Transcript Title – Maximum Two Lines

VUZF University
Open Seminar on Financial Consumer Protection
Lessons Learned from Designing and
Implementing FCP Reforms
Tomáš Prouza, the World Bank
December 18, 2012
Setting the scene
Key issues to remember in Central and Eastern Europe:
o all modern financial products available
o limited customer experience and no history of using
complex financial products
o especially in Central Europe life insurance, partly
investment & mortgage intermediation dominated by
multi-level agents with commission-driven sales model
o often fragmented market supervision with limited
coordination
o self-regulation works only sporadically
o growing number of complaints (high prices & misselling)
www.worldbank.org/consumerprotection
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Political options
Possible policy reactions to growing public demands for
a solution:
o price regulation – easy to proclaim and politically
popular
o focus on real solutions even if they take time
o transparency (know what you pay)
o comparability (choose the best easily)
o migration (lower switching barriers)
o understanding & education (know what you do and why,
understand your rights)
o redress (easy-to-use and quick recourse mechanism)
www.worldbank.org/consumerprotection
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Key objections
Trying to introduce a consumer protection policy meets
with objections from some stakeholders:
o there's no need to change as everything is fine
(counter with surveys, price comparisons, foreign
experience)
o let the market work, things will solve themselves
(does not work without counterbalance of strong and
active consumers)
o only prudential supervision and market stability matter
o financial education is sufficient
o we do not know your ideas will work, so let's not do
anything
www.worldbank.org/consumerprotection
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Key lessons: understand your market
All consumer protection legislation must be marketrelevant, so invest into understanding the market:
o quantitative national surveys to understand major
trends (and monitor changes)
o qualitative focus groups to understand the thinking of
the people and to test the existing and proposed
disclosure
o analyze complaints to the industry and supervisors
o involve NGOs and use modern technologies to collect
market intelligence from the whole country
o cooperate with the media and the police to get an
early warning of new issues
www.worldbank.org/consumerprotection
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Key lessons: communicate your goals
If badly communicated, consumer protection activities
may create many enemies:
o from the industry as you make their life harder and you
will be touching their image (and profits)
o from the public who may expect you will take financial
decisions for them and provide 100% protection
o from the media who will be disappointed things do not
change overnight
o from politicians as the financial industry is usually an
effective lobbyist
www.worldbank.org/consumerprotection
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Key lessons: verify effectiveness
Regulations may look nice on paper but:
o ensure disclosure has not become a compliance
function
o implement rigorous accessibility testing
o use mystery shopping to verify how the rules are
implemented (potential involvement of NGOs)
o define measurable goals (improved measures of public
confidence, lower number of complaints, etc.)
o when drafting regulations, define your expectations
through regulatory impact assesments, regularly revisit
your goals and verify them
www.worldbank.org/consumerprotection
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Key lessons: unified stand needed
The government should be unified on the issues:
o financial sector regulators and supervisors should agree on
the actions needed and implement them jointly
o empower the regulators to react quickly to new issues
o loopholes in sector regulations and regulatory arbitrage are
very dangerous for effective consumer protection (do not
rely solely on EU directives with sectoral approach)
o some of the consumer protection issues can be dealt with
through other regulators:
o competition authority (pricing collusion, tying and bundling)
o data protection authority (sharing and tranfering of personal
data to third parties)
www.worldbank.org/consumerprotection
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