Complaints Watch Issue No. 10

Complaints Watch is published by the Complaint Processing Centre (CPC) of the Hong Kong Monetary Authority (HKMA). It highlights the latest complaint trends, emerging topical issues, and areas that banks may wish to place greater focus on. It forms part of the HKMA’s work to promote proper standards of conduct and prudent business practices among banks. Complaint statistics Jan to Sep 2017 General banking services Conduct-related issues Total In progress as of 1 Jan 2017 312 243 555 Received during the period 1,116 188 1,304 Completed during the period (1,086) (269) (1,355) In progress as of 30 Sep 2017 342 162 504 The HKMA received 1,304 complaints between January and September 2017. The major types of complaints received were related to service quality (135), fees and charges (117), alleged mis-selling (116), client agreement terms (105), remittance services (100) and closure of accounts (100). Issue No. 1 [] April 2014 Complaints Watch Issue No. 10 24 November 2017

Annualised percentage rate of unsecured personal loans Unsecured personal loans including tax loans are an important source of business for retail banks. The HKMA has received some customer complaints against banks concerning the calculation and presentation of the interest charges on such loans. The provision of clear and easy-to-understand annualised percentage rates (APRs) by banks to prospective customers so as to facilitate their comparison of the actual borrowing costs of the similar products offered is crucial. For example, banks have been offering different incentives to attract prospective customers to apply for tax loans, such as cash rebates, cash coupons and interest holidays. These incentives look appealing but they may not be enjoyed by all prospective customers. Some banks do require customers to meet certain prerequisites before they are able to benefit from such incentives. Consumers are, of course, happy to see competition among banks and choose the product which best suits their needs. As a responsible lender, the Code of Banking Practice (CoBP) requires banks to be transparent in their charging structures and section 12.1 requires banks to where relevant quote APRs of banking products to facilitate comparison. When calculating and presenting APRs in marketing materials, banks should observe the relevant guidelines issued by the industry Associations which suggest that conditions for benefits should be displayed in a clear and prominent manner and in a font size that facilitates ease of reading. For benefits in kind (including cash coupons/gift vouchers), they should not be factored into the standard APR. On the

other hand, cash benefits such as interest rebate or interest rate reductions can be factored into the APR but the conditions applicable to eligible customers should be set out clearly and prominently. An APR without benefits should separately be provided to facilitate consumers’ comparison. A clear presentation of the APR not only facilitates potential customers to compare the charging structures of similar products between banks, but also helps to avoid confusion and thus potential complaints.

Collecting information in customer due diligence processes In response to strengthening international efforts on anti-money laundering and counter-terrorist financing (AML/CFT), banks are required to follow higher international AML/CFT standards and apply more stringent customer due diligence (CDD) measures in respect of both existing and new customers. Whilst there have been complaints against banks’ execution of CDD measures which has resulted in inconvenience to customers, customer experience appears to be improving. However, there remains room for banks to further enhance customer experience without compromising banks’ CDD processes. From some of the CDD-related complaints handled by the HKMA, it appears that some banks might not have sufficiently explained the purpose of CDD reviews to customers who therefore considered the extent of personal information requested by banks excessive and even invasive to their privacy. Based on the likely risk level of a customer, the nature and extent of information which a bank collects from the customer may vary according to the risk level. In some cases, banks would request customers to provide documentary records to establish their source of wealth and/or source of fund and, in some cases, education background, employment history, net worth, total assets and even a detailed breakdown of each class of assets. Such requests might be viewed by customers as being irrelevant and excessive. Whilst there is no one-size-fits-all methodology for the CDD process that can be applied to all customers, banks are reminded to observe the principles articulated in the HKMA’s circular “De-risking and Financial Inclusion” issued in September 2016 that measures taken should be proportionate to the risk level, with information and

documentation requirements relevant and pragmatic with respect to the customers’ background, circumstances and risk profile. Banks should also explain to customers the rationale for the information requested and endeavour to assist customers in taking steps or providing alternatives that can help satisfy the CDD processes. In addition to supervisory requirements, banks have to comply with the Personal Data (Privacy) Ordinance including but not limited to the Six Data Protection Principles. In particular, banks should only collect personal data that is necessary and the requested data should be adequate but not excessive for the intended purposes of the collection. In this way, the customer will be more willing to comply with the banks’ request for information and this will reduce the number of complaints that the banks may receive. Comments and feedback on Complaints Watch are welcome. Please email them to bankcomplaints@hkma.gov.hk.