VUZF University Open Seminar on Financial Consumer Protection The Role of Regulators

1. VUZF UniversityOpen Seminar on Financial Consumer ProtectionThe Role of Regulators Juan Carlos Izaguirre Financial Sector Specialist International ConsultantThe World Bank Bulgaria, December 2012

2. Key Elements of Financial Consumer Protection Supply Disclosure / Business practices / Complaints handling Demand • Consumerprotection in financialservices can beimplementedthrough : • Laws and regulations (government) • Codes of conduct (industryassociations) • Financialeducationforcurrent and potentialconsumers • Consumer protection &financial capability

3. Why is FCP Important? For Sound and Stable Financial Markets • FSB Report to G20 (November 2011) highlighted impact of weak FCP in contributing to global financial crisis • Consumer protection is part of Core Principles/Preconditions of standard setting bodies (BIS, IAIS, IOSCO, IADI, CPSS) • G20/OECD: High Level Principles of Financial Consumer Protection • CPFL is statutory objective for some supervisory authorities (e.g. Canada, Colombia, Ireland, Malaysia, Singapore, South Africa, UK, US) • Irresponsible / abusive practices may financially harm consumers, generating loss of trust in formal financial sector and stability risk:  transfer of excessive risks to households  misleading advertising  mishandling of consumer complaints  unethical debt collection procedures  reckless lending [overindebtedness]

4. Why is CPFL Important? For Inclusive Financial Markets • Promised and actual equitable growth undermined by weak financial consumer protection • Strong FCP: • Improves quality of information disclosed to potential consumers • Helps consumers understand risks/rewards, rights/obligations of engaging in financial sector • Promotes fair pricing and competition, with potential impact on cost of financial products • Strengthens transparency, governance and business standards of financial institutions, especially when dealing with new consumers • Increases consumers’ trust in formal financial sector

5. Financial Consumer Protection Framework Business Practices Consumer Disclosure Banking Ins Insurance Securities Consumer Redress Financial Capability Institutional Arrangements Private Pensions Non-Bank Credit, incl. MFI Credit Reporting

6. Role of Regulators in FCP Institutional Arrangements • At least one institution with a clear FCP mandate / responsibility • Prudential supervision and consumer protection supervision can be placed in separate agencies or in a single institution • but allocation of resources should enable effective implementation of consumer protection rules • Financial regulator is a key player in FCP (unique expertise to lead development and implementation of FCP strategy/plan) • Adequate coordination among regulators is needed to avoid overlaps and inconsistencies, and to provide and gather feedback • All legal entities that provide financial services to consumers should be licensed and supervised regarding their market conduct

7. Role of Regulators in FCP Business Practices Regulation • Periodic and ad-hoc on-site supervision • Off-site supervision • Mystery shopping Supervision Sanctions • Proportional but effective • Suitability / affordability requirements • Cooling-off period for retail financial products • Unfair, abusive, misleading practices prohibited • Minimum qualification requirements • Consumer rights in credit reporting legally protected • Privacy and data protection standards • Guidelines on debt collection

8. Role of Regulators in FCP Consumer Disclosure Regulation and Awareness *Consumer research * Dialogue with industry • Periodic and ad-hoc on-site supervision • Off-site monitoring • Mystery shopping Supervision Sanctions • Proportional but effective • Requirement to give copy of contract • Advertising standards / prohibitions • Key facts statements • Standard contract clauses • Statements of accounts • Notification of changes • Renewal notices

9. Role of Regulators in FCP Consumer Redress Regulation and Awareness • Periodic and ad-hoc on-site supervision • Off-site supervision Supervision Sanctions • Proportional but effective • Standards on complaints handling procedures • Contact points for consumer inquiries & complaints • Collection and analysis of statistics on consumer inquiries & complaints • Promoting dialogue on setup of adequate ADR system • Training of judges or ADR systems

10. Role of Regulators in FCP Financial Capability • Key stakeholder (or leader) in the development of a national financial education strategy • Key stakeholder in the implementation of a nationally representative household survey on financial capability, ensuring accuracy and adequacy • Publication of objective information on financial products, services and sectors • Development of materials targeted on risks/rewards and rights/obligations

11. Many Stakeholders …but Financial Supervisors Play the Key Role • GOVERNMENT • Ministries (e.g. Finance, Economy, Education) • Public agencies (e.g. consumer protection, data protection, competition) • Councils (e.g. consumer protection, education) • FINANCIAL SUPERVISORS • Financial supervisory agencies • Central bank • Financial consumer protection agency • Compensation schemes • FINANCIAL INDUSTRY • Industry associations • Training centers • Financial institutions (incl. distributors) • Financial infrastructure (e.g. credit bureaus) • CIVIL SOCIETY • Consumer associations • Debt counseling • Foundations • Academia • Media • REDRESS • MECHANISMS • Ombudsman • Arbitration • Mediation, conciliation • Courts • INTERNATIONAL COMMUNITY • Donors • Regional organizations • Standard setters • International associations www.worldbank.org/consumerprotection

12. Thanks! www.worldbank.org/consumerprotection