Protecting New and Vulnerable Clients as Financial Inclusion Proceeds: Financial Inclusion 2020 Client Protection Working Group

7/29/2019 Protecting New and Vulnerable Clients as Financial Inclusion Proceeds: Financial Inclusion 2020 Client Protection W

1/18

Protecting New and Vulnerable Clients

as Financial Inclusion Proceeds

Financial Inclusion 2020 Client Protection Working Group

September 2013

CreditReporting

FinancialCapability

ClientProtection

Addressing Customer

Needs

Technology-EnabledBusinessModels


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2

www.financialinclusion2020.org

Roadmap to Financial InclusionClient ProtectionSeptember 2013

About the FI2020 Roadmap Working Groups

Whatwillittaketoachieveastateoffullfinancialinclusion?In2011,theCenterforFinancialInclusionaskedthis

questioninaglobalsurvey,andover300practitionersgavetheirperspectivesonthekeyopportunitiesand

obstaclestofinancialinclusion .

Basedontheresponses,theCenteridentifiedfivepriorityfocusareasthatarekeytoachievingfinancialinclusion,

whichhavebeenusedasthebasisforabroadconsultativeprocesstowardaRoadmaptoFullFinancialInclusion.

Overthecourseof2012and2013,thisprocessengageddozensofexpertsandindustryparticipantsindeveloping

anaction-orientedblueprintforreachingnewandunderservedmarkets.Thefivefocusareasare:

AddressingCustomerNeeds ,chairedbyConsultativeGrouptoAssistthePoor(CGAP),focusesondeepeningourunderstandingofclientneedsandtranslatingthatknowledgeintopracticewhile

expandingtherangeoffinancialservicesavailabletounderservedmarkets

Technology,chairedbyVisa,analyzesthepotentialofnewtechnology-intensivechannelstoreachnewcustomers,loweroperatingcosts,increasesecurity,anddiversifyfinancialproductsavailabletolow-incomeclients.

FinancialCapability,chairedbyCiti,focusesonempoweringclientstoknowtheirrightsasconsumers,andhavetheskills,attitudes,aspirations,andconfidencetoexercisethoserights.

ClientProtection,chairedbytheSmartCampaign,outlinesstepstodeepentheimplementationofclientprotectionmeasuresforthebenefitofconsumersandstabilityofmarkets.

CreditReporting,chairedbyInternationalFinanceCorporation(IFC),promotesextendingcreditreportingsystemsinordertoexpandaccessfornewclientswhilemanagingriskforfinancialinstitutions.

Eachofthefiveworkinggroupshascraftedaroadmapthatasks:Whatisthevisionforthistopic?Whatstandsin

thewayofachievingthevisionandwherearethegreatestopportunities?Whataretheenablingactionsand

correspondingactorswhocanadvancethevision?

The Main Idea

With an enormousinflux ofinexperienced andvulnerablecustomers at stake,attention toconsumerprotection is needednow more than ever

before. We canbuild on the strongconsensus aboutthe principles offinancial consumerprotection.

Theresponsibility toprotectconsumers isshared byfinancial serviceproviders,regulators andconsumers

themselves.

Providers shouldmake clientprotection a part ofthe core identity ofthe bankingprofession. Providersneed to be proactivein applying sharedstandards and

policing their ownindustry.

Consumers will notbe effectivelyprotected withouteffective regulation.Yet, in manycountries, clientprotectionregulation isnascent or weak.

There is an urgentneed for majorinvestments ineffective clientprotection systemswithin the decade.

A promisingopportunityexists toempowercustomers toprotectthemselves,through financialcapability

building,consumerorganizationsand means suchas publication ofcomplaints data.


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I.Introduction

ThispaperispartofFinancialInclusion2020andisaguideforallstakeholdersonhowtoworktowards

astateoffinancialinclusionwhereclientsareprotectedandhavequalityoptionsavailable.Asaccessto

financialservicesexpandstomoreexcludedpeopleatthebaseoftheeconomicpyramid,bringingin

enormousnumbersoffirst-timeclients,anyvisionforclientprotectionmusttakeintoaccountthe

inevitabilityofforcesthatcantriggeranincidenceofharmtousers.

Ontheclientside,theseforcesincludetendencies,demonstratedthroughbehavioralresearch,for

peopletomisestimatetheircapacitytousefinancialservices,toover-valuethepresentrelativetothe

futureortomakedecisionsonimpulse.Ontheproviderside,whilecompetitioncanbeapowerful

driverforincreasingthevalueandqualityofservices,itcanalsohaveperverseeffects,suchasthe

incentivetosellaggressivelyortodisguisetruecosts.Informationandpowerimbalancesbetween

providersandclientscanallowtheseforcestoresultinpooroutcomesforclients.

Clientprotectioncannoteliminatetheseforces.Itcan,however,reducepowerandinformation

imbalancesthatenableharm,byprovidingincentivesorrequirementsforresponsiblebehavior.Avision

forclientprotectioninastateoffinancialinclusionmeansthatincentivesforpoorbehaviorareoffsetby

anenvironmentthatgivesconsumersrightsandprotections.

Thiswillrequireproviderstoactresponsibly,policymakerstoimplementenforceableandpractical

lawsandregulations,andclientstobefinanciallycapable.

II.Vision

FromtheClientsPerspective1

Financialinclusionwithclientprotectionwilloccurwhenallclientscanaffirmthefollowingfive

statements:

Ihaveachoiceofqualityandaffordablefinancialservices. IcangetinformationIneedandunderstandittomakeaninformeddecision. Ihaveconfidenceinmyprovider,amtreatedwithrespectandamnotdiscriminatedagainst. Iunderstandtherisksinvolvedinusingfinancialservicesandbelievetheyareoffsetbythe

benefitsIgain.

Iknowmyrightsandwheretocomplainwhenproblemsarise.

WhatHastoBeinPlace?RolesoftheThreeMajorActorsFullinclusionwithclientprotectionrequirestheinteractionofthreegroupstocreateasafeandhealthy

clientenvironment:providers(whofollowclientprotectionprinciples),supervisors(whoeffectively

implementpracticalandprotectivelawsandrules),andclients(whounderstandtheirrightsand

1Whilewerecognizethatshadesofmeaningexist,withinthisdocumentthetermsclient,customerandconsumer


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responsibilities).Whatfollowsinthissectionisabriefdescriptionoftheactionsandstatusofthese

threegroupswhenthevisionforclientprotectionisrealized.

1.ProvidersActResponsiblyThecoreofclientprotectionisthebehaviorofprovidersintheirproductofferingsandinteractionwith

clients.Underfullinclusionwithclientprotection,allprovidersoffinancialservicestothepoor(both

mainstreamandalternative)implementawidelyacceptedsetoffinancialclientprotectionprinciples.2

TheyapproachclientsasifguidedbyaHippocraticOathtodonoharmandactasfollows:

Provideproductsthataresafe,understandableandrelevantfortheclients.(Forexample,theyguardagainstover-indebtedness.)

Priceservicesresponsiblytobeaffordablewhilesustainingtheprovider. Incentivizepersonnelinalignmentwithpreventingover-indebtednessandtreatingclients

ethicallyandrespectfully.

Communicateclearlywithallclients,regardlessofdisabilityorspecialcharacteristics,andprovidefullinformationtoallowforinformeddecisions.

Installsecuritytopreventidentitytheftandmisuseofdata. Followprudentstandardstosafeguardclientssavings. Offeraccessibleandresponsivecomplaintresolutionprocesses. Useclientinteractionstoreinforcetheirfinancialcapability. Maintainaccesstoafinancialinfrastructurethatsupportsclientprotection(i.e.,creditbureaus,

paymentsystemsanddepositinsurancesystems).

Inthisvisionofinclusionwithclientprotection,generalprinciplesaretranslatedintopracticeinthe

formofrecognizedstandards.Suchstandardsarethoroughlyintegratedintotheoperationsof

providers.Commitmenttoclientprotectionisembeddedamongallpersonnel,fromboardmembersto

frontlinestaff.

Providersalsocontributetoclientprotectionbyactingcollectively.Industrybodiesandinvestorgroups

establish,promoteandmonitornorms,standardsandcodesofconduct.Theyworkconstructivelywith

regulatorstoapportionresponsibilityforupholdingstandards.

2.RegulatoryEnvironmentCoversAllProvidersandIsEffective

Acompetitivemarketbringsbenefitstoclientsintheformofimprovementofproductsandservices,as

wellascompetitivepressureforlowerprices.Accordingly,competitionfurtherstheoverallaimof

consumerprotectiontobenefitclients.Weenvisionthatspecificclientprotectioneffortswillbesetina

generalmarketframeworkthatpromotescompetition.Atthesametime,overlyburdensomeregulation

canencourageshadowbankingwhileunregulatedcompetitioncantriggerclientprotectionproblems.

2SeeAnnex1foracross-listingofclientprotectionprinciplesarticulatedbyvariousparties.


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Enlightenedmarketregulatorswillseekabalancethatallowscompetitionamongallfirmsgovernedin

anorderlymanner.Inouridealvision:

Supervisorshavethepoliticalsupporttoimplementandenforceregulationsafterfirstconsultingwithindustryandconsumersonwhatisreasonableanduseful. Allprovidersoffinancialservices,whetherprudentlyregulatedornot,arecovered. Regulatorsmaketheirbesteffortstomonitorandmitigateabusebyfraudstersandpromoters

ofpyramidsandotherillegalschemes,inlightofthewidespreadrisks.

Regulatorsalsoaddressabusebythirdparties(e.g.,caregiversorguardians),aswellasfraudsters,inlightofthewidespreadvulnerabilityofcertainpopulationsegmentstosuchrisks.

Regulationisproportionatetothesetting,natureandextentofproblemsobservedinthemarket,andthecapacitiesofbothregulatorsandserviceproviders.Regulationisnotoverly

restrictive,usescommonsenseanddoesnotimposeanunduefinancialburdenonproviders.

Regulationisinformedbydialoguewithprovidersandclients,whileavoidingcapturebyindustryinterests.

Regulatorshavethemeanstocatchandcontrolrogueplayerstomaintainconfidenceinthefinancialsystem.Theyalsoaddressabusebythirdparties(e.g.,caregivers,guardians)aswellas

fraudsters,inlightofthewidespreadvulnerabilitybycertainpopulationsegmentstosuchrisks.

Regulatorsensurethatrecourse,disputeanddebtresolutionmechanismsareavailabletoclients,beyondthoseofferedbyindividualproviders.

Well-designeddepositand/orinsuranceguaranteeschemesprotectsmalldepositorsandpolicyholderswhilekeepinginstitutionsresponsiblefortheiractions.Well-functioningcreditreporting

mechanismsexist.

3.ClientsHaveRightsaswellasMeanstoProtectThemselves

Effectiveclientprotectionrequiresthatclientshavesomedegreeoffinancialcapability.Inthisvision,

clients:

Understandenoughabouttheuseoffinancialproductsandservicestobeabletomakeinformedchoices.Theyknowwheretogettheinformationtomakesuchchoices.

Understandtheirrightsandresponsibilitiesasconsumersandwheretoturniftheyencounterproblems.

Thesefinancialcapabilitiesexistatabasiclevelevenamongthemostvulnerableclientgroups,suchasthosewithlowliteracy,theverypoor,andthedisabledordependent.

Toprotectthegainstheyhavemade,clientshavedevelopedwaystoraisetheirvoicestoprotecttheirinterestsinthemarketplace,makingclientprotectiondemand-driven.

Atthesametime,informationneededtoprotectclientsisfreelyavailablethroughmultiplechannels.Thereiswidespreadunderstandingofandsupportforclientprotectionamongthe

generalpublic,opinionleaders,andmedia.


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The current regulatory environment

is often designed to protect youth,

for example through age of majority

rules. However, such rules can be a

barrier to youth access. Accordingly,extending current protection regimes

may in fact consolidate rules that

exclude youth and instead, a more

nuanced view should be considered.

Timothy Nourse, President, Making

Cents International

III.CurrentSituation

Atpresent,thisvisionisnotarealityinanycountry,althoughprogresshasbeenacceleratingaroundthe

world.Thissectionnotessomeofthemostimportantbarrierstoclientprotectionforeachofthethree

majoractors.

1. ProvidersDoNotAlwaysActResponsiblyInmostways,providersbenefitwhentheirclientsbenefit,especiallyinthelongerterm.However,the

alignmentofinterestsisimperfect.Somepoorpracticesmayprovideacompetitiveadvantage,

especiallyintheshortterm(e.g.,provisionoftoo-largeloans,non-transparentpricing,orhigh-pressure

salestactics),andsomeenvironmentsareinsufficientlycompetitive.

Providersdisplayawiderangeofattitudesaboutprotectingclients.Therearesociallymotivated

providerswhowilltakeactiononcetheybecomeawareofproblems,andthereareenlightenedproviderswhotakealong-termviewregardingclientrelationshipsandtheirreputation.Attheother

extremearefast-buckprovidersandoutrightfraudsters.Mostprovidersaresomewhereinthemiddle

andwillbehaveaccordingtotheincentivesandrulestheyface.Inpractice,fewprovidersprioritize

clientprotectionprinciplesintheabsenceofregulation.

Theperceptionthatconsumerprotectionsonlyaddcostsanddetractfromrevenuesmaydiscourage

providersfromembracingclientprotection.Providersoftenseeclientprotectionasaregulatory

responsibility,andthispromotesacompliance-basedresponse(i.e.,fulfilltheletterofthelaw,and

resistmorestringentregulation).Providersmayalsodisplaycomplacencyabouttheirclientprotection

practices.

Manyproviderstoclientsatthebaseofthepyramidsimplydonotknowhowtoimplementclient

protectionprinciples.Thisspeakstotheabsenceinmanycontextsofexplicitnormsandstandards,as

wellastoweaknessesorcompetingprioritiesamongindustry-supportingbodies.

Vulnerablegroupssuchasyouth,theelderlyandpersonswithdisabilitiesaremoreexposedtotherisk

offinancialabusesfromfamily,friends,guardians,

caregiversandfraudsters.Fromtheconsumers

perspective,protectionfromfraudcanbeamongthe

mostimportantconsumerprotectionissues.Providers

areoftenwellpositionedtohelpidentifyandprevent

suchabuses.

2. RegulatoryGapsTraditionally,mostfinancialsectorregulatorshavenot

explicitlyaddressedclientprotectionandmarket

conductissues,astheirmandatefocuseson

prudentialregulationforfinancialsystemstability.This

ischanginginmanycountries,particularlyfollowing


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the2008globalfinancialcrisis.Nevertheless,historicalantecedentscontinuetoshapelawsand

regulatoryinstitutions,withtheresultthatfinancialservicesclientprotectionregulationoftenfacesa

confusedorincompletelegalandregulatorymandate.Asaresult,financialsectorsupervisorsoftenlack

thepowersneededtoeffectivelyprotectconsumers.Inlargerandmoredevelopedcountriesthereareoftenmultipleagencieswithoverlappingorunclearjurisdiction,whileinmanyoftheleastdeveloped

countriesasinglefinancialregulatorstillgiveslittleregulatoryattentiontoclientprotection.Inmany

countries,thoseprotectionsthatexistdonotapplytoalltypesofproviders.Practicalchallenges,suchas

thecostofsupervisionandthelackofsupervisorycapacitycreateroadblockstoprogressasdoesthe

lackofafocaladvocacygrouporsinglecoordinatingchampionforconsumerprotectioninacountry.

Atagloballevel,thereislittleinformationaboutthestatusofclientprotectionbycountry,inpart

becausetherearenorecognizedstandardsformeasuringit.Therolesofthestandard-settingbodiesin

thisareaarenotclearlydefined,andtherearefewexamplesofeffective,prudent,andmarketconduct

supervisionofservicesaimedatlow-incomeclients.Thepoliticaleconomyofclientprotectionisoften

challengingandcanrunthegamutfromregulatorscapturedbyindustrytopoliticiansouttoget

industry.Moregenerally,ashortageofsufficientpoliticalwilltomakeclientprotectionapriority

appearstobeanissue.

3. ClientsVoicesAreOftenMissingInadditiontotheeducationalandexperientialdifferencesthatmakemanyclientsvulnerabletoabuse,

clientsoftenhavedifficultyadvocatingforthemselvesandrecognizingthattheyhavefinancialrights

duetoinformationimbalances.Thisisespeciallytrueforpoor,illiterateand/orruralclientswhomaybe

appreciativeofgettingaccessforthefirsttimeregardlessofquality.Clientsarerarelyorganizedor

representedinwaysthatallowtheircollectivevoicetobeheard.Consumergroupsarestretchedthinly

inmanydevelopingcountries,areoftenfocusedonphysicalproducts,andareonlyrecentlystartingto

developcapabilitiestoaddressfinancialservices.


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PremisesUnderpinningtheRecommendations Therecommendationsthatfollowarebasedonanumberofpremisesaboutthemosteffective

approachestoclientprotection:

Clientprotectionisasharedresponsibility ofallactorsinthefinancialsystem,notjustregulators.

Inparticular,providersmusttakeproactiveresponsibilityt ointegrateclientprotectionintotheircorporatecultureandoperations.Effortstoencourageandequipproviderstodosoare

relativelyunderdevelopedandthusrepresentanimportantopportunity.

Clientprotectionregulationmustbetailoredtothecountrycontext. Somecountrieswillfavoramorerule-basedapproachwhileotherstakeaprinciple-basedapproach.Approachesthatare

tooabstractorambiguouscanhinderinvestmentsbyproviders.Somecountrieswillrequirea

highlysophisticatedapparatus,whileotherswillhaverelativelysimpleframeworks.

Importantly,theworldcommunitygenerallysharestheprinciplesofclientprotection ,andthisagreementprovidesamajoropportunityforprogress. Strengtheningtheclientsabilitytoprotectthemselves bothindividuallyandcollectivelycould

helpachievethebalanceneededforsustainedclientprotection.Thisareaalsorepresentsa

majoropportunityforprogress.

Recentprogressprovidesmomentumforaction.Followingthefinancialcrisisof2008-2009,clientprotectionmovedwellupontheactionagendaforthefinancialsector,andthisincreased

attentionisnowbeginningtobearfruit.

In2011,partlyattheurgingofconsumergroups,

G20leadersendorsedhigh-levelprincipleson

financialconsumerprotectionandcalledforwork

tosupporttheprinciples.In2012,theWorldBank

developedcomprehensiveguidanceforregulators

ongoodpractices,and,in2013,theSmart

Campaign,amicrofinance-focusedclientprotection

effort,introducedathird-partycertification

program.Theseactionsarereinforcedbypolicy

effortsinmanydeveloping(e.g.,Rwanda,PeruandthePhilippines)anddevelopednations(e.g.,the

UnitedKingdom,theUnitedStatesandSouthAfrica)thatarecreatingorrefreshingnationalstrategies

forclientprotectionandfinancialeducation.Withanincreasingnumberofinitiatives,theglobalstageis

setforprogressonfinancialclientprotection.

IV.Recommendations

The Smart Campaign

The Smart Campaign is a provider-led initiative

to embed a set of client protection principles

deep within the fabric of the microfinance sector.

It offers training and tools, and it certifies

financial institutions that meet its standards.

Over 1,200 financial institutions worldwide haveendorsed the Smart Campaign.


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However,thereisagreatdealofgroundtocover,andinmanycountriesthejourneyisonlystarting.

Successrequiresthemaingroupsofactorstocommittodotheirpart.Weenvisionamassivecampaign

tobuildpoliticalwill,stakeholderwillandcapacitytoimplementclientprotectionwithinthedecade.

Thefollowingrecommendationsaredividedintofourkeyactionareasforachievingclientprotection:

buildprovidercapacityandcommitmenttoimplement;improveregulationandmarketenvironment;

empowerclients;additionalactionstobuildpoliticalwill.

BUILDPROVIDERCAPACITYANDCOMMITMENTTOIMPLEMENTProvidersmusttakeactiveresponsibilityforimplementingclientprotection,bothasindividualfirmsand

collectivelyasanindustry.Werecommendthatfinancialservicesprovidersandtheirsupport

organizationstakethefollowingsteps:

1. Embrace Client Protection as a Core Part of the Financial ServicesProfession

Developingacultureofclientprotectioninsideproviderorganizationsrequiresactionsmotivated

bothbyclientandemployeeloyalty.Employeesliketoworkforresponsibleorganizations;global

andnationalrankingsandawardscanprovideincentivesandclearstep-by-stepguidescanshow

theway.Coursestaughtbyassociationsandtrainingprogramsforbanking,insuranceand

microfinancecanalsoplayanimportantrole.

ActionPoint:AcorollaryofthiseffortcouldbeaFinancialConsumerBillofRightsfor

clientsbasedontheclientprotectionprinciples(detailedinAppendix1).

2. Drive Client Loyalty by Implementing Client Protection Standards

Broadlyacceptedprinciplesmustbetranslatedintospecificstandardsofresponsiblepracticethat

areseenashelpingbuildclientloyalty.Industrybodiesareimportantfocalpointsforstandard-

setting,anditisuptoeveryprovideroffinancialservicestointegrateacceptedstandardsinto

operations,suchasthroughpolicies,marketing,stafftrainingandrewardsystems.

ProvidersSupport

Organizations

ProvidersSupport

Organizations


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IMPROVEREGULATIONANDMARKETENVIRONMENTThesinglemostimportantfocusforimprovingclientprotectionistheimplementationofeffectiveclient

protectionregulationsandsupervisionbyfinancialservicesauthoritiesineverycountry.

3. Promote Credible Certification and Self-Regulation

Providergroupsshoulddevelopcertificationprogramsand/orself-regulatorysystemsin

associations,governedbysustainablecertifyingbodies,toprovidethird-partyopinionsofcompliancewithclientprotectionprinciplesandtoimprovepracticeswhilebridgingthegapwith

formalregulation.Thisisespeciallyimportantinjurisdictionswithoutstrongregulation.Ensurethat

certificationbecomesatrustedtoolformicrofinanceandmainstreaminvestorsandpossiblyclients.

4. Develop Systems to Spot Abuse of Vulnerable Clients by Third Parties

Trainstaffonfraudorexploitationwarningsignals.Implementelectronicfrauddetectionsystems

torecognizeunusualpatternsofbehavior(suchasthosealreadyinplaceforcreditcard

companies).

5. Make it a Global Commitment

Wecallontheworldcommunitytoadoptasahigh-levelpublicgoaltheimplementationof

standardsforfinancialclientprotectionineverycountryby2020.Individualnationscanpublically

committotheirparticularintentionsinbankingviatheMayaDeclarationprocesssponsoredbythe

AllianceforFinancialInclusion(AFI)andinsurancewiththeInternationalAssociationofInsurance

Supervisors(IAIS).

ProvidersSupport

Organizations

ProvidersSupport

Organizations

SupportOrganizationsRegulators


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6. Implement National Client Protection Regulatory Frameworks

Everycountryshouldimplementaregulatoryframeworkbasedongloballyacceptedprinciples(see

Appendix1).Characteristicsofgoodframeworksare:

Adaptedtonationalcontexts,emergingtechnologies,needsofclients,andlegal,regulatory

andinstitutionalframeworks,followingtheconceptofproportionateregulation.

Coverallprovidersoffinancialservices.

Basedonevidenceidentifyingthemostimportantproblemsandwhatworkstoprotect

clients.

Developedindialoguewithfinancialserviceprovidersandconsumers.

Minimizecostsofcompliancetoavoidrestrictingtheavailabilityofserviceswhile

contributingtogenuineprotection.

IncludesdepositandinsuranceguaranteeschemesstructuredinlinewiththeCore

PrinciplesforEffectiveDepositInsuranceSystems. Backedbyeffectivesupervisorswithlegalenforcementpowersthathaverealteethand

thatallowforanappealprocessbyproviders.

7. Ensure That Clients Have Access to Effective Recourse Systems

Everycountryneedstohaveinplaceredresssystemsorombudsmanthatspecializeinfinancial

servicesandhasjurisdictionalpowertoact.Thesesystemsmustbewidelyavailable,freetouse,be

knowntoclientsandhaveameanstoassistclientswithabusescomingfromthirdparties.

Regulatorsshouldalsomonitorthemarketbyproactivelylookingforpatternsthatsuggestscams

andschemes.


Regulators


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8. Build National Capacity to Design and Implement Client ProtectionRegulation

Globalandnationalsupportorganizationsshouldallocateresourcesatasignificantlyincreasedpacetoaiddevelopmentofregulatoryandsupervisorycapacityforclientprotection.Whilecurrent

efforts,suchasthoseofAFIandtheTorontoCentreareofhighquality,theirscaleandcoverageis

insufficient.Allsupervisorsneedingtrainingshouldreceiveitby2016.Thetypesofsupporting

resourcesneededinclude:

Guidanceandtoolkitsrelatingtoeachoftheclientprotectionprinciples.

Casestudiesofhowclientprotectionhasbeenimplemented.

Modellegislation,manuals,andmonitoringandevaluationframeworks.

Technicalassistanceforassessingthecurrentstatusofacountrysconsumerprotection

environment,developinglegislation,policyandregulations,andsettingupenforcement

mechanisms.(Example:expansionoftheWorldBanksfinancialconsumerprotectionassessmentprocess.)

Exchangesamongregulatorsforpeer-learning.

9. Ensure Client Protection Keeps Pace With Technological Developments

Regulatorsmustkeeppacewithchangesandensurethatnewtechnologiesareallowedtodevelop

andemergewhilecloselymonitoringdevelopmentsandusagetoensureclientsrightsanddataare

protected.Asdemonstratedwithon-linecommerce,onceclientsfeeltheyhaveprotectionsand

recourse,themassmarketofconsumersaremorelikelytoadoptinnovations.


Capacity-BuildingAgenda

Regulators Technology-

EnabledBusinessModels


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EMPOWERCLIENTSWhilelower-incomeclientscanbeeffectiveadvocatesforthemselves,arangeofactorscanassistthemin

raisingtheirvoices.Somesucheffortsareamongthemostinnovativepossibilitiesintherealmofclient

protection.Withthatinmind,wemust:

10. Develop Means for Clients to Raise Their Own Voices

Providersshouldincorporatetheclientvoiceattheboardandseniormanagementlevels.Client

protectionproblemsmightbeminimizedifdecision-makersregularlyhearclientsperspectives.This

couldbeaccomplishedthroughclientownership(aswithcreditunions),useofregularclient

opinionresearchorothermeans.Thiscanbesupportedbyanombudsmanspublishingof

complaintsandpositivedatathatclientscanusetochooseprovidersandthatincentivizeproviders

tobecomemoreclient-responsive.

ActionPoint:Anespeciallypromisingareaistocreateforumsforclientstovoicekudosandcomplaintsregardingfinancialservicesproviders(e.g.,aTripAdvisorforfinancial

services).

11. Develop Client Financial Capability Through Multiple Channels

Inthiscontext,thefocusistoensurethatconsumerrightsandresponsibilitiesreceiveemphasis

throughoutfinancialeducationprogramming,whetherprovidedbygovernment,independent

organizationsorevenproviders.

12. Continue Base of the Pyramid Client Research to Inform ClientProtection Policymaking and Program Design

Thisparticularlyincludes:

Researchthatrevealsclientviewsandconcerns.

Behavioralresearch.

Developmentofnational-levelclientprotectionindicators.

Thelatterholdsparticularpromiseforcraftingeffectiveinterventions.

ProvidersSupport

Organizations

FinancialCapabilityProviders


SupportOrganizations

ResearchAgenda


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ADDITIONALACTIONSTOBUILDPOLITICALWILL

13. Articulate the Benefits of Client Protection for Clients, Providers andGeneral Economic Stability

Buildingbusinessandsocialcasesforclientprotectionrequiresmetricsformonitoringclient

protectioneffectiveness,micro-levelresearchonclientoutcomes,dataonthecostsand,

potentially,revenuegrowthviaincreasedloyaltyforprovidersthatimplementthestandards.

Supervisorscanuseconsumerprotectionasaforward-lookingindicatorofrisk.

14. Build the Capacity of Media and Consumer Advocacy Groups to Focuson Financial Consumer Protection, and Ensure that Political Leaders HearAll Voices Before Enacting Legislation

Consumergroupstogetherwithmediathatisfairandeducatedonfinancialissuescangenerate

politicalwilltoimproveclientprotection.

ResearchAgenda

SupportOrganizationsProviders

SupportOrganizations

Capacity-BuildingAgenda


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Annex 1. Principles of Financial Consumer Protection Compared

G20High-LevelPrinciples

onFinancialConsumer

Protection

GoodPracticesfor

FinancialConsumer

Protection

ClientProtection

Principles

Legal,Regulatoryand

SupervisoryFramework

__

__

RoleofOversightBodies ConsumerProtectionInstitutions __

EquitableandFairTreatmentof

Consumers

CustomerAccountHandlingand

Maintenance

Fairandrespectfultreatment

ofclients

DisclosureandTransparency

DisclosureandSalesPractices Transparency

FinancialEducationand

Awareness

ConsumerEmpowerment&

FinancialLiteracy

__

ResponsibleBusinessConductofFinancialServicesProvidersand

AuthorizedAgents

__ Responsiblepricing

ProtectionofConsumerAssets

againstFraudandMisuse

__ __

ProtectionofConsumerData

andPrivacy

PrivacyandDataProtection Privacyofclientdata

ComplaintsHandlingand

Redress

DisputeResolutionMechanisms Mechanismsforcomplaint

resolution

Competition Competition&Consumer

Education

__

__

DepositInsurance&Insolvency __

__

__ Appropriateproductdesign

anddelivery

__ __ Preventionofover-

indebtedness


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Annex 2. Initiatives We Endorse

AllianceforFinancialInclusion(AFI) Asaconveneroffinancialinclusionregulatorsandtheinitiatorofthe

MayaDeclarationprocess,AFIhasauniqueroleinbuildingregulatorycommitmenttoandknowledgeaboutappropriateclientprotectionregulation.AFIsworkinggrouponconsumerempowermentandmarket

conductisafocalpointfortheseefforts.

ConsumersInternational Anindependent,globalcampaigningvoiceforconsumerswithover220member

organizationsin115countries,CIbeganacampaignonfinancialconsumerprotectionin2011andhelped

movetheG20toaction.

ConsultativeGrouptoAssistthePoor(CGAP) AWorldBankresourcefordonors,policymakersand

providerstowithregardstofinancialinclusion,CGAPisanimplementingpartneroftheGPFIandathought

leaderonconsumerprotection,amongotherareasoffinancialinclusion.

GlobalPartnershipforFinancialInclusion(GPFI) AninclusiveplatformforallG20countries,interested

non-G20countriesandotherrelevantstakeholderstocarryforwardworkonfinancialinclusion,including

implementationoftheFinancialInclusionActionPlan,GPFIwasendorsedattheG20SummitinSouthKorea.

CountriesLeadinginConsumerProtection Perfectioninconsumerprotectionisnotanattainablegoal,but

theideashouldhelpusdesignacoresetofprotections.Thehigh-incomecountriesofCanada,theUnited

Kingdom,AustraliaandtheNetherlandsandtheEuropeanUnionasawholehavesomestrongconsumer

protectionsinplace.Lower-andmiddle-incomecountrieswithreasonablystrongconsumerprotectionfor

financialservicesincludeSouthAfrica,Mexico,Malaysia,PeruandArmenia.

InfoNETAglobalnetworkof54national-levelfinancialsectorombudsmanfrom36countries,InfoNET

providestrainingandsupporttoitsmembersandemergingmarketombudsmen.

MicrofinanceTransparencyPromotesmicrofinancepricingtransparencybypublishingpricingdataand

promotingpublicdisclosureandeducation.

OrganizationforEconomicCo-operationandDevelopment Aforumforgovernmentsto developpolicies

thatwillimprovetheeconomicandsocialwell-beingofpeoplearoundtheworld,theOECDdeveloped9

principlesonfinancialconsumerprotectionthatwereendorsedbytheG20.Theorganizationisalsoplayinga

leadroleinestablishingthe InternationalFinancialConsumerProtectionNetwork(FinCoNet) .

SmartCampaign Aglobalefforttounitemicrofinanceleaderstoembedasetofclientprotectionprinciples

intothefabricoftheirindustry,housedattheCenterforFinancialInclusion.

TreatingClientsFairly AprincipleoftheUKFinancialConductAuthoritywherebyfinancialserviceproviders

mustdemonstratethattheyareconsistentlydeliveringfairoutcomestoconsumers,thisapproachrequires

seniormanagementtotakeresponsibilityforensuringthatthefirmestablishesanappropriateculture

backedbyoperatingnormsapplicabletostaffatalllevels.


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17



WorldBankTheWorldBankhasestablishedacommunityofconsumerprotectionandfinancialliteracy

practices,includingacomprehensive 2010surveyonthestatusofconsumerprotectionregulatory

frameworksand39goodpracticesforacountryinfinancialconsumerprotection

Thisworkingpaperwascreatedthroughaseriesofconsultationswithanexpertsworkinggroupon

ClientProtection.WewishtoexpressourgratitudetotheClientProtectionWorkingGroupmembers

fortheiractiveparticipationingroupdiscussionsandthoughtfulcontributions.

Wealsothankthemanyadditionalexpertswhorevieweddraftsofthepaperandprovidedinput.

Finally,wewishtothankthemanyCFIandAccionstaffmemberswhoprovidedsupportincluding

AllisonBernstein,MereneBotsio,ElizabethDavidson,SonjaKelly,andAmandaLotz.

TheCenterforFinancialInclusionacceptsresponsibilityfortheviewsexpressedinthispaper.Those

viewsdonotnecessarilyreflecttheviewsofindividualworkinggroupmembersortheir

organizations.

ExpertsWorkingGrouponClientProtection

ElisabethRhyne,CenterforFinancialInclusion

(Co-chair)

DavidGrace,Consultant,U.S.(Co-chair)MichaelChapman,OrganisationforEconomicCo-

operationandDevelopment(OECD)

JohannaJaeger,WorldBank

AshokNarain,Consultant,India

BrigitteKlein,DeutscheGesellschaftfr

InternationaleZusammenarbeit(GIZ)

KarenNiederkohr,Consultant,U.S.AndrewPospielovsky, Consultant,Egypt

CliffordRosenthal,U.S.ConsumerFinancial

ProtectionBureau

MichaelBurbano,Ecuador


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This publication was produced by Financial Inclusion 2020:

1101 15th Street NW, Suite 400, Washington, DC 20005 USA Tel 202.393.5113 Fax 202.393.5115

Documents

Protecting New and Vulnerable Clients as Financial Inclusion Proceeds: Financial Inclusion 2020 Client Protection Working Group