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Basic Central Banking Course May 2006

Basic Central Banking Course May 2006

Promoting Fair Market Practices and Ensuring Equitable Treatment for

Consumers – [The Malaysian Perspective]

Promoting Fair Market Practices and Ensuring Equitable Treatment for

Consumers – [The Malaysian Perspective]

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Background – Malaysia (Selected Info)Background – Malaysia (Selected Info)

Population: 25.6 million

98% of Malaysians have savings account

Commercial Banks: [23]

Merchant Banks: [10]

Insurance companies: [42]

Others: Foreign rep. offices, discount houses, money brokers, DFIs, other non-bank financial institutions.

Banking system is the largest component in financial system:

• Accounting for 51% of assets of financial system

• Mobilising 78% of total deposits of financial system

Insurance penetration rate at 37.9%

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3 Pillars of the Central Bank 3 Pillars of the Central Bank

BNM is responsible for

Implementing monetary policy

Ensuring soundness and stability of the banking system

Ensuring efficient and stable functioning of the payment system

Lender of last resort

Managing the international reserves

Monetary

Stability

Financial

Stability

EfficientPaymen

tSystem

3 pillars of central banking

Social & Developmental Role

** no explicit mandate on consumer protection

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Financial Stability & Consumer Protection Financial Stability & Consumer Protection

Financial StabilityFinancial Stability(safe, sound and stable financial system)(safe, sound and stable financial system)

efficient, effective and robust financial institutions, strong prudential regulations and

supervision, and efficient and reliable infrastructure (more market driven environment)

efficient, effective and robust financial institutions, strong prudential regulations and

supervision, and efficient and reliable infrastructure (more market driven environment)

Active consumerism &

Consumer Protection

Active consumerism &

Consumer Protection

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Regulator’s DilemmaRegulator’s Dilemma

Regulator’s Regulator’s DilemmaDilemma

High dependency on the banking

systemMigration to e-

payment vs. state of consumer

readiness

Meeting Shariah requirements for Islamic financial

products and services

Pressure from a wide variety of stakeholders

Explicit vs. implicit mandate, should there be

separation of powers?

Untapped potential in the

insurance sector

Manage liberalisation and deregulation

process while ensuring orderly

market conditions

Balancing consumer

expectations & prudential

requirements

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Roadmap for the Financial SectorRoadmap for the Financial Sector

Building domestic capacity

Increase domestic competition

Increase the pace for integration with the international market

Phase 1 Phase 2 Phase 3

(deregulated and liberalised market)

Effective consumer

protection & fair market practices

Preconditions to greater deregulation and liberalisationPreconditions to greater deregulation and liberalisation

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Challenges Facing ConsumersChallenges Facing Consumers

Information asymmetries

and information

overload

Low financial literacy/ financial

skills

Level of transparency

Restructuring of fees and

charges

Fair and competitive

financial sector

Redress mechanism

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At the same time consumer has the has the responsibility for their responsibility for their own financial well-own financial well-beingbeing::

to understand T&C of products

and services purchased

know their rights and

responsibilities

exercise their rights when necessary

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Approach to Enhance Consumer Protection & Fair Market Practices Approach to Enhance Consumer Protection & Fair Market Practices

Open, competitive

& fair financial system

Open, competitive

& fair financial system

Speedy RedressSpeedy Redress

Good Information

Good Information

Avenue to seek help

Avenue to seek redress

Consumer education

Information on products and services must be accurate, easy to understand and accessible

Allows for best deal

promotes innovationenhances efficiency

ApproachApproach

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Consumer Protection FrameworkConsumer Protection Framework

Enhancing Financial Literacy

(consumer education programme, school

adoption programme)

Depositors Protection

(Malaysia Deposit Insurance Corporation)

Access to Financial

Products and Services

(access to basic banking services,

access to financing)

Fair Market Practices (anti trust, debt

collection, repossession

inequitable contract, role of intermediaries,

market abuse)

Avenue to seek help & redress(Complaint Unit @ FIs & BNM, FMB, CCDM)

Proper Disclosure(transparency &

disclosure requirement for banking & insurance

products)

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Enhancing Financial Literacy: Consumer Education ProgrammeEnhancing Financial Literacy: Consumer Education Programme

A more dynamic financial system requires financially savvy consumers who

Are able to make informed decision (choosing products and services that suit their financial needs)

Knows their rights and responsibilities

http://www.bankinginfo.com.my/

one-stop information centre about “money and banking” as well as on “insurance and takaful”

The objective is to make Malaysians more aware of their rights and responsibilities with regard to banking/insurance products and services.

Booklets are also available at FIs’ branches

http://www.insuranceinfo.com.my/

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Snapshots of BankingInfo & InsuranceInfo WebsitesSnapshots of BankingInfo & InsuranceInfo Websites

bankinginfo insuranceinfo

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Enhancing Financial Literacy: Financial Planning & Savings Outreach ProgrammeEnhancing Financial Literacy: Financial Planning & Savings Outreach Programme

Increasingly complex financial products &

services

Requires solid grasp of money matters

Develop fin capability from early age

BNM does:Road shows

Educate & inculcate smart fin mgmt habits among target groups

School Adoption programme - since 1997 (partnership with the Education Ministry)

7000+ schools adopted by BIs

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Snapshot of duitsaku (pocket money) websiteSnapshot of duitsaku (pocket money) website

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Access to Financial Products and ServicesAccess to Financial Products and Services

Objective:

To ensure that banking customers can enjoy a minimum level of banking services at reasonable costs

Initiatives:

All banking institutions (BIs) required to offer a basic savings account (BSA) and a basic current account (BCA) to all Malaysians that will provide a minimum level of services (e.g. deposit, withdrawals, fund transfer, etc) and transactions at minimal costs.

Measures introduced to ensure charges imposed on products offered to individuals and SMEs are appropriate and reasonable.

Floor rates on time deposits

Ensuring public access to branch network nationwide.

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Product Transparency and Disclosure (PTD)Product Transparency and Disclosure (PTD)

Objectives:

To give consumers the information they need about a product and its charges so that they can make informed decisions; and

To ensure that the information is presented in a clear and timely manner.

Banking

Disclosure requirements on fees & charges, as well as on changes to T&C have been introduced.

Disclosure requirement on credit card

Concept paper on PTD covering: Form, timing & items of disclosure as well as disclosure

requirement in advertisement

Insurance

Introduced PTD policies on: claims settlement practices the sale of general insurance products Proper Advice Practices for Life Insurance business with

primary purpose of ensuring intermediary obtains sufficient info about a prospective policy owner before rendering advice.

Medical and Health insurance business 15 days cooling off period for Life products

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Product Transparency and Disclosure (PTD)Product Transparency and Disclosure (PTD)

Objectives:

To provide end-users with up-to-date information on specific banking products and services that will allow them to do “comparison shopping” by reducing cost of information search.

Scope:

6 retail products have been identified for this purpose. There are:

Savings account

Current account

Fixed deposit account

Credit card facility

Hire-purchase facility

Housing loan facility

Comparative Tables

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Product Transparency and Disclosure (PTD)Product Transparency and Disclosure (PTD)

Loan Products*

Deposit Rates

* to be published in Dec 2005

Interactive with

filtering capability!

Interactive with

filtering capability!

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Redress MechanismsRedress Mechanisms

Avenue to seek redress and helpAvenue to seek

redress and help

Complaint Unit @ FIs &

BNM

Small Debt Small Debt Resolution Resolution

SchemeSchemeSME Special SME Special Units at BIs & Units at BIs & BNM – assist BNM – assist

viable SMEs on viable SMEs on financing issuesfinancing issues

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Deposit InsuranceDeposit Insurance

An independent statutory body called Perbadanan Insurans Deposit Malaysia (PIDM) was established on 15 August 2005

Mandate; to provide:• insurance against loss of part or all

deposits• Incentives for sound risk management• promote & contribute to the stability of

the financial system

Members: Commercial banks, finance companies, Islamic banks

Eligible deposits will be covered up to the prescribed limit of RM60,000 per depositor, per member institution.

Covers 90% depositors, 30% deposits

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Benchmarking… a tool to improve performanceBenchmarking… a tool to improve performance

What has been done…

Financial and operating statistics

To drive banking institutions to understand their relative performance

Position compared to industry

Trends observed

Service quality indicators (turnaround & waiting time, handling of complaints, ATM services)

Performance gap with industry and foreign banks

Customer needs and satisfaction surveys

To understand the level of customers satisfaction with products and services offered, and service quality provided by financial institutions e.g efficiency, products, communication

To identify the critical success factors affecting quality of service

Requirement for BIs to be rated – at bank or holding level

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Future LandscapeFuture Landscape

Consumers

BNM

Active consumerism, more financially savvy consumers,

Well being, fair treatment and satisfaction of consumers embedded within business strategies

• Once, enabling environment is in place (effective consumer protection infrastructure and fair market practices)

• Greater reliance on market discipline & self regulation

Financial Institutions

Lessening of environment shaper and driver role (less regulatory intervention) as we move towards a more deregulated and liberalised environment.

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The EndThe End

Q & AQ & A

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