1. The Czech and Slovak experience with the World Bank's program of CPFL Benefits and added value for the national regulators Tomas Prouza former Deputy Minister of Finance, Czech Republic September 26, 2011

2. Today's agenda why is CPFL an issue for a middle-income EU country? why is CPFL an issue for a middle-income EU country? why seek assistence from the World Bank? why seek assistence from the World Bank? WB impact in the Czech Republic WB impact in the Czech Republic WB impact in Slovakia WB impact in Slovakia key lessons key lessons

3. About me originally a finance journalist, established the first personal finance website in 2000 originally a finance journalist, established the first personal finance website in 2000 deputy minister of finance 2004-2007 deputy minister of finance 2004-2007 2007-2011 member of the board of an IFA company 2007-2011 member of the board of an IFA company 2009-2011 chairman of the Czech IFA Association 2009-2011 chairman of the Czech IFA Association

4. Setting the scene 2004: 15 years after the fall of communism 2004: 15 years after the fall of communism institutional clean-up in 1990's institutional clean-up in 1990's financial institutions owned by foreign conglomerates financial institutions owned by foreign conglomerates all modern products available all modern products available limited customer experience limited customer experience

5. Setting the scene II life insurance, partly investment & mortgage intermediation dominated by multi-level agents life insurance, partly investment & mortgage intermediation dominated by multi-level agents fragmented market supervision fragmented market supervision centralized supervisor since 2006 (central bank) believes in prudential supervision only centralized supervisor since 2006 (central bank) believes in prudential supervision only self-regulation works sporadically self-regulation works sporadically growing number of complaints from the public (high prices & misselling) growing number of complaints from the public (high prices & misselling)

6. Political options price regulation – easy & popular price regulation – easy & popular focus on real solutions even if they take time focus on real solutions even if they take time –transparency (know what you pay) –comparability (choose the best easily) –migration (lower switching barriers) –understanding & education (know what you do and why) –redress (easy-to-use and quick recourse mechanism)

7. Key objections no need to change (surveys, price comparisons, foreign experience) no need to change (surveys, price comparisons, foreign experience) let the market work (old tricks, new players) let the market work (old tricks, new players) only prudential supervision matters only prudential supervision matters education is enough education is enough how do you know your ideas will work? how do you know your ideas will work?

8. Assistance needed around 2005 no international work on CP (EU directives primarily deal with market stability and single market, OECD only starts to look at financial education) around 2005 no international work on CP (EU directives primarily deal with market stability and single market, OECD only starts to look at financial education) closest international work WB corporate governance reviews closest international work WB corporate governance reviews in 2005, the Czech Republic asked for technical assistence on CPFL review, followed by Slovakia in 2005, the Czech Republic asked for technical assistence on CPFL review, followed by Slovakia first reviews conducted under ECA Vice-President Shigeo Katsu, Daniela Gressani, then the Country Director for Central Europe and the Baltic States, by Sue Rutledge and her team first reviews conducted under ECA Vice-President Shigeo Katsu, Daniela Gressani, then the Country Director for Central Europe and the Baltic States, by Sue Rutledge and her team

9. CZ expectations government expectations from the WB: government expectations from the WB: –stimulate public debate and provide support –provide specific advice on: financial education and financial literacy financial education and financial literacy alternative dispute resolution mechanism alternative dispute resolution mechanism distribution of financial products (including disclosure and regulation) distribution of financial products (including disclosure and regulation)

10. CZ impact I multi-stakeholder communication platform set up (MinFin, MIT, MinEdu, integrated supervisor, industry & consumer representatives) multi-stakeholder communication platform set up (MinFin, MIT, MinEdu, integrated supervisor, industry & consumer representatives) consumer protection made an integral part of the mandate of the integrated supervisor (limited powers and partial coverage remain a problem, becoming more pro-active) consumer protection made an integral part of the mandate of the integrated supervisor (limited powers and partial coverage remain a problem, becoming more pro-active)

11. CZ impact II financial education – official Financial Education Stratregy prepared and approved by the government, key priorities: financial education – official Financial Education Stratregy prepared and approved by the government, key priorities: –active behavior on the financial market –prevention of overindebtedness –preparation for old age financial education strategy for high schools financial education strategy for high schools working group established to coordinate working group established to coordinate

12. CZ impact III dispute resolution mechanism – public consultation based on WB's recommendations, powers consequently extended but financing worsened dispute resolution mechanism – public consultation based on WB's recommendations, powers consequently extended but financing worsened overhaul of distribution rules prepared (3 year discussion) overhaul of distribution rules prepared (3 year discussion) –if approved, should limit room for misselling –should have started with disclosure

13. SK expectations support the MinFin as the single financial market regulator support the MinFin as the single financial market regulator consumer protection in financial services one of the priorities of the new Slovak government (2006) consumer protection in financial services one of the priorities of the new Slovak government (2006) three areas of interest: three areas of interest: –dislosure and advertising rules + ADR –financial education –distribution and financial advice

14. SK impact I new laws drafted based on WB recommendations: new laws drafted based on WB recommendations: –Act on intermediation and advisory in the financial market, setting up new training & certification system, remuneration and responsibility for distributors - approved –Act on financial consumer protection setting up the new Financial Consumer Protection Office, responsible for complaints resolution, market conduct supervision and financial education (incl. education and certification of distributors) – cancelled by the 2010 Slovak government

15. SK impact II dispute resulution – the 2007 WB Technical Note provided recommendations to improve the ADR system and public access dispute resulution – the 2007 WB Technical Note provided recommendations to improve the ADR system and public access voluntary Banking Ombud established voluntary Banking Ombud established government proposed Financial Ombud – cancelled by the 2010 Slovak government government proposed Financial Ombud – cancelled by the 2010 Slovak government consumer credit disclosure – publication of average APR, maximum APR set consumer credit disclosure – publication of average APR, maximum APR set

16. Key lessons I strong benchmarks needed strong benchmarks needed cross-sectoral issues become more urgent (same rules for similar products, ADR, etc.) cross-sectoral issues become more urgent (same rules for similar products, ADR, etc.) keeping up the pressure needed (impact studies, action plans and implementation verification, repeated financial literacy studies to monitor developments) keeping up the pressure needed (impact studies, action plans and implementation verification, repeated financial literacy studies to monitor developments)

17. Key lessons II education of national authorities needed: education of national authorities needed: –publish case studies and recommendations / best practices –promote discussion of key issues –leverage the knowledge of the CPFL team compare CPFL policies across countries, promote examples to support competition compare CPFL policies across countries, promote examples to support competition

18. Thank you for your attention Tomas Prouza, MBA tomas@prouza.cz