Financial Consumer Protection: 3 Steps to Better Customer Outcomes

The COVID-19 (coronavirus) pandemic has highlighted the need for regulators to ensure financial services meet the needs of customers — not just in good times, but also in times of crisis. At a time when many people and their families are struggling financially, there is no shortage of reports of customers being treated unfairly by providers, making uninformed financial decisions amid a lack of clear information, falling victim to scams and having a hard time reaching providers to resolve issues.

Merchant chats with customer in Senegal
Photo: Vincent Tremeau, World Bank

How can we make sure that customers are protected and their financial health is not worsened as a result of actions — or inaction — to address the COVID-19 crisis? Over the past decade, financial consumer protection regulators in a dozen or so countries have shifted their focus from provider compliance with prescriptive rules to the actual results or outcomes attained by consumers engaging with providers. By following their lead and adopting a customer outcomes-based approach today, other providers and regulators could better understand the potential customer impact of COVID-19-related measures and make sure that financial products and services continue to be suitable and appropriate for the new conditions.

The defining characteristic of a customer outcomes-based approach is its focus on monitoring what actually happens when consumers engage with providers, in contrast to a more traditional approach that emphasizes provider compliance with prescriptive rules. An outcomes-based approach deploys a variety of tools to help regulators better understand customers’ needs and incentivize providers to address them. To take a concrete example, disclosure and transparency are cornerstones of financial consumer protection. But in most contexts, rules about disclosure dictate what providers must disclose and how, without imposing any requirements to ensure customers actually understand what’s being disclosed. In an outcomes-based approach, the regulator would require providers not only to disclose specific information, but also to demonstrate, through testing, that the average consumer understands key features and conditions of the service offered.

Regulators in Australia, India, South Africa and the United Kingdom are leading the way with this approach. In these countries, financial consumer protection frameworks create incentives for providers to sell products that “not only make money for them, but also meet the needs of people buying them,” as one article noted of Australia’s system.

In response to COVID-19, South Africa’s Financial Sector Conduct Authority (which adopted an outcomes-based approach in 2011) published a note to all regulated entities that illustrates well the outcomes-based approach. It states: “Entities must ensure all customers are treated fairly during the entire product cycle, from advertising, to sales, to claims, to renewals and complaints. Profiteering off those that are vulnerable and suffering will not be tolerated.” Regardless of the outcomes that a country chooses to focus on, there are three steps that regulators can take to advance a customer outcomes-based approach.

1. Set customer outcomes as the consumer protection framework

Six customer outcomes for financial consumer protection: stability and appropriateness, choice, meets purpose, voice, fair treatment, safety and security
The six customer outcomes for financial consumer protection. Source: Customer Outcomes to Strive For (CGAP 2020)

The basis for any effective consumer protection regime is a clear mandate in law and regulation that anchors regulatory and supervisory actions.

Regulators should then agree on a set of customer outcomes to focus on, in consultation with providers and consumer representatives.

Based on a review of several outcomes-based frameworks, CGAP developed a set of six core customer outcomes that are fairly universal, though there may be nuances by country.

2. Incentivize responsible provider behavior through regulatory elements

Financial sector authorities that have adopted an outcomes-based approach have developed regulatory frameworks that support, facilitate and incentivize providers to achieve positive customer outcomes.

Customer insights, customer assessment and engagement, customer recourse, conduct and culture governance, conduct risk management, financial product governance
Six regulatory elements common to outcomes-based approaches to financial consumer protection. Source: "Making Consumer Protection More Customer-Centric” (CGAP 2020)

Depending on the jurisdiction, this may entail developing an entirely new legal framework (such as the draft Conduct of Financial Institutions Bill in South Africa), introducing regulation that incorporates new topics (such as the Senior Management and Certification Regime in the United Kingdom) or modifying regulations that already are in place (such as the revised Internal Ombudsman Scheme norms in India). Further, each jurisdiction should consider balancing a mix of rules, principles and performance-based regulation.

In a new working paper, “Making Consumer Protection More Customer-Centric” (2020), we identify six distinct regulatory elements that are common to customer outcomes-based approaches. An outcomes-focused framework should include these elements, but its success also depends on the extent to which authorities commit to monitoring, supervising and enforcing it.

3. Strengthen dialogue with providers and consumers and make enforcement customer-centric

Implementation of a customer outcomes approach requires authorities to strengthen their dialogue with providers and consumer representatives, make their enforcement more customer-centric and empower their staff with tools to identify issues hindering positive outcomes.

A customer outcomes-based approach enhances traditional consumer protection by putting customers at the center of actions taken by regulators and providers. While it does not guarantee that consumers’ financial lives will measurably improve, it does help regulators and providers identify and address customers’ needs in good times and bad, including during crises like COVID-19.



With the customer outcomes-based approach emerging as a promising consumer protection paradigm, this research identifies the core components of the approach that help authorities make financial consumer protection regulation more customer-centric.
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For financial inclusion to work for the poor, it’s time to move beyond consumer protection frameworks that are more about protecting providers than customers.

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