Financial Consumer Protection in China

2013-6 Rusia G20 Sun Tianqi PBOC

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Financial Consumer Protection in China

SUN Tianqi

The People’s Bank of China

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Contents

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1. Financial Consumer Protection (FCP) Framework

in China

2. Four Regulators’ （ PBOC, CBRC, CSRC, CIRC ） Efforts

3. Problems and Challenges


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1. FCP Framework in China


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As to FCP, there are 6 defense lines in China:

① Consumers

② Financial institutions

③ Financial industrial associations & China Consumers’ Association (CCA)

④ Regulators-PBOC, CBRC, CSRC, CIRC & related government departments

⑤ Judiciary/Arbitration

⑥ Mass media, social monitor.

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1.1 ConsumersThe first and the most important defense line.Learning financial knowledge actively, not passively.Self-assessment about risk-taking capacityTake the consequences of the risk

One proverb of Chinese: “Relying on mountain, the mountain may be collapse” “Relying on important people, the people maybe collapse too” “Relying on yourself is the most reliable way”



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1.2 Financial institutions Financial institutions increasingly pay more attention to FCP & FE.

Internal control systemProduct designServices quality improvementComplaints handling systemFinancial education

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1.3 Financial industrial associations and China

Consumers’ Association (CCA)

China Banking Association(CBA), Securities Association of China(SAC) and Insurance Association of China(IAC) show growing influence on financial consumer protection work.

Self-regulationSet industry conduct rulesUrge members to fulfill declared responsibilitiesFinancial education

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1.3 Financial industrial associations and CCACCA is an important channel of hearing and resolving all sorts of consumers complaints (including financial cases).

Provide information and consultation to financial consumersTake and address financial disputesHelp consumers with judicial/arbitration adviceCooperate with regulators and industrial associationsCooperate with press media

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1.4 Regulators-PBOC, CBRC, CSRC, CIRC & related government departments

Approved by the centre government, 4 regulators had set up 4 financial consumer protection bureaus from 2011.

I. The Banking Consumers Protection Bureau of CBRC

II. The Investors Protection Bureau of CSRC

III. The Insurance Consumer Protection Bureau of CIRC

IV. The Financial Consumer Protection Bureau of PBOC

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1.4 Regulators-PBOC, CBRC, CSRC, CIRC & related government departments

The 3 main responsibilities of Financial Consumer Protection Bureau of PBOC are:

Conduct research on main issues of the whole financial industry; collaborate with related authorities to make policies, regulations and laws for the whole financial industry.

Work with other departments to set cross-sector rules for FCPPBOC focus on the whole financial industry

Carry out FCP work within PBOC’s mandate by law

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More information :① Financial Consumer Protection Bureau of PBOC is in the

country-level.

② There are 31 FCP departments in the 31 PBOC’s provincial--level branches.

③ PBOC’s city-level branches and county--level branches are responsible for the FCP in their region.

④ In city-level, there are no branches of CSRC and CIRC.

In county-level, there are only branches of PBOC.


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1.4 Regulators-PBOC, CBRC, CSRC, CIRC & related government departments (cont’d)The main responsibilities of Banking Consumers Protection Bureau of CBRC :

Set the general plan, regulations and detailed policies of banking consumer protection

Investigate and deal with bank consumers’ complaintsPractice public education of banking consumer

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1.4 Regulators-PBOC, CBRC, CSRC, CIRC & related government departments (cont’d)The Investors Protection Bureau of CSRC is responsible for :

Formulate policies on securities investors protection

Promote investors education and services; press markets players to inform the risks to investors

Handles and coordinates to address complaints

Assists investors to compensate for their violated rights

Supervises the running of investors fund

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1.4 Regulators-PBOC, CBRC, CSRC, CIRC & related government departments (cont’d)Duties of Insurance Consumer Protection Bureau of CIRC are:

Formulate policies in the areaInvestigates and resolves disputesCarry out system building of consumers education and

services, and guides to enhance credibilitySupervises engaged agencies and staff on disclosure of

risks and information

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1.4 Regulators-PBOC, CBRC, CSRC, CIRC & related government departments (cont’d)These 4 consumer protection bureaus of the 4 regulators further collaborated on the basis of fulfilling their duties respectively.

December 2012, PBOC and CSRC jointly released ‘Memo of Improving Supervisory Collaboration on Securities and Futures to Maintain Financial Stability ’

PBOC cooperated with CSRC on FCP pilotFinancial Consumer Protection Bureau of PBOC will seek effective

approaches of coordinating system with the other three counterparties

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1.4 Regulators-PBOC, CBRC, CSRC, CIRC & related government departments (cont’d)All levels of government have their departments to resolve complaints for general consumers (Financial consumers are included).

Industrial and commercial administration‘12345’-mayor’s hotlineOffice for Correcting bad/Illegitimate Practices of all

Trades Financial services office of local government.

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1.5 Judiciary and arbitration are the final defense and resort.

Consumers could seek settlement via judicial or arbitral means.

Both arbitral and judiciary decisions are legally binding.

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1.6 Mass media

Mass media plays an important role in FCP & FE.

Bring pressure on misconduct agencies through

public voiceSomehow a few local minor newspaper speculate and

overstate disputes

Help boosting financial consumer education and this

could lower the regulators’ cost

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2. Four Regulators’ Efforts


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2.1 PBOC’s efforts2.1.1 Rule writingTook part in amending China’s Consumer Protection

Law, and expounded and proved the addition of financial consumer protection part.

Pushed forward the launching of China’s Anti-money laundering Law, Regulation on the Administration of Credit Reporting Industry etc.

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2.1.1 Rule writing (cont’d)PBOC released Guideline on Personal financial

information protection. Put forward specific measures in certain areas, and

correct the wrong behavior of agencies in time.Bank cardAccount managementPayment services by non-financial institutionsForeign exchange administration

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2.1.2 Build the supervisory mechanismSeveral PBOC’s branches completed the Financial

Consumer Protection Regulatory Handbook. The Bureau conducted on-site examination of

personal financial information protection and other essential areas together with other functional departments of PBOC.

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2.1.3 Complaints taking and addressingSelected 5 pilot provinces/city (Shanghai, Hubei, Guangdong,

Jiangsu & Shaanxi) to try 12363 financial complaints hotline, and will expand allover the country.

For those disputes that can’t be resolved between financial institutions and consumers, PBOC and its branches would step in and mediate. PBOC handled 6899 disputes in 2012, and the satisfactory rate

reached 98%.

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2.1.3 Complaints taking and addressing (cont’d)

PBOC keeps consumers informed that its mediation is not the last resort (unbinding). They can turn to judicial or arbitral court for final results. In order to make the mediation result “binding”, several

PBOC’s branches try to get judicial court’s confirmation on the result.

PBOC is studying how to set up ADR mechanism.


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PBOC Xi’an branch (Shaanxi Province) requires all commercial banks to disclose its own internal complaints number and the PBOC’s 12363 hotline number at each outlet. Complaints decreased.

Financial service quality improvedThe efficiency and effectiveness of financial institution to address

disputes on-site increasedThe whole Shaanxi Province: 39m population, PBOC only takes

5 complaints and 10 inquires per day.

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PBOC Wuhan branch requires all commercial banks to disclose 12363 hotline number at each outlet.


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2.1.4 Financial consumer educationSupported by the other 3 regulators, PBOC drafted

National Strategy of Financial Education of China to OECD.

Conducted questionnaire on financial literacy of consumers, and worked on the indicators system to evaluates the effectiveness of financial education.

Compiling the Financial Knowledge Readings targeting the public, and built online consulting and education platform for financial consumer.

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2.1.4 Financial consumer education (cont’d)Promote counter-fake money campaign through publishing

pamphlets and RMB counter-fake web site.Organized campaigns: ‘6.14 Credit Record Day’, ‘Credit Knowledge

Week’ etc.Other activities: ‘Anti-Money Laundering Month’, ‘Anti-Money

Laundering Contest’ etc.Organized ‘Financial Knowledge going into Community’ campaign,

payment science training, and propaganda of safe use of bank card targeting rural residents.

Cooperate with local governments and other regulators to carry out ‘3.15 Financial Consumer Protection Campaign’.

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2.2 CBRC’s effortsEnhances prudential supervisory system, protects the rights of

depositors and other clients, and keeps the public confident about banking industry.

Improves peoples’ understanding of modern financial products and services and their ability to identify corresponding risks via propaganda and disclosure.

Conducts special examination, and strikes and prevents financial crimes.

Conducts on-site investigation at bank outlets and handles the problems such as ‘unfair attached clause’, ‘overcharge’ etc.

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2.3 CSRC’s effortsRefines legal framework by pushing forward the amending of

Securities Act and Law of the People’s Republic of China on Securities Investment Fund.

Conducted special inspection, and strengthened the punishment of misbehavior.

Advance the pilot work of protection and litigation of specialized institutions as shareholders, and improve marketized investor protection mechanism.

Build and improve multi-resolution mechanism of securities and futures disputes, and launch the nationwide unified 12386 investor hotline.

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2.4 CIRC’s effortsConstruct generally participated insurance consumer protection

framework. Improve insurance complaints handling mechanism, and

increase the compensation of salvage insurance. 12378 national insurance complaints hotline has been launched.

Strengthen public education and risk warning to reinforce precautionary insurance.

Conducted special examinations and sorted out pending or unsolved property insurance contracts. The settlement rate reached 63% to an amount of 30 billion RMB.

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3.1 Time-consuming legislative process Regulations concerning financial consumer protection can be partly

found in Commercial Banking Law and Anti-Money Laundering Law etc, but are considered too general and lacks of definition of ‘financial consumer’ . This situation calls for specialized Law of the Peoples’ Republic of China on Financial Consumer protection, however it may takes a really long time.

Lack of legislation on financial consumer privacy. There’s need to formulate Regulation on Personal Privacy to define the range of protection, infringement, compensation procedure etc. The process requires communication and coordination among a number of authorities and is also time-consuming.


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3.2 Overlap & Blind Zone The four regulators, CCA and associations are all authorized to take and settle

financial disputes and initiate financial education activities. The overlap of supervision causes extra compliance burden to financial

institutions. Existing supervision gaps (blind zone) bring potential risks. Conflicts between prudential and behavioral supervision As to FCP, how to ensure the fairness and justice of industry associations

given the fact that their funding and staff all come from the industry.So,

Regulators need to coordinate to avoid Overlap of supervision or supervision

gaps.

Internal related departments within a regulatory authority need to collaborate

as well.


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3.3 Adverse Selection and Moral Hazard Protection of financial consumer should be appropriate

and limited, not 100%.Overprotection may lead to adverse selection.

e.g. to hide background information in order to purchase high-risk products.

Overprotection may also brings moral hazard.

e.g. passive post-transaction monitoring, meaning not in time trying to fix the possible loss.


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3.4 Big difference and gap among consumersCity residents VS rural residentsEast China (developed) VS west China (Undeveloped)Different consumer groups of city residentsConsumers from minority nationsFinancial inclusion needs enhancement. At the end of

2012, there still remains 1686 towns (belong to counties) that do not have financial services.


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3.5 Expertise of regulators need to be improved

Experience and expertise about legal and accounting

knowledge plus on-site examination

Address disputes related to ‘new & high-tech’

Credit card cloning

Crime

The government is not cleverer than the market / private sector.


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3.6 Is it necessary to include the financial consumer protection into FSAP assessing system??

FSAP is generally adopted to evaluate each country’s financial stability. Is it

necessary to:

Include FCP into FSAP qualitative indicators?

Include FCP into FSAP quantitative indicators??

Set the weight of FCP in FSAP quantitative indicators??

Maybe, It can help the international FCP rules change from ‘soft

rule’ to ‘hard rule’, change from “unbinding” to “binding”.



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Tel:86-10-66199530

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Financial Consumer Protection in China

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