Good Practices for - World Bank

1 good Practices for financial Consumer ProtectionGood Practices for financial Consumer ProtectionJune 2012 2012 International Bank for Reconstruction and Development / The World Bank1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: work is a product of the staff of The World Bank with external contributions. The findings, interpreta-tions, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such and PermissionsThe material in this work is subject to copyright.

2 Be-cause The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full at-tribution to this work is queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Pub-lisher, The World Bank, 1818 H Street NW, Washing-ton, DC 20433, USA; fax: 202-522-2422; e-mail: Photo: Practices for financial Consumer Protection was prepared by a team led by Susan L. Rutledge, Senior Private Sector Development Specialist at the World Bank. The core team consisted of Nagavalli Annamalai (Lead Counsel), Rodney Lester (Senior Advisor, Re-tired), and Richard L. Symonds (Senior Counsel, Re-tired), all from the World Bank.

3 They were joined by Eric Haythorne (Lead Counsel, Retired) and Juan Car-los Izaguirre Araujo (Consultant) also from the World Bank. Also joining the team was Nicola Jentzsch, then Senior Research Fellow, Technische Universit t Ber-lin. In addition, valuable contributions were made by Milton Cartwright, Manager Pensions and Investment Policy of United Kingdom s financial Services Author-ity and David Stallibrass of the Office of Fair Trading of the United Kingdom. Special thanks also go to Shaun Mundy, international consultant on financial literacy and former Head of financial Capability Department of the United Kingdom s financial Services authority , Rosamund Grady, Conjoint Professor and Chief Ex-ecutive Officer at the Sydney-based Centre for Inter-national Finance and Regulation, John Pyne, Associate Director of Insurance Supervision at the Qatar Finan-cial Centre Regulatory authority , and Patrick McAl-lister, Director of Housing Finance in Asia/Pacific at Habitat for Humanity International.

4 Editorial support was kindly provided by Marga O. De Loayza and Snig-dha comments were received from Zoran Anu-sic, Giuliana Cane, Deepa Chakrapani, Martin Cihak, Massimo Cirasino, Charles Michael Grist, Orsalia Kalantzopoulos, Claire McGuire, Nataliya Mylenko, Antony Randle, Consolate Rusagara and Vijay Srinivas Tata (all World Bank), as well as Denise Dias, Tilman Ehrbeck, Katharine McKee, Timothy Lyman and Ra-fael Mazer (all from the Consultative Group to Assist the Poor). Thanks also to Marie-Renee Bakker, Marsha Olive, Fernando Montes-Negret and Sophie Sirtaine (all from the World Bank s Europe and Central Asia Region) who supported the early development of the work financial consumer peer review comments were gratefully received from Tom Prouza, Chairman of the Board of the As-sociation of financial Advisers of the Czech Republic and former Deputy Finance Minister of the Czech Re-public, William Knight, Chairman of the International financial Consumer Protection Network (FinCoNet) and Former Commissioner of the financial Consumer Agency of Canada.

5 For comments on an early draft, thanks to Sarah Lynch of the European Commission, Jane Rooney, Director of financial Literacy and Con-sumer Education at the financial Consumer Agency of Canada, and Lewis Mandell, Professor and Dean Emeritus, University at Buffalo - The State University of New York and Senior Fellow at the Aspen Institute s Initiative on financial Security. Comments were also gratefully received from AC-CION International, Alliance for financial Inclusion, Analistas Financieros Internacionales , Banco de M xico, Banco de Portugal, Bank of Uganda, Superin-tendencia de Bancos of Guatemala, Consumers Inter-national, International Association of Pension Supervi-sors, International Network of financial Ombudsmen, Organisation for Economic Co-operation and Devel-opment, Palestine Monetary authority , Pension Fund viGood Practices for financial Consumer ProtectionRegulatory and Development authority of India, Polish financial Supervision authority , Retirement Commis-sion of the Government of New Zealand, Superinten-dencia de Banca.

6 Seguros y Administradoras Privadas de Fondos de Pensiones of Peru, Superintendencia de Bancos of Paraguay, Swiss financial Market Supervi-sory authority , TD Bank, UK financial Ombudsman Service, US Federal Deposit Insurance Corporation, US Federal Reserve Board, (US) National Association of Insurance Commissioners, and World Savings Banks Institute. Thank you all for your valuable insights and addition to World Bank funding, financial support for the work of country diagnostics and implementation programs has been generously provided by the ( World ) Bank Netherlands Partnership Program (BNPP), the Japan Population and Human Resources Develop-ment Program (PHRD), the financial Sector Reform and Strengthening (FIRST) Initiative, the Swiss State Secretariat for Economic Affairs (SECO), the United Kingdom Department for International Development (DFID) and the United States Agency for International Development (USAID).

7 Acronyms & AbbreviationsAML Anti-money laundering ANEC European Association for the Co-ordination of Consumer Representation in Standardization APEC Asia Pacific Economic CooperationAPI Arab Payments InitiativeAPY Annual percentage yieldASBA Asociaci n de Supervisores Bancarios de las Am ricas (Association of Supervisors of Banks of the Americas)B2C Business to ConsumerBEUC Bureau Europ en des Unions des Consommateurs (European Consumers Organisation) BIS Bank for International SettlementsBNPP ( World ) Bank Netherlands Partnership ProgramCEMLA Centro de Estudios Monetarios Latinoamericanos CESR Committee of European Securities RegulatorsCFT Combating the financing of terrorismCGAP Consultative Group to Assist the PoorCISPI Commonwealth of Independent States Initiative CIU Collective Investment UndertakingCOE Council of EuropeCPSS Committee on Payment and Settlement SystemsDFID United Kingdom Department for International DevelopmentEC European CommissionECJ European Court of JusticeERISA US Employee Retirement Income Security ActESIS European Standardized Information SheetETS European Treaty SeriesFIMM Federation of Investment Managers MalaysiaEU European UnionFATF financial Action Task ForceFCAC financial Consumer Agency of CanadaFDIC US Federal Deposit Insurance

8 CorporationFinCoNet International financial Consumer Protection NetworkFINRA US financial Industry Regulatory AuthorityFIRST financial Sector Reform and Strengthening InitiativeFSA UK financial Services AuthorityviiiGood Practices for financial Consumer ProtectionFSAP financial Sector Assessment ProgramFSB financial Stability Board FTC US Federal Trade CommissionG20 Group of TwentyGDP Gross domestic productIADB Inter-American Development BankIAIS International Association of Insurance SupervisorsICO UK Information Commissioner s OfficeICP Insurance Core PrincipleIDD Initial disclosure documentIEFP Institut pour l Education Financi re du PublicIFC International Finance CorporationIFRS International financial Reporting StandardsIOPS International Organisation of Pensions SupervisorsIOSCO International Organization of Securities CommissionsISO International Organization for StandardizationKYC Know Your CustomerLIBOR London Inter-bank Offered RateMAS Monetary authority of SingaporeMiFID Markets in financial Instruments DirectiveMSME Micro.

9 Small and Medium EnterprisesNAIC US National Association of Insurance CommissionersNASD US National Association of Securities DealersNGO Non-government organization NPS National Payments SystemOECD Organisation for Economic Co-operation and DevelopmentOTC Over-the-CounterPIN Personal identification numberPHRD Japan Population and Human Resources Development ProgramSADC Southern African Development Community SAPI South Asia Payments Initiative SEC US Securities and Exchange CommissionSECCI Standard European Consumer Credit InformationSECO Swiss State Secretariat for Economic AffairsSEEP Small Enterprise Education and Promotion NetworkSEPA Single Euro Payments AreaSFC Securities and Futures Commission of Hong KongSME Small and medium enterprisesSRO Self-regulatory organizationTILA US Truth in Lending ActUCITS Undertakings for Collective Investment in Transferable SecuritiesUK United KingdomUN United NationsUS United States of AmericaUSAID United States Agency for International DevelopmentUSC United States CodeWBG World Bank Group WHCRI Western Hemisphere Credit and Loan Reporting InitiativeContentsIntroduction.

10 1 Common good Practices for financial Consumer Protection ..7 good Practices for financial Consumer Protection by financial Service ..11 Banking Sector ..11I. Consumer Protection Institutions ..11II. Disclosure and Sales Practices ..14 III. Customer Account Handling and Maintenance ..18IV. Privacy and Data Protection ..24V. Dispute Resolution Mechanisms ..26VI. Guarantee Schemes and Insolvency ..28 VII. Consumer Empowerment & financial Literacy ..29 VIII. Competition and Consumer Protection ..31 Securities Sector ..33IX. Investor Protection Institutions ..33X. Disclosure and Sales Practices ..35XI. Customer Account Handling and Maintenance ..38 XII. Privacy and Data Protection ..40 XIII. Dispute Resolution Mechanisms ..41 XIV. Guarantee Schemes and Insolvency ..41XV. Consumer Empowerment & financial Literacy.