Government of India Volume I: Analysis and Recommendations

Table of Recommendations 5.4 Principles to guide the regulators
CONSUMER PROTECTION
The regulator must consider the following principles while carrying out any functions or exercising any powers relating
to consumer protection:
1. The level of protection given to a consumer and the level of responsibility on the financial service provider
should vary depending on:
◮ the level of sophistication of the consumer;
◮ the nature and degree of risk embodied in a financial product or service; and
◮ the extent of dependence of the consumer on the financial service provider.
2. Consumers should take reasonable responsibility for their decisions.
3. Any obligation imposed on a financial service provider should be consistent with the benefits expected from
such obligation.
4. Barriers to competition owing to adverse effects of regulatory actions should be minimised and there should
be competitive neutrality in the treatment of financial service providers.
5. The need to promote, and not hamper, innovation and access to financial products and services.
Table of Recommendations 5.5 Protections available to consumers
◮ Basic protections for all consumers:
1. Financial service providers must act with professional diligence;
2. Protection against unfair contract terms;
3. Protection against unfair conduct;
4. Protection of personal information;
5. Requirement of fair disclosure; and
6. Redress of complaints by the financial service provider.
◮ Additional protections for retail consumers:
7 Right to receive suitable advice;
8 Protection from conflict of interest of advisors; and
9 Access to the redress agency for redress of grievances.
The regulator will also be able to impose a range of requirements on financial service
providers, spanning from disclosure, suitability and advice requirements, regulation of
incentive structures, and more intrusive powers such as recommending modifications in
the design of financial products and services.
The Commission believes that regulatory powers should be used where they are
most required and in a least-distortionary manner. As such, guiding principles to inform
the choice and application of powers should accompany the grant of any broad range of
powers. These principles will require the regulator to pay special attention to diversity
in consumer profiles and differences in the kind of risks that different financial products
pose to consumers. Further, the principle of proportionality suggests that the intensity
of any obligation imposed on a financial service provider should be consistent with the
benefits that are expected to arise from imposing the obligation.
Currently, rapid expansion of financial access is a major policy goal of the Government.
This requires significant leaps in innovations in financial products and processes,
and business models. These innovations will be fostered by two elements: higher levels
of competition and an appropriate regulatory climate that supports and enables innovation.
Table 5.4 summarises the principles that are being stated in the draft Code to guide
the regulators on the subject of consumer protection.
5.4. Protections for all consumers
To be able to confidently participate in the financial markets, all consumers should be
provided with certain basic protections. In addition, a wider set of protections need to be
46 FINANCIAL SECTOR LEGISLATIVE REFORMS COMMISSION