Customer Responsibility

Last year one of the main themes in HK's compliance field was "mis-selling". While the general public has attributed all the problems to the sales side, the voice of "buyer beware" is too little to hear. I won't say prevention of mis-selling is not critical, but prevention of "mis-buying" is also very important.

In Dec 2008 UK FSA released a discussion paper on customer responsibity in order to explore what steps the regulator or others could take to help financial consumers understand their own best interests more effectively. While FSA has no power to impose responsibilities on consumers, it is required by law to consider the general principle that consumers should take responsibility for their decisions when setting its consumer protection agenda.

The key findings of FSA's Financial Capability Baseline Survey indicate that:

• many people fail to plan adequately for retirement or for unexpected expenses or drops in income;
• while a relatively small proportion of the population experiences difficulties with debt, those problems are often severe;
• people do not take adequate steps to choose products that meet their needs - many do not shop around to find a good deal and people take risks without realising they are doing so; and
• under 40's are, on average, less financially capable than their elders (the greatest demands are placed on this younger group).

In a "better world" consumers should be empowered to engage and take on responsiblity. However, their relative lack of knowledge in potentially complex markets, behavioral constraints and firms' performance make this difficult and means that the balance of responsibilities currently operates in favor of consumers. FSA's current position on customer responsibility is summarized as follows:

If a firm fulfils its obligations and treats the customer fairly, then, even if the transaction turns out to be a disappointment to the consumer, this should not be blamed upon the firm.

SFC recently submited a report to Financial Secretary, suggesting how HK can improve its regulatory framework and enhance investor protection and education, following the events brought about by the collapse of Lehman Brothers during last Sep. I wish the issue of enhancing customer responsibility is adequately addressed in this report.