Bank of Russia classifies unfair practices into main types
The Bank of Russia has classified unfair practices used in the financial market into main types and suggests applying common terms and definitions describing them. Thus, market participants and the regulator will be able to speak the same language when discussing the issues of financial consumer protection.
Various ways of misleading customers are often called misselling, which is a sales practice in which a financial product is misrepresented. However, this is only one of the five most widespread unfair practices outlined by the Bank of Russia:
1. Misselling is the sale of a financial product through its misrepresentation. For instance, investment-grade bonds (where yields depend on the performance of the underlying asset) under the guise of a deposit, but only implying more favourable conditions.
2. Mispricing is misleading customers about the size of fees or the fair value: from complex tariffs masking overpayments to cases when a customer pays an excessive price for a cheap service.
3. Tied selling is the unfair practice when a creditor imposes insurance to a customer, although a bank should in any case make an offer without insurance on comparable conditions regarding the maturity and amount.
4. Misinforming is the unfair practice when, for instance, a seller promises guaranteed returns on products which are not deposits.
5. Unsuitable selling is the unfair practice when a seller does not take into consideration a customer’s risk appetite, age, and other characteristics.
Further on, this glossary will be updated. Similar terms and definitions are already used by central banks of many other countries.
In order to counteract these practices, the legislative authorities, with the engagement of the Bank of Russia, recently approved laws that establish common rules for selling financial products in the market and, among other things, allow a person to return an additional service imposed with a loan. Since 1 October 2021, non-qualified investors will be required to take a mandatory test for their understanding of inherent risks before purchasing complex financial products.