1. VUZF University Open Seminar on Financial Consumer Protection Lessons Learned from Designing and Implementing FCP Reforms Tomáš Prouza, the World Bank December 18, 2012

2. Key issues to remember in Central and Eastern Europe: o all modern financial products available o limited customer experience and no history of using complex financial products o especially in Central Europe life insurance, partly investment & mortgage intermediation dominated by multi-level agents with commission-driven sales model o often fragmented market supervision with limited coordination o self-regulation works only sporadically o growing number of complaints (high prices & misselling) Setting the scene 2 www.worldbank.org/consumerprotection

3. Possible policy reactions to growing public demands for a solution: o price regulation – easy to proclaim and politically popular o focus on real solutions even if they take time o transparency (know what you pay) o comparability (choose the best easily) o migration (lower switching barriers) o understanding & education (know what you do and why, understand your rights) o redress (easy-to-use and quick recourse mechanism) Political options 3 www.worldbank.org/consumerprotection

4. Trying to introduce a consumer protection policy meets with objections from some stakeholders: o there's no need to change as everything is fine (counter with surveys, price comparisons, foreign experience) o let the market work, things will solve themselves (does not work without counterbalance of strong and active consumers) o only prudential supervision and market stability matter o financial education is sufficient o we do not know your ideas will work, so let's not do anything Key objections 4 www.worldbank.org/consumerprotection

5. All consumer protection legislation must be market- relevant, so invest into understanding the market: o quantitative national surveys to understand major trends (and monitor changes) o qualitative focus groups to understand the thinking of the people and to test the existing and proposed disclosure o analyze complaints to the industry and supervisors o involve NGOs and use modern technologies to collect market intelligence from the whole country o cooperate with the media and the police to get an early warning of new issues Key lessons: understand your market 5 www.worldbank.org/consumerprotection

6. If badly communicated, consumer protection activities may create many enemies: o from the industry as you make their life harder and you will be touching their image (and profits) o from the public who may expect you will take financial decisions for them and provide 100% protection o from the media who will be disappointed things do not change overnight o from politicians as the financial industry is usually an effective lobbyist Key lessons: communicate your goals 6 www.worldbank.org/consumerprotection

7. Regulations may look nice on paper but: o ensure disclosure has not become a compliance function o implement rigorous accessibility testing o use mystery shopping to verify how the rules are implemented (potential involvement of NGOs) o define measurable goals (improved measures of public confidence, lower number of complaints, etc.) o when drafting regulations, define your expectations through regulatory impact assesments, regularly revisit your goals and verify them Key lessons: verify effectiveness 7 www.worldbank.org/consumerprotection

8. The government should be unified on the issues: o financial sector regulators and supervisors should agree on the actions needed and implement them jointly o empower the regulators to react quickly to new issues o loopholes in sector regulations and regulatory arbitrage are very dangerous for effective consumer protection (do not rely solely on EU directives with sectoral approach) o some of the consumer protection issues can be dealt with through other regulators: o competition authority (pricing collusion, tying and bundling) o data protection authority (sharing and tranfering of personal data to third parties) Key lessons: unified stand needed 8 www.worldbank.org/consumerprotection