Basic Central Banking Course May 2006

1. Promoting Fair Market Practices and Ensuring Equitable Treatment for Consumers –[The Malaysian Perspective] Basic Central Banking Course May 2006

2. Background – Malaysia (Selected Info) • Banking system is the largest component in financial system: • Accounting for 51% of assets of financial system • Mobilising 78% of total deposits of financial system Commercial Banks: [23] Merchant Banks: [10] Insurance companies: [42] Others: Foreign rep. offices, discount houses, money brokers, DFIs, other non-bank financial institutions. Population: 25.6 million 98% of Malaysians have savings account Insurance penetration rate at 37.9%

3. 3 Pillars of the Central Bank 3 pillars of central banking Monetary Stability Financial Stability Efficient Payment System Social & Developmental Role • BNM is responsible for • Implementing monetary policy • Ensuring soundness and stability of the banking system • Ensuring efficient and stable functioning of the payment system • Lender of last resort • Managing the international reserves ** no explicit mandate on consumer protection

4. Financial Stability & Consumer Protection Financial Stability (safe, sound and stable financial system) efficient, effective and robust financial institutions, strong prudential regulations and supervision, and efficient and reliable infrastructure (more market driven environment) Active consumerism & Consumer Protection

5. Regulator’s Dilemma Regulator’s Dilemma High dependency on the banking system Balancing consumer expectations & prudential requirements Migration to e-payment vs. state of consumer readiness Meeting Shariah requirements for Islamic financial products and services Manage liberalisation and deregulation process while ensuring orderly market conditions Untapped potential in the insurance sector Pressure from a wide variety of stakeholders Explicit vs. implicit mandate, should there be separation of powers?

6. Roadmap for the Financial Sector Phase 1 Phase 2 Phase 3 Building domestic capacity Increase domestic competition Increase the pace for integration with the international market (deregulated and liberalised market) Effective consumer protection & fair market practices Preconditions to greater deregulation and liberalisation

7. Challenges Facing Consumers 7 Information asymmetries and information overload Fair and competitive financial sector Redress mechanism Low financial literacy/ financial skills Level of transparency Restructuring of fees and charges At the same time consumer has the responsibility for their own financial well-being: • to understand T&C of products and services purchased • know their rights and responsibilities • exercise their rights when necessary

8. Approach to Enhance Consumer Protection & Fair Market Practices • Allows for best deal • enhances efficiency • promotes innovation Open, competitive & fair financial system • Consumer education Approach • Avenue to seek help • Information on products and services must be accurate, easy to understand and accessible Good Information Speedy Redress • Avenue to seek redress

9. Consumer Protection Framework Access to Financial Products and Services (access to basic banking services, access to financing) Enhancing Financial Literacy (consumer education programme, school adoption programme) Depositors Protection (Malaysia Deposit Insurance Corporation) Avenue to seek help & redress (Complaint Unit @ FIs & BNM, FMB, CCDM) Proper Disclosure (transparency & disclosure requirement for banking & insurance products) Fair Market Practices (anti trust, debt collection, repossession inequitable contract, role of intermediaries, market abuse)

10. Enhancing Financial Literacy: Consumer Education Programme • A more dynamic financial system requires financially savvy consumers who • Are able to make informed decision (choosing products and services that suit their financial needs) • Knows their rights and responsibilities http://www.bankinginfo.com.my/ http://www.insuranceinfo.com.my/ • one-stop information centre about “money and banking” as well as on “insurance and takaful” • The objective is to make Malaysians more aware of their rights and responsibilities with regard to banking/insurance products and services. • Booklets are also available at FIs’ branches

11. Snapshots of BankingInfo & InsuranceInfo Websites bankinginfo insuranceinfo

12. Enhancing Financial Literacy: Financial Planning & Savings Outreach Programme Increasingly complex financial products & services Requires solid grasp of money matters Develop fin capability from early age • BNM does: • Road shows • Educate & inculcate smart fin mgmt habits among target groups • School Adoption programme - since 1997 (partnership with the Education Ministry) • 7000+ schools adopted by BIs

13. Snapshot of duitsaku (pocket money) website

14. Access to Financial Products and Services • Objective: • To ensure that banking customers can enjoy a minimum level of banking services at reasonable costs • Initiatives: • All banking institutions (BIs) required to offer a basic savings account (BSA) and a basic current account (BCA) to all Malaysians that will provide a minimum level of services (e.g. deposit, withdrawals, fund transfer, etc) and transactions at minimal costs. • Measures introduced to ensure charges imposed on products offered to individuals and SMEs are appropriate and reasonable. • Floor rates on time deposits • Ensuring public access to branch network nationwide.

15. Product Transparency and Disclosure (PTD) • Insurance • Introduced PTD policies on: • claims settlement practices • the sale of general insurance products • Proper Advice Practices for Life Insurance business with primary purpose of ensuring intermediary obtains sufficient info about a prospective policy owner before rendering advice. • Medical and Health insurance business • 15 days cooling off period for Life products • Objectives: • To give consumers the information they need about a product and its charges so that they can make informed decisions; and • To ensure that the information is presented in a clear and timely manner. • Banking • Disclosure requirements on fees & charges, as well as on changes to T&C have been introduced. • Disclosure requirement on credit card • Concept paper on PTD covering: • Form, timing & items of disclosure as well as disclosure requirement in advertisement

16. Product Transparency and Disclosure (PTD) Comparative Tables • Scope: • 6 retail products have been identified for this purpose. There are: • Savings account • Current account • Fixed deposit account • Credit card facility • Hire-purchase facility • Housing loan facility • Objectives: • To provide end-users with up-to-date information on specific banking products and services that will allow them to do “comparison shopping” by reducing cost of information search.

17. Product Transparency and Disclosure (PTD) Loan Products* Interactive with filtering capability! Deposit Rates * to be published in Dec 2005

18. Redress Mechanisms Complaint Unit @ FIs & BNM Avenue to seek redress and help Small Debt Resolution Scheme SME Special Units at BIs & BNM – assist viable SMEs on financing issues

19. Deposit Insurance • Mandate; to provide: • insurance against loss of part or all deposits • Incentives for sound risk management • promote & contribute to the stability of the financial system Members: Commercial banks, finance companies, Islamic banks An independent statutory body called Perbadanan Insurans Deposit Malaysia (PIDM) was established on 15 August 2005 Eligible deposits will be covered up to the prescribed limit of RM60,000 per depositor, per member institution. Covers 90% depositors, 30% deposits

20. Benchmarking… a tool to improve performance • What has been done… • Financial and operating statistics • To drive banking institutions to understand their relative performance • Position compared to industry • Trends observed • Service quality indicators (turnaround & waiting time, handling of complaints, ATM services) • Performance gap with industry and foreign banks • Customer needs and satisfaction surveys • To understand the level of customers satisfaction with products and services offered, and service quality provided by financial institutions e.g efficiency, products, communication • To identify the critical success factors affecting quality of service • Requirement for BIs to be rated – at bank or holding level

21. Future Landscape Financial Institutions Consumers Active consumerism, more financially savvy consumers, Well being, fair treatment and satisfaction of consumers embedded within business strategies BNM Lessening of environment shaper and driver role (less regulatory intervention) as we move towards a more deregulated and liberalised environment. • Once, enabling environment is in place (effective consumer protection infrastructure and fair market practices) • Greater reliance on market discipline & self regulation

22. The End 22 Q & A