×
NewsDay

AMH is an independent media house free from political ties or outside influence. We have four newspapers: The Zimbabwe Independent, a business weekly published every Friday, The Standard, a weekly published every Sunday, and Southern and NewsDay, our daily newspapers. Each has an online edition.

Banking is all about customer financial consumer protection

Business
Recently, the Reserve Bank of Zimbabwe (RBZ) unveiled the Consumer Protection Framework (CPF) through its circular number 1-2017/BSD. The CPF came to the market following extensive stakeholder consultations by the RBZ. The framework sets out minimum regulatory standards for consumer protection expected of all regulated institutions in terms of section 4C of the Banking Act (Chapter 24:20).

Recently, the Reserve Bank of Zimbabwe (RBZ) unveiled the Consumer Protection Framework (CPF) through its circular number 1-2017/BSD. The CPF came to the market following extensive stakeholder consultations by the RBZ. The framework sets out minimum regulatory standards for consumer protection expected of all regulated institutions in terms of section 4C of the Banking Act (Chapter 24:20).

BY Clive Mphambela

Therefore, during the natural course of financial market development and endless financial innovation, there is potential for the emergence of misaligned incentives for financial services providers which can increase the risk that consumers may inadvertently face fraud, abuse and misconduct
Therefore, during the natural course of financial market development and endless financial innovation, there is potential for the emergence of misaligned incentives for financial services providers which can increase the risk that consumers may inadvertently face fraud, abuse and misconduct

The framework, thus, applies without distinction, to all banking and non-bank financial institutions that are regulated by the RBZ and any agents or third parties through which regulated institutions may be servicing their various customer segments or offering financial services to the public on an out-sourced basis.

Banks participated fully in the crafting of the framework and have fully embraced its provisions. This comes from the premise that financial consumer protection is at the core and heart of the practice of banking and no bank has business doing business if does not recognise the fundamental tenets of consumer protection that underpin the bank and customer relationship.

What are the objectives of the Consumer Protection Framework?

From a bank perspective, the objectives and intent of the CPF are to:

  • Promote consumer rights by setting out those minimum standards that regulated entities, in particular banks, are expected to meet in achieving desired levels of financial consumer protection;
  • Ensure the development and availability of robust formal and informal grievance redress mechanisms for handling customer grievances that are fair, expeditious, inexpensive and accessible to all classes of consumers;
  • Ensure fair and equitable business practices, which adequately protect the rights and interests of both consumers and regulated financial services providers; and
  • Foster the deepening of customer confidence and trust in the banking sector.

Why do banks take consumer protection seriously?

The principles embedded in the consumer protection framework form the very core of the practice of banking. Banking is an industry in which trust and utmost good faith between the transacting parties are key. Because of the nature of banking, where every transaction practically involves the transfer of value and risk, there is need for a robust framework to guide relationships between financial institutions and their clients.

The ever-increasing complexity and diversity of the range of products and services offered by financial institutions and the emergence of new delivery channels, which go beyond the traditional and electronic channels, and the increasing transfer of opportunities, pricing and transactional risks to consumers call for enhanced protection of consumers of financial services.

Therefore, during the natural course of financial market development and endless financial innovation, there is potential for the emergence of misaligned incentives for financial services providers, which can increase the risk that consumers may inadvertently face fraud, abuse and misconduct.

In particular, low-income and less sophisticated experienced consumers of financial products can be particularly vulnerable and often face particular challenges in the market place.

To mitigate some of these risks, regulators enact consumer protection frameworks, which serve to empower consumers with basic information about their rights and obligations as consumers.

The consumer protection frameworks also provide an important incentive for market discipline to players in the financial services sector, and ultimately fosters competition by encouraging regulated entities to offer better products and services rather than taking advantage of poorly informed consumers.

The introduction of a sound financial consumer protection framework is fundamental to increasing access to and usage and quality of financial services, along with supporting further banking sector deepening. Financial consumer protection is a necessary precursor to building trust in the formal banking sector and, thus, in encouraging financial inclusion. Further, consumer protection helps to ensure that expanded access benefits consumers and the economy as a whole.

Further, the adopting good practices on consumer protection by all players will positively influence the financial services sector, which is consistent with RBZ’s overall objective of promoting and maintaining financial markets efficiency and stability.

What is the role of leadership in addressing consumer protection issues?

It is pertinent to note that good consumer protection practices begin with strong governance. As a result, the consumer protection framework requires that regulated players have in place a corporate governance framework that allows the board and senior management to institute adequate oversight for consumer protection and ensure compliance with the provisions of the framework. As such, boards or appropriate committees of the board of regulated financial services players, have overall responsibility to oversee all the operations of an institution, are required to set up adequate systems and processes to guarantee the observance of and compliance with consumer protection laws and regulations.

By implication, service providers should have in place

well-defined internal reporting structures, employ fit and proper persons, and systems that ensure consumers are adequately protected in terms of the provisions of the framework.

The board should, therefore, set the tone or basis for the building of an institutional culture underpinning business practices, which promote consumer protection in their bank.

The board is expected to have an appreciation of the consumer protection issues that the regulated entity is exposed to and the framework for managing consumer protection issues.

For the CPF to achieve its desired objectives set out at the beginning of this discussion we need to appreciate that every right comes with a corresponding obligation.

This is the very essence of every sustainable relationship. Next week, we will delve into the various rights and obligations of customers and financial institutions in their interaction with each other, as we further unpack the consumer protection framework.

Meanwhile, readers can access and download the RBZ Consumer Protection Framework on the BAZ Website via the link http://baz.org.zw/policy-information/policy-pronouncements/rbz-consumer-protection-framework-no1-2017bsd

Clive Mphambela is a Banker. He writes in his capacity as Advocacy Officer for the Bankers Association of Zimbabwe. BAZ expressly invites stakeholders to give their valuable comments and feedback related to this article to him on [email protected] or on numbers 04-744686, 0772206913