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Financial Consumer Protection in China

Financial Consumer Protection in China. SUN Tianqi The People’s Bank of China. 1. 1. 1. Contents. 1. Financial Consumer Protection (FCP) Framework in China 2. F our R egulators’ （ PBOC, CBRC, CSRC, CIRC ） E fforts 3. Problems and Challenges. 2. 2. 2.

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Financial Consumer Protection in China

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  1. Financial Consumer Protection in China SUN Tianqi The People’s Bank of China 1 1 1

  2. Contents 1. Financial Consumer Protection (FCP) Framework in China 2. Four Regulators’ （PBOC, CBRC, CSRC, CIRC ） Efforts 3. Problems and Challenges 2 2 2

  3. 1. FCP Framework in China

  4. 1. FCP Framework in China As to FCP, there are 6 defense lines in China: • Consumers • Financial institutions • Financial industrial associations & China Consumers’ Association (CCA) • Regulators-PBOC, CBRC, CSRC, CIRC & related government departments • Judiciary/Arbitration • Mass media, social monitor. 4 4

  5. 1. FCP Framework in China 1.1 Consumers • The first and the most important defense line. • Learning financial knowledge actively, not passively. • Self-assessment about risk-taking capacity • Take the consequences of the risk One proverb of Chinese: • “Relying on mountain, the mountain may be collapse” • “Relying on important people, the people maybe collapse too” • “Relying on yourself is the most reliable way” 5

  6. 1. FCP Framework in China 1.2 Financial institutions Financial institutions increasingly pay more attention to FCP & FE. • Internal control system • Product design • Services quality improvement • Complaints handling system • Financial education 6 6

  7. 1. FCP Framework in China 1.3 Financial industrial associations and China Consumers’ Association (CCA) China Banking Association(CBA), Securities Association of China(SAC) and Insurance Association of China(IAC) show growing influence on financial consumer protection work. • Self-regulation • Set industry conduct rules • Urge members to fulfill declared responsibilities • Financial education 7 7

  8. 1. FCP Framework in China 1.3 Financial industrial associations and CCA CCA is an important channel of hearing and resolving all sorts of consumers complaints (including financial cases). • Provide information and consultation to financial consumers • Take and address financial disputes • Help consumers with judicial/arbitration advice • Cooperate with regulators and industrial associations • Cooperate with press media 8 8

  9. 1. FCP Framework in China 1.4 Regulators-PBOC, CBRC, CSRC, CIRC & related government departments Approved by the centre government, 4 regulators had set up 4 financial consumer protection bureaus from 2011. • The Banking Consumers Protection Bureau of CBRC • The Investors Protection Bureau of CSRC • The Insurance Consumer Protection Bureau of CIRC • The Financial Consumer Protection Bureau of PBOC 9 9

  10. 1. FCP Framework in China 1.4 Regulators-PBOC, CBRC, CSRC, CIRC & related government departments The 3 main responsibilities of Financial Consumer Protection Bureau of PBOC are: • Conduct research on main issues of the whole financial industry; collaborate with related authorities to make policies, regulations and laws for the whole financial industry. • Work with other departments to set cross-sector rules for FCP • PBOC focus on the whole financial industry • Carry out FCP work within PBOC’s mandate by law 10 10

  11. More information : • Financial Consumer Protection Bureau of PBOC is in the country-level. • There are 31 FCP departments in the 31 PBOC’s provincial--level branches. • PBOC’s city-level branches and county--level branches are responsible for the FCP in their region. • In city-level, there are no branches of CSRC and CIRC. In county-level, there are only branches of PBOC.

  12. 1. FCP Framework in China 1.4 Regulators-PBOC, CBRC, CSRC, CIRC & related government departments (cont’d) The main responsibilities of Banking Consumers Protection Bureau of CBRC : • Set the general plan, regulations and detailed policies of banking consumer protection • Investigate and deal with bank consumers’ complaints • Practice public education of banking consumer 12 12

  13. 1. FCP Framework in China 1.4 Regulators-PBOC, CBRC, CSRC, CIRC & related government departments (cont’d) The Investors Protection Bureau of CSRC is responsible for : • Formulate policies on securities investors protection • Promote investors education and services; press markets players to inform the risks to investors • Handles and coordinates to address complaints • Assists investors to compensate for their violated rights • Supervises the running of investors fund 13 13

  14. 1. FCP Framework in China 1.4 Regulators-PBOC, CBRC, CSRC, CIRC & related government departments (cont’d) Duties of Insurance Consumer Protection Bureau of CIRC are: • Formulate policies in the area • Investigates and resolves disputes • Carry out system building of consumers education and services, and guides to enhance credibility • Supervises engaged agencies and staff on disclosure of risks and information 14 14

  15. 1. FCP Framework in China 1.4 Regulators-PBOC, CBRC, CSRC, CIRC & related government departments (cont’d) These 4 consumer protection bureaus of the 4 regulators further collaborated on the basis of fulfilling their duties respectively. • December 2012, PBOC and CSRC jointly released ‘Memo of Improving Supervisory Collaboration on Securities and Futures to Maintain Financial Stability ’ • PBOC cooperated with CSRC on FCP pilot • Financial Consumer Protection Bureau of PBOC will seek effective approaches of coordinating system with the other three counterparties 15 15

  16. 1. FCP Framework in China 1.4 Regulators-PBOC, CBRC, CSRC, CIRC & related government departments (cont’d) All levels of government have their departments to resolve complaints for general consumers (Financial consumers are included). • Industrial and commercial administration • ‘12345’-mayor’s hotline • Office for Correcting bad/Illegitimate Practices of all Trades • Financial services office of local government. 16 16

  17. 1. FCP Framework in China 1.5 Judiciary and arbitration are the final defense and resort. • Consumers could seek settlement via judicial or arbitral means. • Both arbitral and judiciary decisions are legally binding. 17 17

  18. 1. FCP Framework in China 1.6 Mass media Mass media plays an important role in FCP & FE. • Bring pressure on misconduct agencies through public voice • Somehow a few local minor newspaper speculate and overstate disputes • Help boosting financial consumer education and this could lower the regulators’ cost 18 18

  19. 2. Four Regulators’ Efforts

  20. 2. Four Regulators’ Efforts 2.1 PBOC’s efforts 2.1.1 Rule writing • Took part in amending China’s Consumer Protection Law, and expounded and proved the addition of financial consumer protection part. • Pushed forward the launching of China’s Anti-money laundering Law, Regulation on the Administration of Credit Reporting Industryetc. 20 20

  21. 2. Four Regulators’ Efforts 2.1.1 Rule writing (cont’d) • PBOC released Guideline on Personal financial information protection. • Put forward specific measures in certain areas, and correct the wrong behavior of agencies in time. • Bank card • Account management • Payment services by non-financial institutions • Foreign exchange administration 21 21

  22. 2. Four Regulators’ Efforts 2.1.2 Build the supervisory mechanism • Several PBOC’s branches completed the Financial Consumer Protection Regulatory Handbook. • The Bureau conducted on-site examination of personal financial information protection and other essential areas together with other functional departments of PBOC. 22 22

  23. 2. Four Regulators’ Efforts 2.1.3 Complaints taking and addressing • Selected 5 pilot provinces/city (Shanghai, Hubei, Guangdong, Jiangsu & Shaanxi) to try 12363 financial complaints hotline, and will expand allover the country. • For those disputes that can’t be resolved between financial institutions and consumers, PBOC and its branches would step in and mediate. • PBOC handled 6899disputes in 2012, and the satisfactory rate reached 98%. 23 23

  24. 2.1.3 Complaints taking and addressing (cont’d) • PBOC keeps consumers informed that its mediation is not the last resort (unbinding). They can turn to judicial or arbitral court for final results. • In order to make the mediation result “binding”, several PBOC’s branches try to get judicial court’s confirmation on the result. • PBOC is studying how to set up ADR mechanism.

  25. PBOC Xi’an branch (Shaanxi Province) requires all commercial banks to disclose its own internal complaints number and the PBOC’s 12363 hotline number at each outlet. • Complaints decreased. • Financial service quality improved • The efficiency and effectiveness of financial institution to address disputes on-site increased • The whole Shaanxi Province: 39m population, PBOC only takes 5 complaints and 10 inquires per day.

  26. PBOC Wuhan branch requires all commercial banks to disclose 12363 hotline number at each outlet. 27

  27. 2. Four Regulators’ Efforts 2.1.4 Financial consumer education • Supported by the other 3 regulators, PBOC drafted National Strategy of Financial Education of Chinato OECD. • Conducted questionnaire on financial literacy of consumers, and worked on the indicators system to evaluates the effectiveness of financial education. • Compiling the Financial Knowledge Readings targeting the public, and built online consulting and education platform for financial consumer. 28 28

  28. 2. Four Regulators’ Efforts 2.1.4 Financial consumer education (cont’d) • Promote counter-fake money campaign through publishing pamphlets and RMB counter-fake web site. • Organized campaigns: ‘6.14 Credit Record Day’, ‘Credit Knowledge Week’ etc. • Other activities: ‘Anti-Money Laundering Month’, ‘Anti-Money Laundering Contest’ etc. • Organized ‘Financial Knowledge going into Community’ campaign, payment science training, and propaganda of safe use of bank card targeting rural residents. • Cooperate with local governments and other regulators to carry out ‘3.15 Financial Consumer Protection Campaign’. 29 29

  29. 2. Four Regulators’ Efforts 2.2 CBRC’s efforts • Enhances prudential supervisory system, protects the rights of depositors and other clients, and keeps the public confident about banking industry. • Improves peoples’ understanding of modern financial products and services and their ability to identify corresponding risks via propaganda and disclosure. • Conducts special examination, and strikes and prevents financial crimes. • Conducts on-site investigation at bank outlets and handles the problems such as ‘unfair attached clause’, ‘overcharge’ etc. 30 30

  30. 2. Four Regulators’ Efforts 2.3 CSRC’s efforts • Refines legal framework by pushing forward the amending of Securities Actand Law of the People’s Republic of China on Securities Investment Fund. • Conducted special inspection, and strengthened the punishment of misbehavior. • Advance the pilot work of protection and litigation of specialized institutions as shareholders, and improve marketized investor protection mechanism. • Build and improve multi-resolution mechanism of securities and futures disputes, and launch the nationwide unified 12386 investor hotline. 31 31

  31. 2. Four Regulators’ Efforts 2.4 CIRC’s efforts • Construct generally participated insurance consumer protection framework. • Improve insurance complaints handling mechanism, and increase the compensation of salvage insurance. 12378 national insurance complaints hotline has been launched. • Strengthen public education and risk warning to reinforce precautionary insurance. • Conducted special examinations and sorted out pending or unsolved property insurance contracts. The settlement rate reached 63% to an amount of 30 billion RMB. 32 32

  32. 3. Problems and Challenges

  33. 3. Problems and Challenges 3.1 Time-consuming legislative process • Regulations concerning financial consumer protection can be partly found in Commercial Banking Law and Anti-Money Laundering Law etc, but are considered too general and lacks of definition of ‘financial consumer’ . This situation calls for specialized Law of the Peoples’ Republic of China on Financial Consumer protection, however it may takes a really long time. • Lack of legislation on financial consumer privacy. There’s need to formulate Regulation on Personal Privacy to define the range of protection, infringement, compensation procedure etc. The process requires communication and coordination among a number of authorities and is also time-consuming. 34

  34. 3. Problems and Challenges 3.2 Overlap & Blind Zone The four regulators, CCA and associations are all authorized to take and settle financial disputes and initiate financial education activities. • The overlap of supervision causes extra compliance burden to financial institutions. • Existing supervision gaps (blind zone) bring potential risks. • Conflicts between prudential and behavioral supervision • As to FCP, how to ensure the fairness and justice of industry associations given the fact that their funding and staff all come from the industry. So, • Regulators need to coordinate to avoid Overlap of supervisionor supervision gaps. • Internal related departments within a regulatory authority need to collaborate as well. 35

  35. 3. Problems and Challenges 3.3 Adverse Selection and Moral Hazard • Protectionof financial consumer should be appropriate and limited, not 100%. • Overprotection may lead to adverse selection. e.g. to hide background information in order to purchase high-risk products. • Overprotection may also brings moral hazard. e.g. passive post-transaction monitoring, meaning not in time trying to fix the possible loss. 36

  36. 3. Problems and Challenges 3.4 Big difference and gap among consumers • City residents VS rural residents • East China (developed) VS west China (Undeveloped) • Different consumer groups of city residents • Consumers from minority nations • Financial inclusion needs enhancement. At the end of 2012, there still remains 1686 towns (belong to counties) that do not have financial services. 37

  37. 3. Problems and Challenges 3.5 Expertise of regulators need to be improved • Experience and expertise about legal and accounting knowledge plus on-site examination • Address disputes related to ‘new & high-tech’ • Credit card cloning • Crime • The government is not cleverer than the market / private sector. 38

  38. 3. Problems and Challenges 3.6 Is it necessary to include the financial consumer protection into FSAP assessing system?? FSAP is generally adopted to evaluate each country’s financial stability. Is it necessary to: • Include FCP into FSAP qualitative indicators? • Include FCP into FSAP quantitative indicators?? • Set the weight of FCP in FSAP quantitative indicators?? Maybe, It can help the international FCP rules change from ‘soft rule’ to ‘hard rule’, change from “unbinding” to “binding”. 39

  39. Thank you!Email: stqds@126.com Tel:86-10-66199530 40 40

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