Financial inclusion, education and consumer protection: a trilogy Moscow, June 13-14 2013

1. Financial inclusion, education and consumer protection: a trilogy Moscow, June 13-14 2013 André Laboul Chair of the International Network on Financial Education Head of OECD Financial Affairs Division

2. THE BACKGROUND • International trends (risks, access, sophistication, transfers) • Call for a new policyapproach , a new culture with a new focus on the consumers and related new policytools: financialeducation, access and consumer protection • Information but not sufficient; neededucation • Situation – worrying (lowlevel, overestimation, take time) • Solutions – encouraging • Call for financialeducation to improvefinancialliteracy (defined as a combination of financialawareness, knowledge, skills, attitude and behavioursnecessary to makesoundfinancialdecisions and ultimatelyachievefinancialwellbeing) • Let me first elaborate on thisfinancialeducationpillar

3. THE BACKGROUND • Broader impact (increase confidence, efficient markets, social impact) • Role for all stakeholders (win win for the industry) • Momentum due to the crisis (teachable moment) • OECD/INFE programme(with major support from the Russia Trust Fund)

4. OECD/INFE • International Network for Financial Education • Representatives from public institutions (ministries of finance, central banks, financial and other authorities, etc) from more than 100 countries, including all G20 members and most APEC members; Global/worlwide Network • Subgroups: measurement of financial literacy, evaluation of FE programmes, financial education at school, national strategies, financial inclusion, financial education and women, investor education • Advisory Board

5. OECD and INFE priority areas

6. OECDand INFE instruments • OECD (2005) - Principles and Good practices on Financial Education and Awareness • OECD (2008) - Good Practices for Financial Education relating to Private Pensions • OECD(2008) - Good Practices for Enhanced Risk Awareness and Education on Insurance issues • OECD (2009) - Good Practices on Financial Education and Awareness relating to Credit • OECD(2012) – draft Guidelines for Financial Education in Schools • OECD/INFE (2012 High level principles on national strategies for financial education • OECD/INFE (2013) policy guidance for addressing women’s and girls’ needs for financial education and awareness • INFE(2011) – High-level Principles for the Evaluation of Financial Education Programmes • INFE (2010) - Guide to Evaluating Financial Education Programmes • INFE(2010) - Detailed Guide to Evaluating Financial Education Programmes • INFE(2012) Financial Literacy Measurement Questions and Socio- Demographics • INFE(2011)- Supplementary Questions • The methodological Work developed in complement to World Bank activities

7. National strategies for financial education • National strategies play a crucial role in promoting efficient financial education policies. • They allow for strong engagement of all relevant stakeholders under a key leadership • They will allow for rationalization and coordination of existing programmes, with a better and more efficient allocation of resource. • Implemented in a lot of countries • OECD/INFE High Level Principles on national Strategies for Financial Education endorsed by G20 Leaders in 2012

8. Definition of national strategy • A national strategy for financial education (NS) is defined as “a nationally coordinated approach to financial education that consists of an adapted framework or programme, which: • Recognises the importance of financial education and defines its meaning and scope at the national level in relation to identified national needs and gaps; • Involves the cooperation of different stakeholders as well as the identification of a national leader or coordinating body/council; • Establishes a roadmap to achieve specific and predetermined objectives within a set period of time ; and, • Provides guidance to be applied by individual programmes in order to efficiently and appropriately contribute to the NS .”

9. Main axis • General framework and scope • Widerapproach • Adapted to national circumstances • Preparation • Mappingexisting initiatives whichallows for identifyingpartners, practices and gaps • Assessment of the needs of the populations (seesurvey) • Consultation • Awareness and communication

10. Main axis III. Governance • Leadership • Coordination mechanisms • Main stakeholders’ rolesdepending on their expertise: public authorities, privatesector, otherstakeholders • survey

11. Main axis • Roadmap • Define vision and measurable objectives • Set main policypriorities and target audiences • Ensureoverall impact assessment • Earmarkresources • Implementation guidance • Efficient deliverymethods (website but alsoothers, behaviour, teachable moment) • Systematicevaluation of programmes

12. Selected challenges identified in the INFE survey • Agreeing on common objectives • Buy-in and commitment of key stakeholders: • Getting all parties involved • Coordination and its sustainability • Lack of commitment from stakeholders • Excess of ownership from certain stakeholders • Long-term nature and lack of immediate visibility • Lack of resources/resource sustainability • Importance of differentiating between government general communication and financial education • Very good examples in G20 RussianPresidency/OECD publication on national strategies in G20 countries

13. Financial education is necessary but not sufficient

14. Financial education is part of a trilogy approach Other measures are needed : • To overcome consumers’ myopia, passive behaviours and biases • To deal with fraud and miss-selling • To protect consumers against bankruptcies • To promote access • And to protect consumers’ rights  This calls for a trilogy approach

15. Financial consumer protection OECD work G20 high level principles on financial consumer protection endorsed at Cannes Summit Developed by OECD Task Force on financial consumer protection , in cooperation with G20 members, FSB and other international bodies ; and with public consultation . They cover: Legal, Regulatory and supervisory Framework Role of Oversight Bodies Equitable and Fair Treatment of Consumers Disclosure and Transparency Financial Education and Awareness Responsible Business Conduct of Financial Services Providers and Intermediaries Protection of Consumer Assets against fraud and misuse Protection of Consumer Data and Privacy Complaints Handing and Redress Competition • OECD active on FCP issues for over 30 years: first recommendation in 1977 • Top priority for OECD financial committees (Committee on Financial Markets (CMF) and Insurance and Private Pensions Committee) • Relevant work for other Committees :Consumer Policy Committee (Consumer Policy Toolkit 2010) and Competition CommitteeWork developed by the G20/OECD Task Force on financial consumer protection

16. Legal, Regulatory and Supervisory Framework While self responsible business conduct should be encouraged , there needs to be a strong regulatory and supervisory framework in place to protect consumers. • Financial consumer protection should be an integral part of the legal, regulatory and supervisory framework, and should reflect the diversity of national circumstances and global market and regulatory developments within the financial sector. • Strong and effective legal and judicial or supervisory mechanisms should exist to protect consumers from and sanction against financial frauds, abuses and errors. • Financial services providers and authorised agents should be appropriately regulated and/or supervised, with account taken of relevant service and sector specific approaches. • There should be oversight bodies (dedicated or not) explicitly responsible for financial consumer protection, with the necessary authority to fulfil their mandates

17. Improve information efficiency • Information is the first minimum step but not « any » information. • Too much information kills information. Less is more. Who is protected? • G20/OECD Principles on financial consumer protection • Principle 4

18. Principle 4 of the G20/0ECD High Level Principles on financial consumer protection • Financial services providers and authorised agents should provide consumers with key information that informs the consumer of the fundamental benefits, risks and terms of the product • Financial services providers and authorised agents should provide clear, concise, accurate, reliable, comparable, easily accessible, and timely written and oral information on the financial products and services being offered, particularly on key features of the products and (where relevant) on possible alternative services or products, including simpler ones, they provide. In principle, information should include prices, costs, penalties, surrender charges, risks and termination modalities. • .

19. Improving disclosure efficiency • For instance use of plain language should be first tested with a control group (OECD Recommendation ). • Providers should provide information on conflicts of interest associated with the authorised agent through which the product is sold. • Appropriate information should be provided at all stages of the relationship with the customer. • All financial promotional material should be accurate, honest, understandable and not misleading. • Standardised pre-contractual disclosure practices (e.g. forms) should be adopted where applicable and possible to allow comparisons between products and services of the same nature.

20. Improving disclosure efficiency • Specific disclosure mechanisms, including possible warnings, should be developed to provide information commensurate with complex and risky products and services. • Where possible consumer research should be conducted to help determine and improve the effectiveness of disclosure requirements. • The provision of advice should be as objective as possible and should in general be based on the consumer’s profile considering the complexity of the product, the risks associated with it as well as the customer’s financial objectives, knowledge, capabilities and experience. • TWO SIDE: Consumers should be made aware of the importance of providing financial services providers with relevant, accurate and available information. • Staff (especially those who interact directly with customers) should be properly trained and qualified (G20 principles)

21. And this seems much needed (CGAP/CONDUSEF survey in Mexico) Shopper: What does this term, TAC [Total Annual Cost], mean? Responses from financial institution staff: • It is the Tax Administration Cost • Here we don’t use the TAC • If the interest rate changes, the TAC helps you so the interest rate does not rise • It is prohibited to give this type of information • It is the total annual costs, but it’s already included in the interest rate • That means this interest is the lowest in the market

22. Promote responsible business conduct • Role of providers in disclosing relevant information and promoting financial education is key. • Role in making the bridge between supply and demand, between information and understanding and checking the soundness of this bridge

23. G20/OECD High Level Principle 6 • Financial services providers and authorised agents should have as an objective, to work in the best interest of their customers and be responsible for upholding financial consumer protection. Financial services providers should also be responsible and accountable for the actions of their authorised agents. • Depending on the nature of the transaction and based on information primarily provided by customers financial services providers should assess the related financial capabilities, situation and needs of their customers before agreeing to provide them with a product, advice or service.. Where the potential for conflicts of interest arise, financial services providers and authorised agents should endeavour to avoid such conflicts. When such conflicts cannot be avoided, financial services providers and authorised agents should ensure proper disclosure, have in place internal mechanisms to manage such conflicts, or decline to provide the product, advice or service. • The remuneration structure for staff of both financial services providers and authorised agents should be designed to encourage responsible business conduct, fair treatment of consumers and to avoid conflicts of interest. The remuneration structure should be disclosed to customers where appropriate, such as when potential conflicts of interest cannot be managed or avoided.

24. interrelationship • Information is thus a very good example of interrelationship between financial education and financial consumer protection • Need information with strict disclosure rules (protection) but which has to be understood (education) • Need responsible business conduct bridge between information and literacy

25. Complaints Handling and RedressPrinciple 9 • Jurisdictions should ensure that consumers have access to adequate complaints handling and redress mechanisms that are accessible, affordable, independent, fair, accountable, timely and efficient. • Such mechanisms should not impose unreasonable cost, delays or burdens on consumers. In accordance with the above, financial services providers and authorised agents should have in place mechanisms for complaint handling and redress. • Recourse to an independent redress process should be available to address complaints that are not efficiently resolved via the financial services providers and authorised agents internal dispute resolution mechanisms. At a minimum, aggregate information with respect to complaints and their resolutions should be made public. • Powerful tool for regulators/supervisors to assess problems • Importance to communicate on rights to complaint (China)

26. Access is essential • What is the relevance to be educated and protected if you do not have access? • No relevance to have information, disclosure, education if no or limited or inadequate access • Need access to take decision • Special needs for vulnerable groups

27. But again • The three approaches access, education and protection are all necessary but not sufficient when taken alone. • Access is not sufficient if you are not able to take adequate decision and being literate does not protect you against frauds • We need the « trilogy » • Which itself is part of a « multilogy » together with prudential regulation, governance, competition

28. THANK YOU more information at: www.oecd.org/daf/financialeducation and www.financial-education.org