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…'
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