Consumer Protection in the Indian Financial System

 

IFMR Finance Foundation’s vision for a stronger retail customer protection regime entails making financial services providers legally liable (and therefore bearing the primary responsibility) for recommending and selling products that are ‘suitable’ for their customers, given their goals, needs and financial situations. Accountability and supervision would be driven by providers’ adherence to processes laid down in their own board-approved suitability policies to meet this legal requirement. This is a marked departure from existing approaches to financial consumer protection built on the principle of caveat emptor or ‘buyer beware’, and which employ information disclosure and financial literacy as the means to produce outcomes (these in turn hold customers responsible for a product purchased). In contrast to this, a suitability-based approach is process-driven, as illustrated below

CP

IFMR Finance Foundation has conceptualised a framework for the suitability regime and has worked on key policy and regulatory initiatives aimed at achieving a shift towards suitability-based customer protection approaches to policy and supervision.

IFMR Finance Foundation peer reviewed the Consumer Protection Chapter of the Report of the Financial Sector Legislative Reforms Commission. Marking the beginning of a shift to suitability, the draft Indian Financial Code contains three additional protections for the retail customer, namely the right to receive suitable advice, protection from conflicts of interest of advisors, and access to the redress agency for redress of grievances.

IFMR Finance Foundation performed the function of the Technical Secretariat to the Reserve Bank of India’s Committee on Comprehensive Financial Services for Small Businesses and Low-Income Households, and within this, provided a detailed rationale and set of recommendations for moving towards a suitability-based customer protection regime and enforcement approaches. To complement these efforts, IFMR Finance Foundation seeks to overcome implementation challenges for providers and policymakers. In this context, it is working towards the development of product-level suitability guidelines for providers of the Joint Liability Group Loan.

Click here to read IFMR Finance Foundation’s position paper on Consumer Protection.