Report of the Committee to recommend measures for curbing mis-selling in financial products
Deterring miss-selling of financial products
Protection of the rights of consumers of financial products is of paramount importance for the smooth functioning of an economy. This was evidenced during the sub-prime mortgage crisis in the US which caused a global economic meltdown. The mis-selling of certain mortgage products was one of the key contributors to the crisis. In its aftermath, countries like US, UK and Hong Kong, among others, carried out a complete overhaul of their existing legal regimes on consumer protection for financial products, including mis-selling.
In India, customers who do not understand complicated financial products often fall victim to mis-selling tactics of companies and various intermediaries who are incentivized by remuneration structures linked to sales.
In November, 2014, the government had setup a committee to evaluate the regulatory regime governing mis-selling, identify bottlenecks and suggest measures for reform. Vidhi was tasked with preparing a report for the Committee that outlined the regulatory hurdles and evaluated case law developments on consumer protection.
The report noted that most financial sector regulators had their own procedures for licensing and registration of intermediaries, codes of conduct, and grievance redressal processes, which made the legal regime highly fragmented. It also described past instances of turf-wars between regulators over complex financial products which had various technical features. Such complexities also facilitated regulatory arbitrage and lowered consumer confidence in the financial sector, the report found. Among other measures, it recommended a single consolidated consumer protection regime for the entire financial sector. Given the multiplicity of judicial forums for financial products, it also recommended a unified redressal agency for all financial products.
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About the Authors
Shreya is a Senior Resident Fellow, and leads the work at the intersection of law, finance and development at Vidhi. She is currently focusing on independent research work relating to financial inclusion, tech and corporate governance. She has worked on several engaged projects with the International Financial Services Centres Authority, Ministry of Corporate Affairs and the Insolvency and Bankruptcy Board of India. Shreya completed her LLB from National Law University, Jodhpur in 2012 and LLM from Queen Mary, London on a Chevening scholarship in 2019. She also worked with the European Bank for Reconstruction and Development, London in 2019. Prior to joining Vidhi in 2014, she worked as an Associate at Luthra & Luthra Law Offices, New Delhi.
Yashaswini Mittal was a Research Fellow at Vidhi.
