Events
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World Bank - FinSAC International Conference on Financial Consumer Protection and Financial Literacy
June 11-14, 2014Sofia, Bulgaria

Following the recent financial crisis, policy makers became more aware of the importance of strengthening and prioritizing consumer protection and financial literacy (CPFL) frameworks and campaigns. These efforts aim, among other, to protect the population from unscrupulous providers of financial services, but also to “protect consumers from themselves”, when they make financial decisions with poor information or knowledge about the potential financial risks they are taking.

In February 2011, the G20 Finance Ministers and Central Bank Governors requested the OECD, the FSB and other relevant international organizations to develop common voluntary principles on consumer protection in the field of financial services. As a result high-level principles on financial consumer protection were developed and endorsed by the G20 in 2011, which have been further refined and clarified in the subsequent meetings of the G20, particularly in 2014.

The World Bank and FinSAC have taken this agenda forward in the ECA region through a number of initiatives at the national and regional levels. The CPFL regional conference in Sofia, Bulgaria, in June of 2014, offered a forum for Sr. supervisors and regulators to enhance their knowledge of these topics and also debate with academics, practitioners and policymakers on the effectiveness of various initiatives that are being implemented in their respective countries.

In his opening remarks, the Bulgrian Prime Minister, Palmen Oresharski, highlighted the importance of strengthening consumer protection and financial literacy in Bulgaria including the ongoing efforts in developing a national financial literacy strategy as well as the setup of an alternative dispute resolution mechanism for disputes between consumers and financial institutions. In commenting on regional trends the EU Commissioner for Consumer Policy, pointed, Mr. Neven Mimica, to the currently low levels of consumer trust in financial services found by the EU Consumer Conditions Scoreboard Survey.

Concrete measures to improve these low levels of consumer trust are crucial for further growth of the EU common
market.

The conference quickly acknowledged that recovery of consumer confidence in the financial sector is crucial for the viability of the new bank funding models which will be less reliant on cross-border and wholesale financing and more dependent on a local retail deposit base. There is a need to collectively redefine relationships consumers have with the financial system in Europe in order to address the challenges of the recent crisis, but also to better prepare for the next. As one of the speakers at the Conference rightly put it, “Prudential regulation, financial consumer protection regulation, financial inclusion initiatives and financial literacy initiatives all have a vital role to play in the development and maintenance of a stable and vibrant financial sector. None is sufficient on its own: they are complementary, rather than alternatives."

It reaffirmed the conclusions of the 2011 OECD report that concluded, “Consumer confidence and trust in a well-functioning market for financial services promotes financial stability, growth, efficiencproducts and rapid technological change, all coming at a time when basic access to financial products and the level of financial literacy remain low in a number of jurisdictions. Rapid financial market development and innovation, unregulated or inadequately regulated and/or supervised financial services providers, and misaligned incentives for financial services providers can increase the risk that consumers face fraud, abuse and misconduct. In particular, low-income and less experienced consumers often face particular challenges in the market place” (OECD, 2011).

In reaching this conclusion, the In this case the Sofia Conference addressed the six broad topics:

  1. “Compliance and Supervision”
  2. “Responsible Lending and Debt Counseling: A European Perspective”,
  3. “Financial Innovation and Technology”;
  4. Approaches to Alternative Dispute Resolution in Developed
    and Developing EU Economies”;
  5. “Deposit Insurance and Financial Consumer Protection”, and
  6. Strengthening the Population’s Financial Capability”.

The discussions and debates at the conference were consistent with the World Bank and FinSAC goals of promoting international co-operation to support the strengthening of financial consumer protection in line with, and building upon, the G20 approved principles. The conference supported the increasing legal recognition of financial consumer protection by oversight bodies, and more importantly ensuring that the following multiple objectives are achieved, including: fair treatment of financial service users, proper disclosure, prevention of fraud and abuse, adequate complaints handling and redress mechanisms and, more broadly, the adoption of policies by financial service providers of responsible business conduct.

Interested readers will find a lot of “food for thought” in the attached presentations from this important Conference and innovation over the long term.

Visit the FinSAC website: http:www.worldbank.org/finsac


June 10th

09:00 – 09:30 Registration

09:00 – 09:30 Welcoming Remarks

Mr. Plamen Oresharski, Prime Minister of Bulgaria
Mr. Neven Mimica, EU Commissioner for Consumer Policy
Mrs. Daniela Bobeva, Deputy Prime Minister for Economic Development of Bulgaria
Mr. Samuel Munzele Maimbo, Lead Financial Sector Specialist, World Bank
Mr. Stoyan Mavrodiev, Chairman, Bulgarian Financial Supervision Commission (FSC)
Mr. Laurent Degabriel, Head of the Investment & Reporting Division, ESMA

Session 1


10:20 – 11:00 Compliance and Supervision: An Uphill Task for Regulators

Speakers: Mr. Theodor Kockelkoren, Netherlands Authority for Financial Markets,
Mr. Michał Kruszka, Deputy Director of Analyses and International Cooperation Department, Polish Financial Supervision Authority

11:00 – 11:15 Q & A

11:15 – 11:30 Coffee break

Session 2

11:30 – 12:30 Responsible Lending and Debt Counseling: A European Perspective


Speakers:
Mr. Levon Hampartzoumian, Chairman of the Association of Bulgarian Banks,
Ms. Maria Lucia Leitão, Central Bank of Portugal, Head of Banking Conduct Supervision Department,
Mr. Bernard Sheridan, Central Bank of Ireland

12:30 – 12:45 Q & A

12:45 – 14:00 Lunch

Session 3

14:00 – 14:40 Financial Innovation and Technology and their Impact on Consumer Protection:Finding a balance between Regulation and Innovation

Speakers: Ms. Ralitsa Agayn-Guri, Deputy Chair of the Bulgarian FSC,
Mr. Robin Simpson, Consumers International, Mr. Riccardo Basso, Bank of Italy

14:40 – 15:00 Q & A

Session 4

15:00 – 16:00 Approaches to Alternative Dispute Resolution in Developed and Developing EU Economies

Speakers: Mr. David Thomas, World Bank, Mr. Dimitar Koichev, Director “International
cooperation”, Bulgarian FSC, Ms. Hranush Aghayan, Financial System Mediator, Armenia

16:00 – 16:20 Q & A

16:20 – 16:30 Closing remarks

Lead moderator for the day: Mr. Evgeni Evgeniev, Private Sector Development Specialist, World Bank

June 11th

09:00 – 09:30 Registration


Session 1

09:30 – 10:10 Deposit Insurance and its Implications on Financial Consumer Protection


Speakers:
Mr. Jerzy Pruski, IADI President and Chair of Executive Council, President of the Management Board of the Bank Guarantee Fund, Poland,
Mr. Rossen Nikolov,Chairman of the Bulgarian Deposit Insurance Fund


10:10 – 10:30 Q & A


10:30 – 10:45 Coffee break


Session 2


10:40 – 11:40 Strengthening the Population's Financial Capability


Speakers: Mr. Vladimir Savov, Member of the Board, Bulgarian FSC,
Ms. Milena Stoicheva, Executive Director, Junior Achievement, Bulgaria, Mr. Shaun Mundy,
World Bank


11:40 – 12:00 Q & A

12:00 – 12:20 Conference closing remarks

DPM Daniela Bobeva,
Mr. Vladimir Savov, Bulgarian FSC,
Mr. Samuel Munzele Maimbo, Lead Financial Sector Specialist, World Bank

12:20 – 14:00 Lunch

*Lead moderator for the day: Mr. Vladimir Savov, Member of the Board, Bulgarian FSC


Day 1 – June 10, 2014

Welcoming Remarks


Prime Minister Palmen Oresharski highlighted the importance of strengthening consumer protection and
financial literacy in Bulgaria including the ongoing efforts in developing a national financial literacy
strategy as well as the setup of an alternative dispute resolution mechanism for disputes between
consumers and financial institutions.

Mr. Neven Mimica, EU Commissioner for Consumer Policy, pointed to the currently low levels of consumer trust in financial services found by the EU Consumer Conditions Scoreboard Survey. Concrete measures to improve these low levels of consumer trust are crucial for further growth of the EU common market.

Mr. Samuel Maimbo, World Bank, reiterated that recovery of consumer confidence in the financial sector is crucial for the viability of the new bank funding models which will be less reliant on cross-border and wholesale financing and more dependent on a local retail deposit base. There is a need to collectively redefine relationships consumers have with the financial system in Europe in order to address the challenges of the recent crisis, but also to better prepare for the next.

Mr. Stoyan Mavrodiev, Chairman of FSC, emphasized the need for increased financial education especially among the young population in Bulgaria complemented by strengthened regulations in order to mitigate financial stability risks, protect consumers, ensure confidence and further develop the financial market.

Mr. Laurent Degabriel, Head of the Investment & Reporting Division, ESMA, described the holistic approach taken by MiFID 2 which will provide supervisors with investor protection powers throughout the product cycle from design, marketing, and pre-contractual stages to actual sale and after sale interventions.


Session 1: Compliance and Supervision: An Uphill Task for Regulators

According to Mr. Theodor Kockelkoren, Netherlands Authority for Financial Markets (AFM), supervision
is about changing behavior. In its problem-based approach, AFM tries to identify the most important
market problems (e.g. an organizational culture that stimulates excessive risk-taking) and focuses on
designing a mix of interventions that will effectively mitigate the problem. Measuring the effects of these interventions is necessary in order to determine whether the problem has been sufficiently mitigated.

There is a need to move away from the classic toolbox of supervisory and enforcement measures such as revoking licenses, warnings and fines. AFM developed a variety of new supervisory instruments in close consultation with the industry. Among others a Benchmarking Tool was developed with the industry that has proven successful stimulating and facilitating accelerated change process towards treating customers fairly. Mr. Michael Kruszka, Deputy Director of Analyses and International Cooperation Department, Polish Financial Supervision Authority (KNF), pointed out that the consumer protection function is executed by the KNF – an integrated financial supervisor - in three ways: through detailed communication with firms and clients, through ordinary sectoral supervision and through dedicated customer Protection Department. Consumer protection is not a primary task of the KNF as there is a separate general consumer authority for these matters, which raises challenges of coordination.


Session 2: Responsible Lending and Debt Counseling: A European Perspective

Mr. Bernard Sheridan, Central Bank of Ireland and Chairman of the International Financial Consumer
Protection Organization (FinCoNet)
, presented key aspects of the Irish responsible lending framework including (i) knowing the consumer and suitability, (ii) affordability assessment, (iii) arrears handling obligations, (iv) contacts rules, (v) provision of information to assist borrowers, and (vi) obligations on lenders to seek solutions for borrowers. FinCoNet is currently finalizing a responsible lending study focused on strengthening supervisory tools aimed at determining unsuitable or irresponsible lending. Ms. Maria Lucia Leitão, Central Bank of Portugal, Head of Banking Conduct Supervision Department, presented the Portuguese holistic approach to ‘responsible credit’ which incorporates three pillars: responsible lending, borrowing, and responsible management of arrears. The Central Bank solved implementation challenges of responsible lending principles through issuance of detailed guidelines and regulations. The national “Todos Contam” financial education website (www.todoscontam.pt) was created in 2012. Mr. Levon Hampartzoumian, Chairman of the Association of Bulgarian Banks, noted that after the crisis in 2008 the world has changed and regulations are being recast so as to avert another crisis of this kind. New regulations will need to be carefully designed based on informed decision-making and by avoiding polemics. Financial education is essential in order for people to understand the main economic processes and financial products.


Session 3: Financial Innovation and Technology and their Impact on Consumer Protection: Finding a balance between Regulation and Innovation

Mr. Robin Simpson, Consumers International (CI), pointed out that technological advances hold great promise for consumer’s e.g. mobile telephony in low-income countries such as the example of M-Pesa in Kenya. However, this technology is not without problems. A lack of legal and regulatory frameworks within the market has given rise to security concerns, data privacy issues and confusion as to who is responsible in the event of a failure or breach. CI is working with members to input into the development of the ISO standard on mobile banking payments. Mr. Riccardo Basso, Bank of Italy, presented opportunities and challenges for consumers and regulators drawing examples from social lending, consumer credit and payment accounts emphasizing how technology may foster innovation and competition as well as the creation of new services for consumers and how it can at the same time pose challenges in terms of fraud, irresponsible lending and borrowing. Ms. Ralitsa Agayn-Guri, Deputy Chair of the Bulgarian FSC, spoke about financial innovation and the existing economic rationale and practices towards regulation, drawing examples from securities markets, regulation of alternative investments, and crowd funding.


Session 4: Approaches to Alternative Dispute Resolution (ADR) in Developed and Developing EU Economies

Mr. Dimitar Koichev, Director “International cooperation”, Bulgarian FSC, presented the new EU directive on ADR which is due to be implemented by June 2015. The directive includes compulsory requirements and standards for ADRs including on independence, efficiency and effectiveness, which will require significant changes to existing financial ADR arrangements in Bulgaria. A working group under the Deputy Prime Minister is currently discussing possible options. Mr. David Thomas, ADR Expert, emphasized that a financial ADR body can prove beneficial for customers, financial service providers, regulators and the state if the ADR is set up efficiently. A financial ADR will need to be designed to respect the cultural, legal and economic circumstances in the particular country and to follow fundamental principles of independence, impartiality, fairness, clarity of scope and powers, effectiveness and efficiency, accessibility, transparency and accountability.

Ms. Hranush Aghayan, Financial System Mediator, Armenia, described the operations of the Armenian financial ombudsman scheme addressing issues of ADR inter-relationship with financial providers and consumers, efficiency and transparency. The Financial System Mediator is set up by national law and requires mandatory participation of financial institutions. Decisions are made binding on financial institutions.


Day 2 – June 11, 2014


Session 1: Deposit Insurance and its Implications on Financial Consumer Protection

According to Mr. Jerzy Pruski, IADI President and Chair of Executive Council, President of the Management Board of the Bank Guarantee Fund Poland, historical examples show that consumers are often not aware of the undertaken risk related to the financial products they use, which may contribute to the creation of market bubbles and, in consequence, lead to consumers bearing losses. A clear information policy targeting consumers and investors is necessary for the protection of financial market retail clients. Well-informed consumers and investors are important factors in maintaining stability of the financial system as a whole. However, consumers and investors must be supported by a comprehensive network of financial safety-net institutions, which includes an infrastructure of micro- and macro-supervision as well as a highly robust deposit insurance system.

For Mr. Rossen Nikolov, Chairman of the Bulgarian Deposit Insurance Fund, deposit insurance schemes are an integral part of financial consumer protection aimed at redistributing losses arising from the failure of a set of existing civil contracts through fulfillment of the social contract. While further harmonization on EU level is an important step this might lead to moral hazard implications in Bulgariawhere the coverage ratio of 100,000 Euro is considered to be too high. Moreover, it is important to keep the definition of ‘deposit’ flexible enough to encompass new products with deposit-like characteristics.


Session 2: Strengthening the Population's Financial Capability

Mr. Shaun Mundy, Financial Education Expert, emphasized that prudential regulation, financial consumer protection regulation, financial inclusion initiatives and financial literacy initiatives all have a vital role to play in the development and maintenance of a stable and vibrant financial sector. None is sufficient on its own: they are complementary, rather than alternatives. In the absence of a national strategy, financial literacy initiatives tend to be patchy and uncoordinated and lack strategic focus. Insights from behavioral economics show that people tend to (i) be overwhelmed and do nothing if they are given too much information or too many choices, (ii) be over-confident about their ability to manage their personal finances and to ignore information which calls into question their views, and (iii) struggle to make good decisions.

Ms. Milena Stoicheva, Executive Director, Junior Achievement, Bulgaria, presented the experience of Junior Achievement in changing the attitudes of young people towards personal finance and financial capability. Junior Achievements recommends financial education from an early age and has a variety of programs in place addressing children and youth at different age levels.

Mr. Vladimir Savov, Member of the Board, Bulgarian FSC, presented ongoing financial education efforts in Bulgaria. Currently a working group with relevant stakeholders is preparing a draft national strategy for enhancing financial literacy in Bulgaria. FSC has also been involved in a number of educational programs as well as campaigns and has launched its own web page for consumers of non-banking financial services: www.tvoitefinansi.bg

REPUBLIC OF BULGARIA FINANCIAL SUPERVISION COMMISSION

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http://www.fsc.bg

Consumer Protection: a supervisor’s perspective

Mr. Theodor Kockelkoren
Netherlands Authority for Finacial Markets

Consumer protection requirements and supervisory activities - KNF’s model

Mr. Michał Kruszka,
Deputy Director of Analyses and International Cooperation Department,
Polish Financial Supervision Authority

Responsible Credit. The Portuguese Experience

Ms. Maria Lucia Leitão
Head of Banking Conduct Supervision Department
Central Bank of Portugal

Responsible lending and debt counseling – a European perspective

Mr. Bernard Sheridan
Central Bank of Ireland

Finding a balance between regulation & innovation. The case of mobile payments

Mr. Robin Simpson
Consumers International

Technology and its impact on consumer protection - Finding a balance between regulation and innovation

Mr. Riccardo Basso
Bank of Italy

Alternative Dispute Resolution

Mr. David Thomas
World Bank

Directive 2013/11/EU on Alternative Dispute Resolution for Consumer Disputes

Mr. Dimitar Koichev
Director “International cooperation”
Bulgarian Financial Supervision Commission

Approaches to Alternative Dispute Resolution

Ms. Hranush Aghayan
Financial System Mediator
Armenia

Deposit Insurance and its implications for Financial Consumer Protection

Mr. Jerzy Pruski
IADI President and Chair of Executive Council
President of the Management Board of the Bank Guarantee Fund
Poland

DIS Implications On Financial Consumer Protection

Mr. Rossen Nikolov
Chairman of the Bulgarian Deposit Insurance Fund

Strengthening the Population’s Financial Capability

Mr. Vladimir Savov
Member of the Board
Bulgarian Financial Supervision Commission

Changing the Attitudes of Young People towards Personal Finance and Financial Capability: The Experience of Junior Achievement

Ms. Milena Stoicheva
Executive Director
Junior Achievement
Bulgaria

Strengthening the Population's Financial Capability – What does international experience tell us?

Mr. Shaun Mundy
World Bank