Day 1 – June 10, 2014
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