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Setting the scene

VUZF University Open Seminar on Financial Consumer Protection Lessons Learned from Designing and Implementing FCP Reforms Tomáš Prouza , the World Bank December 18, 2012. Setting the scene. www.worldbank.org/consumerprotection. Key issues to remember in Central and Eastern Europe:

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Setting the scene

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  1. VUZF UniversityOpen Seminar on Financial Consumer Protection Lessons Learned from Designing and Implementing FCP ReformsTomáš Prouza, the World Bank December 18, 2012

  2. Setting the scene www.worldbank.org/consumerprotection • Key issues to remember in Central and Eastern Europe: • all modern financial products available • limited customer experience and no history of using complex financial products • especially in Central Europe life insurance, partly investment & mortgage intermediation dominated by multi-level agents with commission-driven sales model • often fragmented market supervision with limited coordination • self-regulation works only sporadically • growing number of complaints (high prices & misselling)

  3. Political options www.worldbank.org/consumerprotection • Possible policy reactions to growing public demands for a solution: • price regulation – easy to proclaimand politically popular • focus on real solutions even if they take time • transparency (know what you pay) • comparability (choose the best easily) • migration (lower switching barriers) • understanding & education (know what you do and why, understand your rights) • redress (easy-to-use and quick recourse mechanism)

  4. Key objections www.worldbank.org/consumerprotection • Trying to introduce a consumer protection policy meets with objections from some stakeholders: • there's no need to change as everything is fine (counter with surveys, price comparisons, foreign experience) • let the market work, things will solve themselves(does not work without counterbalance of strong and active consumers) • only prudential supervision and market stability matter • financial education is sufficient • we do not know your ideas will work, so let's not do anything

  5. Key lessons: understand your market www.worldbank.org/consumerprotection • All consumer protection legislation must be market-relevant, so invest into understanding the market: • quantitative national surveys to understand major trends (and monitor changes) • qualitative focus groups to understand the thinking of the people and to test the existing and proposed disclosure • analyze complaints to the industry and supervisors • involve NGOs and use modern technologies to collect market intelligence from the whole country • cooperate with the media and the police to get an early warning of new issues

  6. Key lessons: communicate your goals www.worldbank.org/consumerprotection • If badly communicated, consumer protection activities may create many enemies: • from the industry as you make their life harder and you will be touching their image (and profits) • from the public who may expect you will take financial decisions for them and provide 100% protection • from the media who will be disappointed things do not change overnight • from politicians as the financial industry is usually an effective lobbyist

  7. Key lessons: verify effectiveness www.worldbank.org/consumerprotection • Regulations may look nice on paper but: • ensure disclosure has not become a compliance function • implement rigorous accessibility testing • use mystery shopping to verify how the rules are implemented (potential involvement of NGOs) • define measurable goals (improved measures of public confidence, lower number of complaints, etc.) • when drafting regulations, define your expectations through regulatory impact assesments, regularly revisit your goals and verify them

  8. Key lessons: unified stand needed www.worldbank.org/consumerprotection • The government should be unified on the issues: • financial sector regulators and supervisors should agree on the actions needed and implement them jointly • empower the regulators to react quickly to new issues • loopholes in sector regulations and regulatory arbitrage are very dangerous for effective consumer protection (do not rely solely on EU directives with sectoral approach) • some of the consumer protection issues can be dealt with through other regulators: • competition authority (pricing collusion, tying and bundling) • data protection authority (sharing and tranfering of personal data to third parties)

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