KARACHI: The State Bank on Friday asked all banks to prepare their own framework for consumer protection.
“The need for consumer protection arises from asymmetry of power, information and resources between banks and their customers,” said a circular issued by the bank.
The circular said that if customers with poor financial knowledge and skills make poor financial choices, this will not only lead to financial fragility of that customer, but on a macro level, will result in greater market susceptibility to fraud and abuse.
This will tarnish customers’ trust in financial markets and ultimately the play-field for the financial institutions will shrink.
On the contrary, an effective Financial Consumer Protection regime will empower customers to obtain fair information while enhancing their capabilities to make informed financial decisions, ultimately leading to a greater transparency and efficiency, said the SBP circular.
In the wake of the financial crisis, a great deal of attention has turned to the Consumer Protection agenda.
The crisis had severely damaged the trust of the customers in financial services, said the SBP circular.
Besides, the perceptions of risk, and the consequent desire for protection and assurance, have been substantially heightened.
Thus consumer protection is indeed becoming a pre-requisite for creating a fair market infrastructure; however, it is not new. Nor the adherence to this phenomenon is a matter of compliance only.
Many components of the emerging consumer protection agenda were already in place before the crisis – it is over a decade, for example, since the UK’s Financial Services Authority (FSA) launched its initiative on treating customers fairly, said the SBP.
Subsequent to the crisis, the G20 high-level principles on financial consumer protection were developed in 2011 by a special task force of the OECD.
These high-level principles are now used worldwide by financial regulators to complement their existing financial regulations, especially those regulations relevant to the protection of consumers.