Government of India Volume I: Analysis and Recommendations

CONSUMER PROTECTION
using or disclosing any personal information belonging to consumers, except to the extent required
for the purposes of carrying out their business or expressly permitted under the draft Code.
The draft Code also provides safeguards for consumers to be able to access their personal information
held by service providers and ensure that the information is accurate and complete (see
Table 5.7).
5. Requirement of fair disclosure
Information asymmetry between consumers and financial firms affects the quality of financial
decisions made by consumers. This asymmetry needs to be addressed by imposing a positive
obligation on financial service providers to provide consumers with all the information that is
relevant for them to make informed decisions. This includes disclosures required to be made
prior to entering a financial contract and continuing disclosures regarding material changes to
previously provided information or the status or performance of a financial product.
Given the wide array of financial services being covered under the draft Code, the regulator may
find it useful to specify different disclosure requirements for various financial products and services.
With this objective, the draft Code empowers the regulator to make differing provisions
regarding the types of information required to be disclosed, the manner in which disclosures
must be made and the appropriate time-periods for making required disclosures.
6. Redress of complaints
The Commission envisages a two-tier approach for the redress of consumer complaints: first at
the level of the financial service provider and subsequently at the level of the redress agency (for
retail consumers).
If a consumer is dissatisfied with a financial product or service, the consumer should first take up
the issue with the relevant financial service provider. For this purpose, the draft Code requires all
financial service providers to have in place an effective mechanism to redress complaints from
consumers. They will also be obliged to inform consumers about their right to seek redress and
the process to be followed for it. The regulator may supplement these requirements by laying
down specific details of the process to be followed by financial service providers to receive and
redress complaints.
In certain cases the regulator may also envisage an additional layer of grievance assessment to
take place after, or instead of, the service provider’s own grievance redress mechanism and before
the complaint goes to the redress agency. The stock exchange arbitration process would be an
example of such an arrangement.
5.5. Additional protections for retail consumers
The Commission believes that the following rights and protections should be available to
retail consumers over and above the protections available to consumers generally. These
protections are needed due to the generally low levels of knowledge and experience of
retail consumers.
1. Assessment of suitability
Retail consumers may often be in a situation where they are not able to fully appreciate the features
or implications of a financial product, even with full disclosure of information to them. This
makes a strong case for a thorough suitability assessment of the products being sold to them.
The draft Code provides this protection by requiring that any person who advises a retail consumer
in relation to the purchase of a financial product or service must obtain relevant information
about the needs and circumstances of the consumer before making a recommendation to
the consumer (see Table 5.8).
2. Dealing with conflict of interests
One of the best ways to ensure good consumer protection is to align the incentives of financial
service providers with those of consumers and ensure that in case of a conflict, the interests of
consumers take precedence. The draft Code incorporates this principle of prioritising the interests
of retail consumers over those of the provider. It also requires advisors to inform retail consumers
about any conflicted remuneration they stand to receive, which may influence the advice
being given to the retail consumer. The regulator may, in addition, specify the nature, type and
48 FINANCIAL SECTOR LEGISLATIVE REFORMS COMMISSION