> Posted by Ben Lebeaux and Jessica L. Cassel, Senior Communications Specialist and Staff Attorney, Accion
One of the fastest, most efficient ways to promote financial inclusion is to make sure that regulators create policy that encourages innovation and collaboration. Because regulators can singlehandedly affect everything from microfinance institutions to financial technology startups to credit bureaus, helping them make the best possible decisions is one of the best ways to help the two billion financially excluded people access savings accounts, credit, checking, insurance, and more.
That’s why the Microfinance CEO Working Group’s Model Legal Framework and Commentary for Financial Consumer Protection (MLF), published in the spring of 2015, is such a valuable tool. Regulators can use the MLF as a framework to either evaluate existing regulation or to adopt new best practices. Rather than reinventing the wheel, it allows policymakers to quickly find, adapt, and use the best available legislation.
Global law firm DLA Piper and its nonprofit affiliate, New Perimeter, were instrumental in creating the MLF. The firm’s dedicated team of roughly 20 lawyers has worked with the Working Group for the last two years, contributing nearly 3,000 hours of pro bono time to draft and refine the MLF. New Perimeter continues to support the project, traveling with Accion’s lawyers and financial inclusion experts to train Latin American regulators on the MLF, and plans to update it periodically.
We spoke with Sara K. Andrews, the Assistant Director of New Perimeter, and DLA Piper Associate Erik Choisy about how they got involved with the MLF, the work they did to support it, and why they dedicated such significant time and energy to support financial inclusion.
Accion: Tell us more about New Perimeter. Why did DLA Piper commit to providing international pro bono legal assistance?
Sara K. Andrews (SA): DLA Piper created New Perimeter in 2005 to expand the firm’s extensive pro bono programs beyond the United States, and to give our lawyers opportunities to address some of the critical issues confronting underserved regions of the world. One of our first projects was in Kosovo, helping to restore the country’s judicial and prosecutorial systems. Since then we have worked on over 100 multi-year pro bono projects involving more than 800 DLA Piper lawyers from across the firm.
We focus our efforts on supporting access to justice, social and economic development, and legal institutions.
Accion: How did you learn about the Working Group and the MLF? Why did you choose to support it, and why do you think it’s important?
SA: We’ve worked with Accion General Counsel Mary Chaffin on several projects in the past, and she introduced us to the Working Group and the MLF project.
From the start, it seemed like the MLF was a valuable opportunity for us to address a clearly-articulated need and to develop a tool that would be of great value to a broad audience. That has proven to be the case, and it’s been a pleasure partnering with the Working Group and Accion on this important work.
Accion: Regulators can either use the MLF to evaluate existing laws or as a template to adopt regulations based on best practices. Why is it important to have that sort of information available? How does it help individual borrowers or entrepreneurs?
Erik Choisy (EC): Since the global recession, we’ve reached a consensus that “let-the-buyer-beware” regulation alone fails to adequately protect consumers from unforeseen hardship related to financial products. But for most countries around the world, consumer financial protection has, almost exclusively, focused on disclosure requirements – providing certain information to consumers and hoping that they’ll use that to make the best possible decisions.
It’s now clear that that isn’t enough. The MLF tries to create an environment where consumers have the tools and opportunity to accurately compare the costs and features of financial products, while still being protected from deceptive or abusive practices. It also attempts to keep confidential information secure.
Accion: The Smart Campaign’s Client Protection Principles provide a great deal of the MLF’s ‘DNA.’ The Client Protection Principles value transparency and complaint resolution, and protect clients against over-borrowing; they work to help microfinance institutions “practice good ethics and smart business.” How did you take broad principles and translate them into effective legal and regulatory language?
SA: The New Perimeter team started with input from Accion and other project partners. We also conducted a broad survey of experts, relevant scholarship, and existing laws and regulations from countries across the globe
EC: We examined laws and regulations from around the world, identifying those that animated or promoted the Client Protection Principles.
As the Client Protection Principles have matured, the Smart Campaign has identified granular elements for each of the seven principles, each of which expresses a particular aspect of client protection. We were able to construct a giant chart comparing laws and regulations related to each element. Then, through discussions with regulators and experts, we gained an understanding of which rules were most effective and why. From there, we synthesized the best examples from around the world into a cohesive model – the MLF.
Accion: It must be a little awkward asking Country X about its existing regulations and then later saying ‘We really think you should do this and this instead of what you’re doing today.’ How do you work with government agencies and regulators who want to strengthen their financial consumer protection laws in a way that values the work that they’ve done, but still communicates how and why it may be necessary to make changes?
EC: The relative strength and weaknesses of existing regulatory frameworks and their implementation can be a sensitive topic for regulators, and it’s important to understand each country’s current legal regime as the product of a specific history, politics, and economy that differs from any other country.
Being able to discuss the value of different approaches to consumer protection, and having an understanding as to why a specific jurisdiction may choose a specific approach over other alternatives, has been critical for establishing relationships with regulators.
Accion: Financial Technology is an increasingly important part of the worldwide effort to foster global financial inclusion. How does the MLF address financial technology? Are regulators doing enough to protect clients who are using digital financial services? What countries and policies should they learn from?
EC: The pace of financial innovation seems to only be accelerating, especially in regards to consumer services such as payment systems. The MLF is designed to apply to all consumer financial products and services, and should provide a solid basis for the regulation of emerging financial technology products.
However, as new financial technology comes online, I expect more specific rules and regulations will begin emerging, reflecting increased concern for privacy and behavioral economics.
Accion: You mentioned increased concern for privacy and behavioral economics as emerging issues. How often will the MLF be updated? What other issues do you think will need to be addressed down the line?
EC: From its inception, we envisioned the MLF as a living document. It was possible to create such a document now only because a consensus, or at least a set of best practices, is emerging in certain areas of consumer protection. The current draft sought to capture that emerging consensus.
As law-makers and regulators around the globe gain more experience and we see further agreement on new best approaches, the MLF will need to be updated to remain relevant.
At this time it’s hard to say when such an update will be needed, but I imagine as the popularity of new electronic payment systems grow, new consumer issues will emerge and regulators will have to respond. As we see the regulators’ responses, we’ll be taking notes and looking for where the best solutions are taking hold.
Accion: How has the MLF been received by the industry?
SA: Very positively! The regulators we trained in Mexico City told us that they will use the framework drafting new microfinance laws and regulations and revisiting existing ones – which is exactly how we want policymakers to use the MLF.
Accion: What are some of the other projects that you’re currently working on? Why are they important to New Perimeter and DLA Piper?
SA: We are working on many other projects. For example, we sent a team to assist the government of Georgia with the recent United Nations Framework Convention on Climate Change negotiations in Paris.
We have a team that just returned from Zambia, where they taught legal writing skills to graduate law students.
We’re also training East African government lawyers on negotiating complex international agreements.
And we have multiple projects focused on anti-human trafficking efforts around the world.
These are all multi-year commitments and represent just a sample of the current projects New Perimeter is working on. New Perimeter has a full-time staff of lawyers who develop and manage these pro bono programs, enabling us to develop enduring relationships with project partners and make long-term commitments. Ultimately, we try to find projects where our lawyers’ broad range of skills and expertise can help address a pressing problem and achieve a concrete, measureable goal.
Many thanks to DLA Piper and New Perimeter for helping the Working Group do just that, and creating a document that has the potential to make a tremendous impact for the world’s two billion financially excluded people.
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