With cases of misselling by banks continuing to
come to light, the Reserve Bank of India plans to introduce the concept of
‘treat customers fairly’ (TCF) for sale of third -party products. Under the TCF
norms, first introduced by the UK’s financial services authority, it is
not enough for banks to merely stick to rules, they must prove that they have
acted in the best interest of the customer. “The intent and basic
structure for TCF is in place in India for banking products of scheduled banks.
However, it is now being considered to extend the TCF structure to thirdparty
products, viz, mutual funds, capital market and insurance products sold by
banks and also extending the ombudsman scheme to non-scheduled banks,” the
RBI said in a report released on Thursday.
The issue of mis-selling by banks had come to the fore with Sebi’s recent showcause to HSBC for needlessly churning a client’s MF portfolio. TCF aims to link products with promises
The RBI’s move to implement the TCF (treat
consumers fairly) concept comes in the wake of a case of ‘mis-selling’ by HSBC
recently. Sebi found that the unnecessary churn in the client’s mutual fund
portfolio could only have been done to earn more commission. Under TCF guidelines, it is
not enough for a bank to obtain the signature of a customer on the application
form; it also bears the onus to make sure that it is providing correct advice.
According to the RBI, TCF
is a consumer protection policy designed to address the problem where banks know
something about the product that the customer does not. “It is a regulatory
initiative by which firms are required to consider their treatment of customers
at all the stages of the product life-cycle, including the design, marketing,
advice, point-of-sale and after-sale stages. By encouraging firms to
re-evaluate their company culture and to inculcate the attitude of
treating customers fairly, the outcome is likely to result in a more optimal
one from the perspective of regulators, consumers and ultimately, firms,” RBI
said.
The report said that the desired outcome of the TCF
programme is to ensure that consumers are provided products that perform as
firms have led them to expect, and the associated service is both of an
acceptable standard and as they have been led to expect; and consumers do not
face unreasonable post-sale barriers imposed by firms to change a product,
switch providers, submit a claim or make a complaint.
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