100.This Standard will focus on regulatory supervision of market conduct by the Central Bank. Supervision will rely on the supervisory activities identified in the previous chapters and is supplemented by the follow requirements and activities.

101.The Central Bank has taken steps to strengthen its regulatory and supervisory framework regarding market conduct of financial institutions by creating a separate Consumer Protection Department (CPD) that will have the resources and mandate to focus on monitoring market conduct, providing regulatory supervision and addressing issues of compliance / enforcement. It also has a mandate to improve consumer financial literacy through consumer education programs and outreach activities.

Consumer Protection Framework

102.A Consumer Protection Framework (CPF) is a regulatory and supervisory response designed to protect consumers by establishing standards of market conduct for institutional behaviour to mitigate potential risks of misconduct and protect consumers from harm.
 

103.Market conduct is defined simply as to how a financial institution conducts itself in the marketplace in terms of the level of integrity, fairness, and competency that it demonstrates in dealing with consumers. It includes the behaviour and actions of a financial institution in the market place involving such matters as:

1. i.product design, development
2. ii.marketing and sales practices,
3. iii.advertising,
4. iv.compliance with laws,
5. v.fulfilling its obligations to customers,
6. vi.treatment of customer’s / dispute resolution,
7. vii.conflicts of interest,
8. viii.transparency and disclosure
9. ix.Market competition, pricing, etc.

104.The supervisory activities under the CPF are risk-based and requires a comprehensive understanding of the retail operations of the financial institutions; the risks created by the behaviour of these organisations, the risks from products and services offered, and how these risks are being managed. The risk-based approach assesses the nature of the institution’s business activities and the risks that are inherent to each type of activity undertaken. The supervisory framework requires open, transparent and frequent flow of quality data and information between the financial institutions and the Central Bank that allows CPD to effectively perform up-to-date market conduct assessments.

Importance of Supervisory Review – Market Conduct

105.Many of the supervisory requirements discussed in previous sections of these Standards fully apply to the supervision of market conduct. However, supervision of market conduct adds another dimension and perspective in regulatory supervision. The additional supervisory concerns are highlighted as follows.
 

Board and Senior Management Oversight

106.In addition to the previous chapters, it is expected that effective reporting occur quarterly regarding any compliance issues regarding retail operations, analysis of consumer complaints / trends and identification of systemic issues. Boards should be confident that its retail workers have had the training and qualification to fulfil their responsibilities and regulatory responsibilities and those effective verifications are carried out.
 

Appropriate Policies, Procedures and Limits:

107.More specifically, market conduct will focus on policies, procedures, practices and related training associated with product design, development, distribution, marketing, advertising and sales. The Central Bank will evaluate the same elements for third parties carrying out outsourced retail activities.
 

Comprehensive Risk Assessment:

Operational Risk:

108.The financial institution must have a framework for monitoring, identifying and mitigating market conduct risks association with business lines and the products and services offered at the retail level. This includes identifying risks associated with institutional errors or misconduct. Risk analysis must consider such activities including product design, development, marketing, pricing, distribution, sales, advertising, disclosure, suitability, affordability, product assumptions and accuracy / method of calculations, fraud, technology downtime, etc. Institutions must also evaluate the risks related to third party distributors, suppliers / contractors.

109.An important differentiation from prudent supervision is the matter of materiality. It is not the basis for mitigating conduct risks in the retail market place. The regulatory concerns are on proactive mitigation of risks with the objectives of promoting consumer confident in the integrity of the market place, preventing harm done to the consumer and ensuring proper dispute resolution and redress where there is harm.

Reputational Risks:

110.The institution must also evaluate the impact that a risk event in the retail operations may have on its reputation in the market place, (a) whether it is an event of significant misselling or improper disclosure or calculation errors, these may be systemic issues that will attract regulatory actions, may attract public awareness and media attention and (b) what measures will the institution have in place to mitigate this risk and associated response by consumers.

Monitoring and Reporting:

111.Institutions are expected to have an adequate system for monitoring and reporting on their retails operations. The bank’s senior management or board of directors must, ensure proper monitoring and reporting including risk analysis and trends in consumer inquires and complaints. Reporting to the board should evaluate the quality and frequency of training of front line staff; the proper qualifications of staff to sell or market products, the meeting of performance indicators, the identification and frequency of bank errors, compliance with regulatory requirements and other matters of conduct risk.

112.Financial institutions will provide timely and accurate information as requested by the Central Bank including complaint information as required by the Central Bank as per Notice 383/2017 regarding setting up a Complaint Unit.

113.Financial institutions will provide notice to the Central Bank of any material changes and/or important issues that may affect consumers or the retail operations of the financial institution.