Government of India Volume I: Analysis and Recommendations

CONSUMER PROTECTION
providers. The regulator will specify the requirements and process for the registration of such
individuals as well as any code of conduct applicable to them.
2. Information on new products
The Commission believes that consumer protection regulation, as in other areas of law, should
be guided by the principle of allow-and-respond, instead of following the banned-until-permitted
approach. Accordingly, the draft Code does not require every financial product to be approved
by the regulator.
Financial service providers will be able to provide any financial product to consumers subject
to following a file and use process. This will require the regulator to make regulations to specify
the kind of information required by it on any new product that is proposed to be launched in
the market. A financial service provider will be required to file the specified information with
the regulator two months before the planned launch, so that the regulator may assess its risks
and merits and if required, make appropriate regulations. The regulator may seek additional
information about the product during the two month period but will not have the power to block
it from being launched after the expiry of that period.
3. Power to specify modifications
The regulator should be able to intervene in situations where certain features or aspects of a financial
product or service are found to be harmful for consumers after it has been introduced in
the market. The draft Code therefore allows the regulator to specify modifications in the terms
and conditions of particular financial contracts or the process of delivering particular financial
services. The Commission however recognises that this is a very strong power and its frequent
use can cause undue hardships to financial service providers. Any such regulatory interventions
must therefore be accompanied by a statement explaining the other interventions that were
considered by the regulator to address the problem and the reasons why such interventions
were found to be inadequate. This statement is in addition to the regular requirements of the
regulation-making process.
5.7. Advisory council on consumer protection
In order to monitor and contribute towards the regulator’s consumer protection objectives,
the Commission recommends the creation of an advisory council on consumer protection
(see Table 5.9). The advisory council will be responsible for:
1. Making representations, in the form of advice, comments or recommendations, on the regulator’s
policies and practices;
2. Reviewing, monitoring, and reporting to the regulator on the effectiveness of its policies and practices;
and
3. Creating reports stating its views on all draft regulations published by the regulator.
The regulator must take into account any representations or reports received by it
from the advisory council and provide a written response in cases where the regulator
disagrees with the views or proposals made by the council.
5.8. Financial redress agency
The Commission recommends the creation of a new statutory body to redress complaints
of retail consumers through a process of mediation and adjudication. The redress agency
will function as a unified grievance redress system for all financial services. To ensure
complete fairness and avoid any conflicts of interest, the redress agency will function independently
from the regulators.
The financial redress mechanism proposed by the Commission will replace the existing
financial sector-specific ombudsman systems such as the banking ombudsman and
50 FINANCIAL SECTOR LEGISLATIVE REFORMS COMMISSION