Overview Financial Consumer Protection

The COVID-19 pandemic underscored the urgency for regulators to safeguard the financial well-being of customers, especially during crises. Reports of unfair treatment, uninformed decisions, and scams brought to light the need for a robust customer-centric approach. Recognizing this, financial consumer protection regulators in leading countries are shifting towards a customer outcomes-based strategy, focusing on real results rather than strict rule compliance.

Key Characteristics of a Customer Outcomes-Based Approach

• Monitoring Actual Customer Experiences: Unlike traditional approaches, this strategy concentrates on understanding and incentivizing positive outcomes for consumers when engaging with financial service providers.
• Tools for Understanding Customer Needs: Utilizes diverse tools to grasp customer needs, promoting transparency and disclosure. For instance, regulators not only mandate specific disclosures but also ensure that consumers comprehend key features through testing.

In their working Paper “Making Consumer Protection Regulation More Customer Centric”, CGAP outlines the pathway to building a consumer centric approach to FCP. through regulator–industry dialogue.

Three Steps to Advance Customer Outcomes-Based Approach:

• Set Clear Customer Outcomes:

  • Establish a solid legal and regulatory foundation for effective consumer protection.

  • Collaborate with providers and consumer representatives to define a set of customer outcomes. CGAP suggests six core outcomes: stability and appropriateness, choice, meets purpose, voice, fair treatment, safety, and security.

    The six customer outcomes for financial consumer protection

  

  Source:

  Customer Outcomes to strive for (CGAP 2020)

• Incentivize Responsible Provider Behavior Through Regulatory Elements:

  • Develop regulatory frameworks supporting positive customer outcomes.

  • This may involve creating new legal frameworks, introducing regulations, or modifying existing ones. A balanced mix of rules, principles, and performance-based regulation is crucial. The regulations can broadly be divided into two groups: internal provider culture and processes and provider– customer interactions.

    The six regulatory elements to outcomes-based approaches to financial consumer protection

  

  Source:

  Making Consumer protection More customer centric (CGAP 2020)

• Strengthen Dialogue, Customer-Centric Enforcement:
  • Enhance communication between regulators, providers, and consumers.
  • Make enforcement customer-centric by empowering staff to identify issues hindering positive outcomes.