Mumbai: In order to protect customer interest, regulators in financial sector and consumer protection bodies need to keep a close watch on product design as well as financial innovation, RBI Deputy Governor K C Chakrabarty has said.
"Financial sector regulators/supervisors and consumer protection bodies need to keep a close watch on product design and financial innovation in order to ensure that these are oriented towards consumer needs and expectations," Chakrabarty said recently in an event on Financial Consumer Protection.
He said financial service providers should treat their customers fairly to protect them from vulnerabilities.
"The possible solution to insulate consumers from vulnerabilities is by ensuring that the financial service providers treat their customers fairly. The financial institutions must understand what fair and equitable treatment of customers means and then align their business practices to achieve the desired outcomes," Chakrabarty said.
He emphasised that individual financial service providers should also have internal frameworks for vetting new product offerings so as to ensure that they are in alignment with regulatory requirements and consumer expectations.
Chakrabarty said a credible and effective regulatory regime acts as as source of confidence and comfort in the financial system.
"This helps in attracting more participants to the market place, thereby making the financial system inclusive and efficient."
He also said very often the financial products are complex which also leads to consumer disputes and loss of reputation for the financial service providers.
"When such product design is combined with aggressive sales practices led by perverse compensation systems, it leads to mis-selling to gullible consumers. The end result is a slew of consumer disputes, resulting in loss of reputation for the financial service providers," Chakrabarty said.
Chakrabarty said most often the consumer voice is not heard. However, this can be strengthened by encouraging a culture of openness towards consumers, an effective communication strategy and understanding of the evolving trends and practices by the financial service providers.
"Going forward, customer-centricity will be a must for the regulators and the regulated entities alike in the wider interest of financial stability, an essential cornerstone of which is consumer protection," Chakrabarty added.
First Published: Sunday, March 31, 2013, 14:28