patterns of financial consumer behavior (financial capability)

20. For more information Published WB reports available at www.worldbank.org/eca/consumerprotection Comments on Good Practices can be sent to consumerprotection@worldbank.org

21. ECRI Seminar Good Practices of Consumer Protection in Financial Services Brussels, 16 October 2008 Sue Rutledge Regional Coordinator, Consumer Protection World Bank srutledge@worldbank.org