Controlling quality of new financial products: Bank of Russia’s consultation paper
The Bank of Russia proposes assessing the appropriateness and consumer risks of new banking, insurance, investment, and other financial products before their launch in the market or their update. This will help prevent the sale of products that have no obvious advantages for consumers and are only meant to bring maximum profit to financial institutions.
Such assessment is part of product governance which has already become a key consumer protection tool in many countries. Possible approaches to the implementation of product governance rules in the Russian market are outlined in the Bank of Russia’s consultation paper.
To be able to offer a product that is appropriate for a consumer, financial institutions need to study target audiences and their goals, as well as disclose inherent risks. An important criterion in product assessment is the probability of extra costs, fees, loss of investment, or loss of income provided for by the contract. Furthermore, the regulator suggests monitoring of new product sales to be able to detect problems at early stages and make necessary improvements.
The key issue is the assessment model to be selected and the extent of the regulator’s engagement in the assessment process as this will impact the comparability of findings and their disclosure. The consultation paper proposes discussing both the option when market participants assess the consumer risks of their financial products themselves and the centralisation of these processes, as well as possible combinations of the two approaches.
‘When a financial product is launched in the market, it is necessary to assess whether such loan, deposit, investment instrument, or insurance policy is appropriate for a particular group of clients and how clear and transparent the pricing and fees are,’ said Mikhail Mamuta, Head of the Service for Consumer Protection and Financial Inclusion of the Bank of Russia. ‘This will help avoid any offerings in the market that could only discourage people and cause losses.’