Bank Negara issues Exposure Draft of Policy Document on Product Transparency and Disclosure
15 March 2024
- licensed banks, including licensed digital banks under the Financial Services Act 2013 (“FSA”);
- licensed Islamic banks, including licensed Islamic digital banks under the Islamic Financial Services Act 2013 (“IFSA”);
- licensed insurers under the FSA;
- licensed takaful operators under the IFSA;
- prescribed development financial institutions under the Development Financial Institutions Act 2002;
- approved insurance brokers under the FSA;
- approved takaful brokers under the IFSA;
- approved financial advisers under the FSA;
- approved Islamic financial advisers under the IFSA;
- approved issuers of designated payment instruments under the FSA; and
- approved issuers of designated Islamic payment instruments under the IFSA,
(individually a “FSP” and collectively “FSPs”).
The Policy Document will apply applicable to financial products developed and offered by a FSP, either directly or through the FSP’s intermediaries, to individuals, micro and small enterprises (“financial consumers”). FSPs are encouraged to adopt similar disclosure standards for other types of customers. However, the disclosure requirements for Negotiable Instruments of Deposit and Islamic Negotiable Instruments apply to both financial consumers and institutional customers.
The objectives of the Policy Document are to:
- promote financial consumers’ awareness and understanding of financial products offered by FSPs;
- ensure consistency in disclosure of essential information on financial products to enable comparison by financial consumers;
- minimise mis-selling of financial products and ensure that financial products sold are suitable to the needs and financial circumstances of financial consumers;
- promote informed decision-making by financial consumers; and
- facilitate financial consumers in safeguarding their own best interests.
The Policy Document seeks to establish minimum requirements for enhanced consistency and comprehensive transparency aimed at improving information disclosure on financial products offered by FSPs. It also sets out the timing and content on disclosure of information on financial products to financial consumers.
The Exposure Draft is divided into three main parts, namely:
- Part A which provides an overview;
- Part B which sets out the general policy requirements; and
- Four schedules (schedules I to IV) which set out the specific requirements for banking products, insurance/ takaful products, payment instruments and cross-border trade settlements.
General Policy Requirements
Roles and responsibilities of board and senior management
The roles and responsibilities of the board and senior management of a FSP for the implementation of good disclosure practices are set out in paragraphs 8.1 to 8.6 of the Exposure Draft.
Key disclosure principles
A FSP is required to give due regard to the information needs of financial consumers by adopting the following disclosure principles:
- timely;
- clear and simple;
- accurate, relevant and sufficient;
- highlight important information; and
- consistent and comparable.
The key requirements in respect of each of these disclosure requirements are set out in paragraphs 9.2 to 9.6 of the Exposure Draft.
Timing of disclosure
A FSP is required to adequately inform financial consumers about a financial product at each of the three stages of the contractual process, namely the pre-contractual stage, at the point of entering into a contract and during the term of the contract.
Pre-contractual disclosure: The disclosure requirements relating to the pre-contract stage are set out in paragraph 10.2 of the Exposure Draft, including without limitation, the disclosure of the information set out in paragraph 10.2.3. A FSP is also required to provide a dedicated page on its website or other digital channel used to distribute its financial products, for pre-contractual disclosure, including the product disclosure sheet (“PDS”).
Disclosure at the point of entering into a contract: The disclosure requirements relating to this stage are set out in paragraph 10.3 of the Exposure Draft, including without limitation, the disclosure of the information set out in paragraph 10.3.3. If financial consumers are required to acknowledge that they have read and understood the terms and conditions by ticking a box or signing on the PDS, a FSP is prohibited from using such acknowledgement as its sole defence in the event of a dispute between the FSP and the financial consumer. A FSP is prohibited from using pre-ticked boxes in a product application form through which financial consumers are, by default, being opted into buying a product or any additional product without their explicit consent.
Disclosure during the term of the contract: A FSP shall adopt continuous disclosure during the term of a financial product contract through three methods set out in sub-paragraphs (a) to (c) of paragraph 10.4.1 of the Exposure Draft.
Digital disclosure
Paragraph 11 of the Exposure Draft deals extensively with disclosure through electronic medium. Recognising in paragraph 11.1 that digital disclosure may have several shortcomings, BNM requires a FSP to, among others, ensure that:
- product disclosure is compatible with the digital channel used;
- product information disclosed through digital channels is easily accessible, clear and conspicuous to promote consumer engagement and understanding of key product information;
- financial consumers are able to print or save a copy of the product information for reference;
- critical product information in the PDS is displayed prominently and promotional information is not included within the same page to avoid diverting financial consumers’ attention from the PDS;
- financial consumers cannot proceed to the next stage of the contractual process unless they confirm that they have read the entire PDS;
- during the contractual term, affected financial consumers are notified of important disclosures on its website or other digital channels in a timely manner using instant communication modes such as SMS or push notification;
- disclosure via a digital channel will not expose financial consumers to heightened risks, such as phishing, scam and identity theft;
- any personal and financial information communicated by a FSP to financial consumers using a digital channel is adequately protected, such as by using password protection or encryption; and
- its website and other digital channels used to deliver product information are accessible to all financial consumers, including those with visual impairments.
Disclosure of customer information
Paragraph 12 of the Exposure Draft sets out the restrictions on disclosure of customer information by a FSP. A FSP intending to disclose customer information (excluding information relating to the customer’s account) to other entities within a FSP’s financial group or third parties must obtain the prior written consent of financial consumers expressly authorising such disclosure. A FSP seeking to disclose financial consumers’ information to another person for marketing and promotional purposes must comply with the following:
- Specific – the terms for providing consent must be clear, concise and written in plain language including to whom the disclosure will be made, the purpose of the disclosure and information that will be disclosed;
- Voluntary – the FSP shall not as a condition of providing a financial product, compel or coerce financial consumers to consent to their information being disclosed for marketing and promotional purposes;
- Explicit and deliberate – financial consumers must expressly opt-in or deliberately agree for disclosure of their financial information by the FSP; the use of pre-ticked consent statements is prohibited; and
- Revocable upon request - financial consumers shall be allowed to withdraw their consent given for disclosure of their information for marketing and promotional purposes at any time and be informed of their right to withdraw and the means by which to do so; the FSP shall cease disclosure as soon as practicable and in any event within seven days from its receipt of the notification of withdrawal of the consent.
Advertisements
The Exposure Draft sets out extensive requirements relating to advertisements in 26 paragraphs under paragraph 13 of the Exposure Draft.
General requirements
Among others, a FSP is required to:
- formulate and implement adequate and effective internal systems, processes and procedures to ensure that all advertising materials relating to financial products comply with the Policy Document and applicable laws, rules, guidelines and codes of practice, to protect financial consumers from misleading advertisements and their adverse consequences; in the event of any conflicts, the existing provisions of laws, rules, guidelines and codes of practice imposing a higher standard of conduct shall be applied by the FSP;
- ensure that information relevant to financial consumers, e.g. product features, risks, costs and benefits, is accurate; and where rates are given in promotional materials, the effective lending or deposit rate is disclosed;
- ensure its advertisements are not misleading, i.e. likely to deceive the person whom it reaches;
- ensure that its intermediaries only use advertisements approved by the FSP and that such advertisements contain the names of the intermediary and the FSP;
- present the information in any advertisements or promotional material in a manner that is clear and easily understood by financial consumers;
- ensure that important product information in its advertisements is highlighted;
- ensure that the font size used in any footnotes in its advertisement are proportionate to the rest of the text and are easily readable;
- ensure that an advertisement provides a balanced view of the benefits and associated risks;
- disclose in relation to advertisements of a new promotion, the duration of the promotional period and the terms and conditions applicable to that promotion;
- display appropriate warnings, such as risks associated with a financial product, as a boxed warning statement, where applicable, and use a font size proportionate to the rest of the text and highlight the same in bold print; in the case of audio advertisements with no visual display, the warning must be clearly announced at the end of each broadcast;
- ensure that risk warnings published in an advertisement are not obscured or disguised; and
- provide that any disclaimer is not hidden or difficult for financial consumers to read or understand.
Illustration of past and future performance
A FSP is required to assess if there is a reasonable basis for including future performance information in an advertisement and whether such information is likely to mislead financial consumers. A FSP shall not include future performance information that is supported only by hypothetical or unrealistic assumptions or based solely on an opinion.
In advertising a financial product, a FSP shall, among others:
- not advertise a financial product in a manner that may give rise to undue expectations by financial consumers based on the projected returns of the financial product;
- prominently state that the projected returns are for illustrative purposes only and are not indicative or to be construed as the likely returns; and
- not market an investment-related financial product solely based on the projected returns of the financial product.
When presenting the past performance of a financial product, a FSP shall:
- use the actual, accurate and up-to-date returns of the most recent five preceding years (or the available period, if less than five years);
- ensure that such information is accompanied by a prominent statement to warn financial consumers that past performance is not indicative of future performance; and
- clearly state the source of data and period used in the illustration.
Requirements on digital advertisements
Among other requirements, a FSP shall ensure that important product information is presented in a clear and conspicuous manner, regardless of the type of advertisements or digital channels on which they are displayed.
Language requirement
A FSP shall prioritise the use of Bahasa Malaysia in disclosing product information to financial consumers and ensure that all forms and pamphlets are available in that language.
All product forms and PDS may be in languages, including Bahasa Malaysia, that meet the needs of its customer segments.
Comprehensive and lengthy documents, such as agreements, insurance policies and takaful certificates, may be made available in either Bahasa Malaysia or English. However, the FSP must make available a version of a form or contract in Bahasa Malaysia upon the request by a financial consumer.
Product specific disclosure requirements
In addition to complying with general policy requirements under Part B of the Exposure Draft, a FSP must adhere to product specific disclosure requirements contained in the Schedules.
A FSP offering Islamic financial products is to ensure compliance with Shariah requirements at all times.
Insurance and takaful group plans are subject to disclosure requirements set out in paragraphs 15.4 and 15.5 of the Exposure Draft.
Product Disclosure Sheet
Requirements relating to PDS include the following:
- a PDS must be provided for financial consumers to make product comparisons and informed decisions;
- a PDS must be limited to two A4 pages with information presented in an easily readable font size;
- active verbs and short sentences not exceeding 20 words per sentence must be used; and
- a FSP must put in place adequate measures to ensure financial consumers read and understand the PDS before entering into a contract;
A FSP must provide a copy of the PDS to financial consumers:
- before the financial consumers purchase a financial product;
- at the point of entering into a contract, if there is a material change in the information; and
- at the product renewal stage, if there is a material change in the information.
If it is not practicable to provide the PDS at the pre-contractual stage, particularly for telemarketing transactions, a FSP must send a copy of the PDS to financial consumers at the point of entering the contract together with the agreement, contract, insurance policy or takaful certificate, as the case may be.
A FSP that distributes its financial products through intermediaries, including through a digital channel, is required to disclose specific charges to be borne by financial consumers for securing the sale through its intermediaries, such as the platform, processing or administrative fees.
A FSP offering an Islamic financial product must clearly explain to financial consumers on the applicable Shariah contract, including the key terms and conditions if the Shariah contract in use differs from that illustrated in the standard PDS format provided in the Policy Document.
Compliance
A FSP shall ensure that its intermediaries comply with the requirements in the Policy Document. It must also take appropriate action against any intermediary who fails to make the necessary product disclosure. The FSP remains fully accountable for such failure by its intermediaries.
A FSP shall ensure an independent function, such as its internal audit or compliance, assesses the FSP’s compliance with the requirements in the Policy Document at least once in every two years.
Senior management shall ensure that timely and appropriate actions are taken by the FSP to rectify any deficiencies detected in the implementation of the requirements in the Policy Document.
The Schedules
Schedule I
Schedule I sets out the requirements relating to banking products, specifically, the following:
- Loan/ Financing Products
- Loan Financing Products – Disclosure to social guarantor
- Deposit Products (including Islamic Deposits)
- Negotiable Instruments of Deposit (NID) / Islamic Negotiable Instruments (INI)
- Investment linked to derivatives (ILD) / Islamic investment linked to derivatives (IILD)
- Electronic Banking Services
- Safe Deposit Box / Safe Deposit Box-i
With the exception of Safe Deposit Box/ Safe Deposit Box-I, the requirements in relation to each banking product are set out in three stages, namely pre-contractual stage, at the point of entering into a contract and during the term of the contract.
Appendix I sets out whether or not a PDS is required for a banking product, and Appendices II to IV are sample PDS for banking products.
Schedule II
Schedule II sets out the requirements relating to insurance/ takaful products, specifically, the following:
- Insurance/ Takaful Products Distributed via Digital Channels
- Ordinary Life Insurance/ Family Takaful Products
- Investment-Linked (IL) Insurance/ Takaful Products
- General Insurance/ Takaful Products (other than Medical and Health Insurance/ Takaful)
- Medical and Health Insurance/ Takaful (MHIT)
Apart from the requirements relating to Insurance/ Takaful Products Distributed via Digital Channels which are applicable to all insurance/ takaful products distributed via this channel, the requirements for each insurance/ takaful product are set out in three stages, namely pre-contractual stage, at the point of entering into a contract and during the term of the contract.
Appendix V sets out whether or not a PDS is required for an insurance/ takaful product, and Appendix VI is a sample PDS for insurance/ takaful product.
In addition, a FSP is required to comply with the disclosure requirements under BNM’s policy documents on Medical and Health Insurance and Takaful, Investment-linked Business, Universal Life Business, Management of Participating Life Business and the Exposure Draft on Broader Implementation of Ta’awun
1 in relation to the respective insurance and takaful products.
Schedule III
Schedule III sets out the requirements relating to electronic money (e-money).
Following the general trend in Schedules I and III, the requirements relating to electronic money are set out in three stages, namely pre-contractual stage, at the point of entering into a contract and during the term of the contract.
A sample PDS for e-money is provided in Appendix VII.
For other forms of payment instruments, a FSP is also required to comply with the disclosure requirements under the Policy Documents on Credit Card, Credit Card-i, Charge Card, Charge Card-i, Debit Card and Debit Card-I, as applicable.
Schedule IV
Schedule IV sets out the requirements for cross-border trade settlement services.
The minimum information a FSP is required to provide to financial consumers is set out in paragraph 1.2(a) (
prior to the execution of payment) and paragraph 1.2(b) (
after execution of payment) of Schedule IV. The relevant information is to be provided in the format set out in Appendices VIII and IX.
Effective date
BNM is considering for the Policy Document to come into effect six months from the date of its issuance.
Closing of consultation
Feedback on the Exposure Draft is to be submitted to BNM by
29 March 2024.
Comment
In addition the general requirements in Part B of the Exposure Draft, FSPs must also familiarise themselves with the detailed requirements set out in the schedules that are relevant to their business.
Alert by Kok Chee Kheong (Partner) and Faith Chan (Associate) of the Corporate Practice of Skrine.
1 This Exposure Draft does not appear to have been issued as at the date of publication of this article.
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 skrine@skrine.com.