BNM issues Policy Document on Fair Treatment of Financial Consumers

Bank Negara Malaysia (‘BNM’) issued a Policy Document on Fair Treatment of Financial Consumers (‘Policy Document’) and a set of Frequently Asked Questions on Fair Treatment of Financial Consumers on 6 November 2019.
The Policy Document applies to every financial service provider (‘FSP’), which is defined in paragraph 5.2 of the Policy Document 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.
For the purposes of the Policy Document, a ‘financial consumer’ refers to any person –

  1. who 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 business; or
  2. insured under a group policy or covered under a group takaful certificate where premiums or contributions are paid by the person insured or person covered, as the case may be.
The Policy Document seeks to –

  1. foster high standards of responsible and professional conduct in a FSP;
  2. promote a culture where the interests of financial consumers are an integral part of a FSP’s business strategies and operations;
  3. set expectations for a FSP to effectively manage and conduct risk; and
  4. provide financial consumers with the confidence that a FSP exercises due care, skill and diligence, and acts fairly in its dealings with financial consumers.
A FSP is required to implement the requirements set out in the Policy Document with the objective of delivering the following six outcomes –

  1. Outcome 1: Financial consumers have the confidence that they are dealing with a FSP where fair treatment of its financial consumers and consideration of their best interests are integral to its corporate culture and core values;
  2. Outcome 2: Financial consumers are not subject to unfair discriminatory practices, including unfair contract terms that significantly disadvantage financial consumers;
  3. Outcome 3: Financial consumers are provided with clear, relevant and timely information for them to make informed decisions before, during and after the point of sale, including the costs, risks and important exclusions or limitations;
  4. Outcome 4: Staff, representatives and agents of a FSP exercise due care, skill and diligence when dealing with financial consumers;
  5. Outcome 5: Financial consumers receive suitable advice and recommendations that take into account their financial needs and circumstances; and
  6. Outcome 6: Financial consumers’ complaints and claims are handled in a prompt, fair and effective manner.
The Policy Document requires a FSP to prominently publish on its website, its commitment towards treating financial consumers fairly and how it intends to implement such commitments. The commitments may be set out in a Treat Consumers Fairly Charter or incorporated into a FSP’s Customer Service Charter.
In developing its commitments, a FSP is to be guided by the following principles –

  1. Principle 1: Corporate culture - the board and senior management are to set clear expectations on Fair Treatment of Financial Consumers (‘FTFC’) and embed these expectations into the FSP’s corporate culture and core values;
  2. Principle 2: Fair terms – a FSP must ensure that financial consumers are provided with fair terms in contracts with financial consumers;
  3. Principle 3: Provision of information – a FSP must provide financial consumers with clear, relevant and timely information on financial services and products;
  4. Principle 4: Fair dealing - a FSP must ensure its staff, representatives and agents exercise due care, skill and diligence when dealing with financial consumers;
  5. Principle 5: Advice and recommendation: a FSP must take reasonable care to ensure the suitability of advice and recommendations provided to financial consumers; and
  6. Principle 6: Redress – a FSP must handle financial consumer complaints and claims promptly, fairly and effectively.
The Policy Document provides detailed requirements to be fulfilled in respect of each of the above principles. It also provides additional guidance for FSPs by providing (i) an example of a Treat Customers Fairly Charter; (ii) non-exhaustive examples of conduct that is consistent with fair outcomes to financial consumers; (iii) examples of good and poor practices for each FTFC principle; and (iv) a non-exhaustive list of contractual terms which may be regarded as unfair.
The Policy Document will come into effect on 6 May 2020 except for the following –
  1. paragraphs 11.4 to 11.10 of the Policy Document relating to contracts with financial consumers will come into effect on 6 November 2020; and
  2. paragraphs 11.11 and 11.12 of the Policy Document that prohibit the enforcement or invocation by a FSP of unfair terms in existing contracts with financial consumers and require a FSP to actively review and where appropriate, amend such contracts, are deemed to have come into effect on 6 November 2019.
The Policy Document is to be welcomed as it seeks to ensure that FSPs take steps to embed fair treatment of financial consumers into their business practices.