TANZANIA INSTITUTE OF BANKERS

1. TANZANIA INSTITUTE OF BANKERS PRESENTATION TO THE EAST AFRICAN BANKING SCHOOL, ARUSHA, TANZANIA TOPIC: FINANCIAL CONSUMER PROTECTION: PERSPECTIVES FROM TANZANIA BY: YUSTO E. TONGOLA Director Supervision,TRA AUGUST, 2019 Presentation to the TIOB East African Banking School

2. OUTLINE • Introduction • The Context • Policy and legislative Developments • Review of Existing Mechanisms for Financial Consumer Protection (FCP) • Initiatives to Scale up FCP • Future Considerations • Concluding Remarks Presentation to the TIOB East African Banking School

3. 1. Introduction • Growing importance of financial consumer protection (FCP) in most jurisdictions, Tanzania inclusive, why? Consumer confidence is key to financial system stability • Also, consumers one of largest economic groups providing life line to the system; Unfortunately not very well organized • After 2008 GFC, growing emphasis to financial consumer protection in policy and academia Presentation to the TIOB East African Banking School

4. Introduction (cont.) • In US, aftermath of GFC led to passage of Dodd Frank Act and formation of statutory Agency, CFPB • In advanced countries, policy developments leading to adoption of OECD High-Level Principles on FCP (Nov 2011) • UNCTAD, World Bank issued various guidelines e.g. UN Guidelines for consumer protection 2015 ; WB Good Practices for FCP (June 2012) Presentation to the TIOB East African Banking School

5. Introduction (cont) • In Tanzania, earlier focus of reforms on prudential regulation (supply side); financial inclusion agenda given impetus to FCP (demand side) • Increasing competition and innovation also contributing factor to FCP gathering pace • Thus an attempt to reflect on key elements of existing FCP mechanisms and highlights future issues for consideration Presentation to the TIOB East African Banking School

6. 2. The Context • In Tanzania, FCP importance highlighted gaps in policy and legislative framework for financial system stability • Prudential regulation one component for stability; macro-prudential also important; hence need to address concerns of consumers i.e. efficiency, transparency, fairness of terms, access to services, access to redress mechanism and competitive behaviours Presentation to the TIOB East African Banking School

7. The Context (cont.) • FCP Policy/regulatory measures taken thus far are multi-dimensional but incomplete • FCP rules important additional dimension to prudential regulation given continued ponzi schemes, complexity of financial services, misleading/abusive practices, deceitful manipulation, high charges, data breaches, inadequate redress mechanisms, inclusion drive, low public knowledge + MAC initiatives Presentation to the TIOB East African Banking School

8. 3. Policy and Legislative Devnts • Highly segmented policy and legislative set up • Scope - Banking, insurance, microfinance, capital markets, payment systems, SACCOS, MNOs and fair competition legislation • Major areas of concerns – high charges, mis-selling, tied selling, poor disclosure, data breaches, poor understanding of features of products, deceptive conduct in promotion of products, price collusion, debt recovery Presentation to the TIOB East African Banking School

9. Policy and Legislative Devnts (cont) • Legislative Segmentation Presentation to the TIOB East African Banking School

10. Policy and Legislative devnts (cont) mechanisms, • Three main policy dimensions for FCP, namely, (i) Financial education (ii) market conduct regulation and enforcement (iii) consumer redress mechanism • These address key consumer risks and underlying causes • Framework provides for each sub-sector Presentation to the TIOB East African Banking School

11. 4. Review of existing mechanisms for FCP • Fair Competition Act provides general legal framework for competition in trade and commerce, covering supply side aspects of market e.g. mergers, monopolies, misleading or deceptive representations, product safety, unconscionable conduct • Established FCC and FCT for consumer redress; and Consumer Advocacy Council • FCC powers to make compensatory orders Presentation to the TIOB East African Banking School

12. Existing mechanisms (cont.) • Banking and Financial Institutions Act 1991 focus on soundness of fin. System and prudential regulation and barely covers three key elements of FCP • BAFIA 2006 focus on maintaining stability (in addit. to soundness) FCP not part of objectives BUT explicit provs on fair lending + collection (s.49), disclosure of financial statements, fees and charges in BAFIA Disclosures Regs 2014 Presentation to the TIOB East African Banking School

13. Existing mechanisms (cont) Presentation to the TIOB East African Banking School

14. Existing mechanisms (cont.) • Enforcement of regulations on disclosures of fin. Statements, fees and charges in Kiswahili a regular feature • Development of Guidelines for Banking sector consumer redress mechanisms (2015) under broad provs; upgraded to regulations • Resolution of well above 200,000 complaints by banks enabled; small proportion of complaints referred to BoT Presentation to the TIOB East African Banking School

15. Existing mechanisms (cont) • Also self regulatory framework for banks i.e. Bankers’ Code of Banking Practice 2014 additional standards of disclosure and conduct • Code sets out standards of fairness in delaing with clients and requires members to put in place procedures for complaints system • BOT powers to impose administratve penalties under BAFIA applicable to market conduct regulation Presentation to the TIOB East African Banking School

16. Existing Mechanisms(cont) • Under NPS law, key aspects relate to finality of payment; transparency and completeness in information disclosure; abusive and deceptive practices; excessive charges; dispute resolution and redressal; data security, interoperability, accessibility, trust accounts and empowerment • NPS Act, E-Money Regulations 2015 in place to address some of those aspects Presentation to the TIOB East African Banking School

17. Existing mechanisms (cont.) • Insurance legislation 1996 virtually no reference to FCP, focused on introducing competitive insurance services • The 2009 legislation introduced Ombudsman services for complaints and disputes (s.122); COI’s powers to cancel registration where malpractices found • Some aspects of market conduct/malpractices not accepted for brokers (Code of Conduct) Presentation to the TIOB East African Banking School

18. Existing mechanisms (cont.) • For instance s. 74 (misappropriation of premium, delay in banking premium collected presenting dishonoured cheque- but not directly related to consumers; s. 29 focus on broad aspects (sound insurance principles), no direct link with FCP key components • Public education programmes implemented; under National Insurance Education strategy adopted 2016-20; one of main activity Presentation to the TIOB East African Banking School

19. Existing mechanisms (cont) • Under Capital markets laws, broad rules for IPOs, trading, settlement, compensation • DSE Rules for business conduct providing for certain standards and processes on trading, listing, fees, market abuses, continuous disclosures, compensation, trust accounts and dispute resolution btwn members • Technology in trading, settlement, commodity exchange new issues (security, data breach) Presentation to the TIOB East African Banking School

20. Existing Mechanisms (cont.) • Mechanisms for FCP in microfinance and SACCOS in progress. Microfinance 2018 Act passed and regulations being prepared • Regulations to address detailed framework for FCP as well (disclosure, fairness, abusive and fraudulent practices in lending and recovery etc.) Presentation to the TIOB East African Banking School

21. 5. Initiatives to Scale up FCP • World Bank diagnostic review (2013) provided impetus to advance FCP • Financial inclusion agenda taken FCP to another level against backdrop of World Bank Diagnostic review • Diagnostic review: FCP framework basic, segmented, multiple regulators, ltd enforcement and requires strengthening Presentation to the TIOB East African Banking School

22. Scaling up FCP (cont) • National Financial Inclusion Framework 2018-22; financial education strategy adopted; Initiatives on platforms for financial education in progress underway • National Financial Inclusion Council established; coordinating devnt of proposals for legislative and instit. arrangements; and implementation of financial education initiatives and focal point Presentation to the TIOB East African Banking School

23. Scaling up FCP (cont) • National Task Force (experts) established under National Financial Inclusion Council to work on proposals for FCP coordination • Task Force prepared proposals for next steps on FCP initiatives on policy and institutional framework for FCP coordination • Currently, each regulator manages FCP aspects in its segmented market Presentation to the TIOB East African Banking School

24. Scaling Up FCP (cont) • Individual regulatory institutions initiatives also underway • Significant technical work done and proposals on financial education and consumer redress mechanisms (complaint/dispute resolution regulations/guidelines in banking, insurance) • Clarity of legislative changes required to address market conduct and enforcement • EAC MAC initiatives on harmonisation of laws Presentation to the TIOB East African Banking School

25. 6. Future Considerations • Where is financial services headed? Banking to continue to be major component of eco-system; cross-border banking; partnership with telcos in delivery inevitable feature • What key considerations/elements for FCP (i) determine scope of coverage (market conduct regulation and enforcement) (ii) institutional issues to be resolved i.e. specific structures to implement rules Presentation to the TIOB East African Banking School

26. Future Considerations (cont.) (iii) Clarity of scope of legislative changes in financial laws required, objectives to include FCP (iv) Certain degree for self-regulation (code of conduct, industry associations etc) and related enforcement modalities (v) Capacity building for effective execution of market conduct reg, enforcement and redress (vi) Cooperation and collaboration with public and other stakeholders in financial education Presentation to the TIOB East African Banking School

27. Future considerations (cont.) (vii) Awareness programmes for other key stakeholders e.g. Courts of law, associations (viii) Consider possibility and synergies of financial services sector Ombudsman (ix) Consider role of financial services industry in financial education and public awareness (x) Consider consumer remedial measures (xi) Credit reporting operations part of scheme Presentation to the TIOB East African Banking School

28. 7. Concluding Remarks • Mainstreaming FCP in financial services important for stability of financial services • FCP is key to correcting market failures in financial system functioning • Coordinated dialogue important to get most stakeholders on board to get FCP to next level; • Financial services eco-system needs enhanced and coordinated market regulation and remedial measures for financial consumers Presentation to the TIOB East African Banking School

29. Concluding Remarks (cont.) • Adequacy of legislative framework; improved consumer redress mechanisms; and institutional arrangements for enforcement of market conduct key to scaling up FCP; financial education programmes for empowerment to enable choice; and thus maintain public confidence in fin. System Presentation to the TIOB East African Banking School

30. Final THANKS FOR LISTENING Presentation to the TIOB East African Banking School