An Excellent Resource on Regulating Client Protection: IFMR Trust’s Blog Series

> Posted by Elisabeth Rhyne
If you want a crash course on consumer protection regulation in financial services, there is no better place to look than the IFMR Trust’s blog. Since last December, analysts at the Trust, based in Chennai, India, have been systematically learning all they need to know to be informed about consumer protection regulatory issues facing India today. They have generously shared their learning process in public through a blog series that is a great resource for the rest of us, whether in India or anywhere else.
While IFMR Trust’s primary concern is of course India, the series ranges widely around the world, and moves from theory to detailed accounts of how specific countries are handling their challenges. Here is a quick look at what is on offer:

  • An accessible summary of the traditional economic rationale for consumer protection regulation, followed by a discussion of the insights coming from behavioral economics. The post on behavioral economics is perhaps the best concise explanation of these insights and how they affect the case for regulation that I’ve seen.
  • Detailed descriptions of the approaches taken in two countries that IFMR is looking towards as possible models: Australia and South Africa.
  • A graphic description of the origins of Indian financial consumer regulation starting with English law before the 12th century and ending with the present (much less arcane than it sounds).
  • An extended interview with Kate McKee of CGAP, focusing especially on how regulators can best move from the inadequate client protection regulation present in most countries today to put effective measures in place.

These posts explore daunting challenges like these: Who should regulate consumer protection for financial services, prudential regulators or a separate consumer regulator? How can regulation ensure that the poor are covered if poor people do not use formally regulated institutions? Should regulation be based on principles or rules? On functions or institutions? Does tight consumer protection regulation promote or inhibit innovation? What is the role of industry-based efforts (like the Smart Campaign)? What kind of enforcement powers do regulators need?
A couple of particularly interesting approaches are mentioned that were new to me. South Africa is instituting a policy adapted from the United Kingdom called “Treating Customers Fairly” which sounds very much like the Smart Campaign in action as it calls on providers to internalize client protect throughout various aspects of their operations. India’s insurance regulator works with a “Suitability Index” to prevent clients from being sold insurance products that would be of little value or excessive cost for their particular situations.
I assume that the blog is only the public face of a deeper involvement by the analysts at IFMR Trust in wider policy dialogues that also engage Indian regulators. If so, that’s cause for some optimism about the future of financial consumer protection regulation in India.
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