Bank Negara issues Exposure Draft on Fair Treatment of Vulnerable Consumers

Bank Negara Malaysia (‘BNM’) issued an Exposure Draft of a Policy Document on Fair Treatment of Vulnerable Consumers (‘Policy Document’) on 28 February 2023.
A.  Objectives
The Policy Document seeks to: 
  1. promote a culture whereby financial service providers (individually a ‘FSP’ and collectively ‘FSPs’) consider and respond to the interests and needs of vulnerable consumers appropriately in conducting their business and operations; and 

  2. set requirements and expectations for FSPs to observe, to provide the appropriate support to vulnerable consumers, consistent with fair treatment outcomes. 
B.  Applicability
The FSPs to whom the Policy Document will apply are as follows: 
  1. a licensed bank;
  2. a licensed Islamic bank;
  3. a licensed insurer;
  4. a licensed takaful operator;
  5. a prescribed development financial institution;
  6. an approved issuer of a designated payment instrument;
  7. an approved issuer of a designated Islamic payment instrument;
  8. an approved insurance broker;
  9. an approved takaful broker;
  10. an approved financial adviser; and
  11. an approved Islamic financial adviser. 
The Policy Document defines ‘vulnerable consumer’ as a financial consumer who: 
  1. has the capacity to make his or her own financial decisions but may face challenges in accessing financial services or may require assistance to engage in financial services, for example, a person with disabilities or a senior citizen; 

  2. has a low ability to withstand financial shocks, for example, a person who is overly-indebted or has no savings; 

  3. is experiencing or has experienced adverse life events resulting in temporary or long-term financial hardship, for example, natural disasters, temporary loss of income, unemployment, or the death/total permanent disability of the main breadwinner; or 

  4. has an inadequate level of financial literacy or experience in using financial services or products, or poor language skills, for example, a person who only speaks a language other than Bahasa Malaysia or English, or is illiterate, or a person who is not digitally savvy. 
A ‘financial consumer’ refers to any person who: 
  1. uses, has used or may be intending to use, any financial service or product (i) for personal, domestic or household purposes; or (ii) in connection with a micro or small business1; or 

  2. is insured under a group policy or covered under a group takaful certificate where the premiums or contributions are paid by the person insured or the person covered, as the case may be. 
Hence, it should be noted that the Policy Document applies not only to financial consumers who are individuals, but also to micro and small businesses.
C.  Basis of application
The Policy Document is a new document. When issued, it is to be read together with the Policy Document on Fair Treatment of Financial Consumers (‘Existing Policy Document’) issued by BNM on 6 November 2019. A FSP must consider the new principle introduced under the Policy Document as well as the six fair treatment principles2 under the Existing Policy Document when dealing with vulnerable consumers.
The requirements in the Policy Document are principle-based, which accords FSPs the flexibility to determine the measures that are most appropriate and relevant to their respective business strategies, product offerings and interactions with their target customer segments, as well as the extent to which they will implement such measures.
D.  Corporate culture
To instil the appropriate corporate culture in dealing with vulnerable consumers, the senior management of a FSP is required to: 
  1. set the right tone by clearly communicating the values and standards upheld by the FSP when dealing with vulnerable consumers; such values and standards are to be consistent with delivering fair outcomes to financial consumers, having regard to the particular circumstances of vulnerable consumers; and 

  2. establish and maintain appropriate policies, processes and accountability structures that enable and support the FSP’s staff to meet the needs of vulnerable consumers when carrying out their roles and to ensure that the requirements on fair treatment of vulnerable consumers are adequately reflected in the FSP’s existing policies and processes throughout the entire product life cycle. 
E.  Fair and equitable treatment of vulnerable consumers
The Policy Document introduces a new principle that requires a FSP to take appropriate actions to ensure that vulnerable consumers are treated fairly and equitably. Among others, the Policy Document requires a FSP to: 
  1. understand the needs of vulnerable consumers and ensure its staff have the right skills to take appropriate actions throughout the entire product life cycle, including product design, as essential preconditions to deliver fair outcomes to vulnerable consumers; 

  2. assess the needs of vulnerable consumers in its existing financial consumer base and target market, as well as implement appropriate policies and procedures to meet these needs to ensure that vulnerable consumers are treated fairly in accordance with the requirements in the Policy Document throughout their engagement and dealings with the FSP. The FSP must also ensure that the policies and procedures are clearly communicated to relevant staff so that they are implemented effectively; 

  3. refrain from engaging in predatory practices in their dealings with vulnerable consumers, including sales and marketing practices that exploit vulnerable consumers such as providing misleading information on risks and returns, which could lead to vulnerable consumers buying unsuitable or poor value services and products; 

  4. exercise due care when adopting artificial intelligence and machine learning in credit assessments and risk underwriting to avoid the unfair discrimination or exclusion of vulnerable consumers from accessing financial services and products; 

  5. ensure that relevant information about the needs of vulnerable consumers is properly captured or recorded in a manner that would enable the FSP to meet their needs promptly and consistently, and is accessible by staff who may need to refer to such information; 

  6. provide its financial consumers with information that is easily accessible on how they can obtain assistance in the event they encounter sudden life events that places them in situations of vulnerability, such as the death or permanent disability experienced by the household’s main breadwinner due to the onset of an illness or accident; 

  7. ensure communication with vulnerable consumers throughout the product life cycle is clear and easily understood by vulnerable consumers; the FSP must periodically test and verify the effectiveness of its communication channels for vulnerable consumers and adapt appropriately, where necessary, to ensure communication channels remain accessible to vulnerable consumers throughout the product life cycle. The FSP must also ensure that vulnerable consumers are made aware of the different communication channels available to enable them to communicate with the FSP through a channel they find most effective and convenient; and 

  8. regularly monitor and evaluate whether its staff and representatives are responding to the needs of vulnerable consumers and take appropriate actions to address any poor outcomes or make necessary improvements to ensure vulnerable consumers receive fair and equitable treatment. 
F.  Effective dates
The Policy Document will come into effect six months after the date of issuance, except for the requirements under paragraph (g) of Part E of this Alert which will come into effect 12 months after the date of issuance.
G.  Feedback to BNM
Feedback on the Policy Document are to be submitted in electronic form to BNM by 14 April 2023. The electronic form can be accessed here.
Article by Vanessa Ho (Associate) of the Corporate Practice of Skrine. 

1 Refer to the notification on Definition of Small and Medium Enterprises (SMEs) issued by BNM on 27 December 2017 (BNM/RH/NT 028-51) for the definition of ‘micro or small business’.
2 The six principles in the Existing Policy Document are: (i) Principle 1: The board and senior management must set clear expectations on fair treatment of financial consumers and ensure that this is embedded in the FSP’s corporate culture and core values; (ii) Principle 2: A FSP must ensure that financial consumers are provided with fair terms in contracts with financial consumers; (iii) Principle 3: A FSP must provide financial consumers with clear, relevant and timely information on financial services and products; (iv) Principle 4: A FSP must ensure its staff, representatives and agents exercise due care, skill and diligence when dealing with financial consumers; (v) Principle 5: A FSP must take reasonable care to ensure the suitability of advice and recommendations provided to financial consumers; and (vi) Principle 6: A FSP must handle financial consumer complaints and claims promptly, fairly and effectively.

This alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such. For further information, kindly contact