Financial Consumer Protection Guidelines, Sound Practices, and 2017 FICP Survey Results

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Central Bank of Iraq Statistics and Research Department

1 The World Bank recently published the Financial Consumer Protection Guidelines, Sound Practices, and the results of the 2017 FICP (Financial Inclusion and Consumer Protection) Survey. Below is a summary of the guidelines and the results of the aforementioned financial inclusion survey: Summary of the 2017 Financial Consumer Protection Sound Practices Guidelines

• This topic has become an increasing priority for policymakers worldwide, including member countries of the World Bank Group. Protecting consumers and empowering them to make good, informed decisions regarding the use of financial products and services is inherently important for sound development of the financial sector, financial inclusion, and broadly economic growth. Over the past decade, a robust consumer protection system has become a key priority to ensure that broad access to financial services benefits consumers, enables optimal use of financial services, builds trust in the formal financial sector, and contributes to building sound and competitive financial markets.

• The need for financial stability, integration, inclusion, and consumer protection are complementary goals that have become a shared subject in recent years. Since then, policymakers worldwide have highlighted progress in financial consumer protection. Both developed and developing countries are formulating and strengthening regulatory frameworks for consumer protection and establishing specialized supervisory authorities.

• Many international bodies have issued guidelines on consumer protection that include core principles, supplemented by more detailed guides. These guides review how policymakers and international organizations address new consumer risks arising from digital channels for delivering financial services and products, and how to develop new methodologies and tools, such as integrating behavioral insights into the design of effective disclosure systems and establishing product suitability rules. The first edition of the Financial Consumer Protection Guidelines (Sound Practices) was developed by the World Bank in 2012 as a contribution to the financial consumer protection toolkit. The guidelines primarily serve as a diagnostic tool covering key topics arising in consumer protection. In the 2017 edition, based on previous diagnostics and surveys conducted for policymakers, the following enhancements were identified as top priorities: unifying and integrating new methodologies and research to issue the new consumer protection guidelines; making sound practices effective and practically applicable for policymakers; addressing emerging issues related to digital channels, innovative products, business models, and new types of financial service providers.

• The guidelines cover deposit and credit services/products, encompassing a wide range of institutions providing deposits and credits (including non-financial institutions such as mobile network operators, large local appliance retailers like refrigerators and washing machines in white goods, where sound consumer protection practices apply to all providers of these services regardless of institutional form). The guidelines also contain chapters on insurance, securities, private pensions, and retail payment services. Focus in those chapters is on sound practices related to each chapter covering relevant topics arising during consumer-provider relationships. Each chapter is grouped into the following broad thematic areas: legal and regulatory framework, disclosure, transparency, fair treatment, business conduct, fraud, misuse of consumer assets, and dispute resolution mechanisms. New sound practices regarding institutional arrangements, delegations, supervisory activities, and enforcement have been added, while existing sound practices related to disclosure, transparency, fair treatment, and business conduct have been expanded. The objective behind expanding these sound practices is to cover new risks alongside rapid developments in strategies for effective customer protection. For example, the sound practices cover how to adapt supervisory tools and mechanisms to consumer protection issues, which laws should be applied to prevent mis-selling, or ensure that appropriate compensation policies do not encourage behavior that may harm consumers.

• Issues related to digital financial services are interwoven within the sound practices. The concept of digital finance is broad, encompassing digital delivery channels, digital businesses, and digital models/products. Digital finance raises concerns and entails new risks for consumers due to characteristics such as extremely fast transactions, remote service nature, automated decision-making, the role of intermediaries, and participation by non-financial institutions.

• Finally, the context in which countries implement sound practices plays a key role in determining how appropriate policies are designed and translated into methodologies on the ground. Legal traditions will specifically play a role in designing appropriate policies; thus, the guidelines also include country experiences and, in some cases, references to legal links for illustrative purposes. For full details of the guidelines, please refer to the link: ficpsurvy@worldbank.org

Results of the Financial Inclusion Survey

• The 2017 FICP (Financial Inclusion and Consumer Protection) Survey provides a global data source at the country level, indicating progress in an environment conducive to financial inclusion and consumer protection. The 2017 FICP Global Report and dataset reflect the response of financial sector authorities in 141 jurisdictions, representing more than 90% of the world's adult population not served by the banking system.

• The report and dataset show the spread of key political, legal, regulatory, and supervisory approaches to enhance financial inclusion and consumer protection.

• The report includes the following conclusions:  73 responding jurisdictions (59%) reported having a regulatory framework for non-bank electronic money issuers, including 70% of jurisdictions in Sub-Saharan Africa and East Asia & Pacific.  34 responding jurisdictions (27%) reported having a national financial inclusion strategy in place, and 29 jurisdictions (23%) reported that such a strategy is under development.  105 responding jurisdictions (85%) reported allowing some financial service providers to contract with retail agents as third parties for distribution channels.

3  60 responding jurisdictions (50%) reported implementing simplified procedures or exemptions for customer due diligence requirements for certain types of customers or account products (for commercial banks).  86 responding jurisdictions (75%) reported having a dedicated unit specifically for financial consumer protection.  81 responding jurisdictions (65%) reported the required use of key facts statements (or equivalents) for at least one product related to commercial banks.  80 responding jurisdictions (65%) reported having an alternative dispute resolution entity (e.g., financial ombudsman) in place for financial consumers unable to resolve disputes with their providers.

• The World Bank Group has recently launched a supplementary publication: the 2017 edition of Sound Practices for Financial Consumer Protection. The 2017 Good Practices Report combines international guidance, country examples, and policy considerations, and is designed for use as a practical tool for policymakers.

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