Hong Kong Consumer Council's Comments on the OECD's Draft G20
High-level Principles on Financial Consumer Protection Public
Consultation (August 2011)
PDF version
Hong Kong Consumer Council (HKCC)
appreciates the opportunity to provide its comments below in
respect of the consultation document issued by the Organisation for
Economic Co-operation and Development (OECD) entitled 'Draft G20
High-level Principles on Financial Consumer Protection' (Draft
Principles).
In our dialogue with Consumers
International (CI), of which HKCC is Executive and Council Member,
we are pleased to note that the contents of the OECD's Draft
Principles reflect several points made in the CI paper, 'Safe, fair
and competitive markets in financial services: recommendations to
the G20 on options to enhance protection for financial consumers'
(March 2011).
Notwithstanding the positive aspects in the
OECD's Draft Principles, HKCC would like to provide the following
views for consideration of the Hong Kong Monetary Authority (HKMA)
and the OECD Task Force on Financial Consumer
Protection.
DRAFT FRAMEWORK
Financial Consumer Protection and Market
Stability
HKCC welcomes the statement in the
introduction to the Draft Framework that 'consumer confidence and
trust in a well-functioning market for financial services promotes
financial stability, growth, efficiency and innovation over the
long term…traditional regulatory and supervisory frameworks adopted
by oversight bodies contribute to the protection of consumers -
which is often and increasingly recognized as a major objective of
these bodies together with financial stability', to acknowledge the
essential role of consumer protection to the safety and soundness
of the financial system.
HKCC believes it is vital for governments
and financial regulators to devise action for financial consumer
protection and apply it as an integral part of their regulatory
process to ensure that the market for financial services work in
the interests of consumers, which will instill consumer confidence
and market stability.
Nature of the
Principles
HKCC understands that the Draft Principles
are designed to be of voluntary nature and as such have no binding
effect on any economies. HKCC believes that the Draft Principles
could serve as higher standards (instead of as minimum
requirements) to assist those economies which are interested in
developing high level of financial consumer protection to devise
relevant policies from the Draft Principles.
Implementation of the
Principles
As to the proposed periodical review of the
Draft Principles set out in the consultation document, HKCC
believes that having review of the contents of the Principles alone
is not sufficient to achieve any effective result. It is important
to have regular review of their implementation to gauge the degree
of development of financial consumer protection in various
economies.
In this regard, HKCC fully supports CI's
recommendation of empowering the existing international network of
financial consumer protection organisations (FinCoNet) with
sufficient support and resources to play a more effective role at
the global level.
DRAFT
PRINCIPLES
HKCC's specific comments and proposed
changes to the Draft Principles are as follows (changes are marked
in "
[" and "
]" and original wordings are
marked in "{" and "}"):
1. Legal and Regulatory
Framework
HKCC believes that involvement of consumer
organisations as 'partners' in the development and evaluation
process is an important component in advancing financial consumer
protection to individual consumers, as well as promoting openness
and accountability of any financial consumer protection policies.
Governments and financial regulators should proactively engage
consumer organisations (as well as individual consumers) as there
is a role for these stakeholders in the process.
HKCC's proposed changes to the last
paragraph in this section:
'Relevant non-governmental
stakeholders - including industry and consumer
organisations,…should be consulted when policies related to
financial consumer protection and education are developed and the
access of consumer organisations to such processes should be
facilitated
[to accommodate consumer
voice and allow consumer participation in the decision making
process].'
HKCC shares CI's views that governments and
regulators have an important role to play in financial consumer
protection. To iterate CI's suggested changes to this section:
'Regulators should set minimum standards, developed for financial
products to ensure fair contract terms and charges, and
comprehensibility. Financial service providers should be required
to benchmark their products against a model product with minimum
standards. Regulators should be given the ability to control the
level of ancillary/default charges and these should be a fair
reflection of the costs involved to the firm. Prior approval may be
required for products that could pose a particular risk to
consumers, as is the case in some jurisdictions. (see also for CI's
comments on the OECD's Draft)
2. Role of Oversight
Bodies
HKCC's proposed changes to the first
sentence in this section:
'There should be oversight
bodies explicitly responsible for financial consumer protection,
with the necessary
[resources
and] authority to fulfil their
mandates.'
3. Equitable and Fair Treatment of
Consumers
HKCC appreciates mention of the needs of
vulnerable consumers in the Draft Principles. Nevertheless, HKCC
believes that more guiding principles can be given in the Draft
Principles than simply stating 'Special attention should be
dedicated to the needs of vulnerable groups.'
Appropriate remarks should be made in the
Draft Principles on the issues of access to basic financial
services (e.g. provision of free or affordable basic banking
account services) and the development of adequate consumer
protection in microfinance.
4. Disclosure and
Transparency
HKCC considers that footnote 3 consists of
extremely important principles that financial service providers
should observe in developing their disclosure policies. It is
suggested that footnote 3 be moved up to the textual part of the
Draft Principles.
HKCC's proposed changes:
'
[Financial service
providers and their authorised agents should provide clear,
concise, accurate, reliable, comparable, easily accessible, and
timely written information on the financial products and services
being offered. They ]{Financial service providers and their authorized
agents} should provide consumers with key
information that informs the consumer/investor of the fundamental
benefits,
[prices, costs, penalties,
surrender charges, risks and termination
modalities]{risks}, terms of the product and
the remuneration and conflicts associated with the authorized agent
through which the product is sold. {In particular, information should be provided on
material aspects of the financial
product/investment} (seems repeating with
previous sentence '…key information…'). Standardised
pre-contractual disclosure practices
[and standardised disclosure forms (e.g. key
fact statements, contract forms) should be {promoted}
[adopted] where applicable
and possible to allow comparisons between products and services of
the same nature…'
'The provision of advice
should be as objective
{as possible}
[and free from conflicts of
interest], and should in general be based on the
consumer's profile considering the complexity of the product, the
risks associated with it as well as the customer's financial
objectives, knowledge and experience.'
5. Financial Education and
Awareness
HKCC considers financial education and
awareness an indispensable part of financial consumer protection.
The use of the wordings 'promoted' and 'encouraged' in the
following paragraphs would lessen the commitment expected of
stakeholders to improve the financial literacy and capability of
consumers.
HKCC's proposed
changes:
'Financial education
[should be provided]
and awareness {should be} promoted by all relevant
stakeholders…'
'The provision of broad based financial
education and information to deepen consumer financial knowledge
and capability should be {promoted}
[adopted], especially for
vulnerable groups.'
'Taking into account national circumstances,
financial education
[should be
provided] and awareness {should be encouraged}
[promoted] as a part of a
wider financial consumer protection and education
strategy…'
'All relevant stakeholders should {be encouraged to} implement the
international principles and guidelines on financial education
developed by the OECD International Network on Financial
Education.'
6. Responsible Business Conduct
of Financial Services Providers and Their Authorized
Agents
HKCC's proposed changes to the second
paragraph in this section:
'…Depending on the nature of
the transaction and based on information primarily provided by
clients, financial service providers should assess the financial
capabilities
[and
knowledgeability], situation and needs of their
clients before agreeing to provide them with a product or service.
Staff (especially frontline) should be properly trained {and}, qualified
[and
regulated/supervised].'
HKCC considers that the proposed general
statement in the third paragraph of 'the remuneration structure of
staff of financial services providers and related authorized agents
should be designed to encourage responsible business conduct' would
not provide meaningful reference to those economies which are
interested in addressing the issue of conflict of interest in
relation to sales staff. HKCC believes that more detailed guiding
principles should be given as to how to design a remuneration
structure to encourage stakeholders' responsible business conduct
and fair treatment of consumers.
7. Protection of Consumer
Rights
HKCC's proposed changes:
'The rights of consumers to
their deposits, …should be protected {as much as possible},
….'
It is understandable that the Draft
Principles are primarily focusing on 'regulated' financial service
providers and their 'authorized' agents, and 'regulated' financial
products and services. However, HKCC is of the view that attention
should be given by governments and regulators to ensuring adequate
protection of consumer interests in respect of sales, information
and advice on financial products and services provided by
non-regulated financial service providers such as loan sharks and
debt collection agents, as well as non-regulated financial
products.
8. Protection of Consumer Data and
Privacy
HKCC's proposed changes:
'…These mechanisms should
define the purposes for which the data may be collected,
[held], processed and
disclosed (especially to third parties) …, or unlawfully collected
or processed data.
[Consumers should
be assured that all their financial and personal data held by
financial institutions will not be shared without their express
consent.]'
9. Complaints
Handling
HKCC's proposed changes:
'Jurisdictions should seek
to ensure that consumers have access to adequate
[and effective] complaints
handling and redress mechanisms that are accessible … that are not
resolved via the service provider's mechanisms.
[Regulators should set out clear standards
for independent complaint handling process and redress and monitor
their effectiveness for consumers.]'
10. Competition
HKCC's proposed
changes:
'Nationally and
internationally competitive markets should be {promoted}
[provided] in order to
provide consumers with greater choice amongst financial
services…'
Consumer
Council
Aug 2011
