Eddie Yue, Deputy Chief Executive of the Hong Kong Monetary Authority gives this speech on consumer protection in financial products.
HKMA has an interesting strategy of consumer protection. It is a mix of classical and behavioral approaches to fin reg:
In terms of consumer protection, first, the HKMA has introduced new requirements on banks and issued guidelines on the selling of investment products. These include
(a) requiring audio-recording the customer risk profile assessment and sales process to provide audit trails for reviews by banks and the regulators;
(b) implementing a pre-investment cooling-off period in the sale of unlisted structured products to less sophisticated customers (such as the elderly or first-time buyer); and
(c) requiring banks to carry out continuous reviews of product risk and inform investors of any upward changes to the risk ratings of the products they have purchased. These requirements were in addition to existing measures introduced by the Hong Kong Securities and Futures Commission (SFC) on the supervision of securities companies’ selling activities.
Hmm. The second approach of pre-investment cooling off is straight from behavioral economics. First and third are more from the traditional school where the idea is to capture more information about the investor and apprise them of the risks. Even then keeping an audio trail is interesting stuff..
Apart from guidelines for selling new fin products, there is more HKMA does for consumer financial products..
Second, the HKMA is active in monitoring banks’ compliance with these and other regulatory requirements through thematic on-site examinations. Banks are expected to have control processes and procedures in place to ensure adherence to the conduct regulations. In addition, to monitor compliance levels among banking staff, the HKMA conducts mystery shopping trips.
Third, the HKMA has strengthened consumer protection by working with partners. One example is our work with the Hong Kong Association of Banks in carrying out a comprehensive review of credit card practices in Hong Kong, drawing on reforms undertaken in the UK and US.
Beh eco being applied is always interesting..