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  • 26 November, 2022

  • 5 Min Read

Financial Consumer Protection (FCP)

Financial Consumer Protection (FCP)

  • The OECD recently published a draft of proposed revisions to their 2011 High-level Principles on Financial Consumer Protection (FCP).

More on the news:

  • The OECD is working on ways to improve financial consumer protection, including determining what is needed to help consumers gain the confidence, knowledge, information, security, and choices they need to fully participate in financial markets.

The OECD's principles address three interconnected themes: financial well-being, digitalization, and sustainable finance.

  • The OECD's FCP principles for 2011 addressed ten thematic areas, including Market and consumer issues, Equitable and fair consumer treatment, Disclosures and transparency, and Financial education.
  • Two new principles were added in 2022: access and inclusion and quality financial products.
  • The updated principles also advise regulators to intervene in certain high-risk products, cultivate an appropriate firm culture, and use behavioural insights to improve consumer outcomes.

Regarding the Financial Market

  • The Financial Market is a place where financial products and services are regularly bought and sold.
  • It is involved in the purchase and sale of various types of investments, financial services, loans, and so on.

India's financial markets:

  • In India, the majority of trading takes place in two types of financial markets.
  • The first is the money market, and the second is the stock market.
  • The financial market includes banks and financial institutions.

Financial Consumer Protection (FCP)

  • It determines what is required to help consumers gain the confidence, knowledge, information, security, and choices they need to fully participate in financial markets.
  • Need for FCP: According to the RBI's financial inclusion index, an increasing number of people are entering financial markets.

The Importance of Financial Consumer Protection (FCP) in India

  • Disclosures and transparency: An effective FCP regime must ensure adequate and easily understood consumer disclosures.
  • However, an information dump for the sake of compliance defeats the purpose, especially in India, where financial literacy is low.

SEBI regulations:

  • Regulators like SEBI require certain financial service providers to assess customer suitability and conduct risk profiling prior to providing services.
  • Global practise: Countries such as the United Kingdom and New Zealand have issued guidelines to help identify and treat "vulnerable financial consumers."
  • India does not recognise this concept at the moment.
  • FCP will remain relevant in India, owing to the increasing number of UPI transactions and the largely unregulated status of cryptocurrencies.
  • RBI guidelines on digital lending: The RBI issued guidelines on digital lending, requiring entities that provide digital lending services to have a grievance redress officer, to assess a borrower's creditworthiness before extending credit, and to allow a borrower to exit without penalty.

Financial investment sustainability:

  • Consumers are increasingly interested in long-term financial investments.
  • Environmental, social, and governance factors are being incorporated into financial services providers' operations, products, and services.
  • FCP recommends increased transparency to assist consumers in making informed decisions.
  • SEBI's business responsibility and sustainability reporting (BRSR): To promote responsible corporate governance in the face of climate change, SEBI has transitioned from "business responsibility reporting" to "business responsibility and sustainability reporting" (BRSR).
  • Companies that are BRSR-eligible must provide ESG-related disclosures, including a sustainability performance report.
  • This enables investors to make an informed choice.
  • Similar disclosures are required in other market segments.

Greenwashing: The draught for 2022 also warns against "greenwashing."

  • This corresponds to an expert report presented at COP27.
  • Financial regulators must ensure that Indian corporations do not mislead consumers by making false claims about their progress toward climate targets.

Way Forward

  • As seen in the case of digital gold, the current regulatory landscape is sectoral and fragmented, resulting in regulatory arbitrage.
  • In order to protect consumers, regulators must work together.

About Organisation for Economic Co-operation and Development (OECD)

  • The Organization for European Economic Cooperation (OEEC) was formed to administer American and Canadian aid under the Marshall Plan for the reconstruction of Europe following World War II.
  • It is a forum whose members describe themselves as committed to democracy and the market economy, providing a platform for members to compare policy experiences, seek solutions to common problems, identify good practices, and coordinate domestic and international policies.
  • Economies: The majority of OECD members are high-income economies with a very high Human Development Index (HDI) and are considered developed.
  • The Secretary-General is the head of the OECD Secretariat and the chair of the OECD Council.
  • Selections for Secretary-General are made by consensus, which means that all member states must agree on a candidate.
  • Headquarters are in Paris, France.
  • Members: The OECD currently has 38 member countries.
  • India is not a member of the OECD.

Source: The Indian Express

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