The business world can be a cold and brutal place for distressed and disadvantaged consumers, and vulnerability, especially in finance and investment, is increasingly a matter of concern for policymakers.
Following the central bank’s release of proposed requirements and guidance on fair treatment of vulnerable consumers, there will be change in Malaysia, at least among financial service providers (FSPs).
A fairer culture
Set out in an exposure draft published on 28 February, the new rules and recommendations are meant to ‘promote a culture where FSPs properly consider and respond to the needs of vulnerable consumers, consistent with fair treatment outcomes’.
Bank Negara Malaysia (BNM) is accepting feedback on the draft until 14 April. The plan is to incorporate these new requirements in the central bank’s existing policy document on fair treatment of financial consumers.
Businesses ought to conduct themselves in a way that creates trust and confidence
This development deserves wide attention. At the heart of it are fundamental expectations that are relevant across all industries – that businesses should be responsive to the needs of consumers and ought to conduct themselves in a way that creates trust and confidence.
That is the thrust of BNM’s policy document on fair treatment of financial consumers, which will soon be expanded to include emphasis on consumer vulnerability as covered in the exposure draft.
The draft does not refer to the Covid-19 pandemic (which is understandable because the policy is intended to remain in use years from now) but there is no doubt that the health and economic crisis has pushed the subject of consumer vulnerability to the top of the financial regulation agenda.
Pandemic lessons
A January 2022 report by the OECD says: ‘The pandemic has highlighted the importance of robust and responsive financial consumer protection frameworks in terms of ensuring accessible arrangements are in place to alleviate financial hardship, ensuring financial consumers are treated fairly, and ensuring coordination across relevant stakeholder groups including government agencies, oversight bodies, and industry and consumer representatives.’
The descent into vulnerability can be triggered by just one awfully bad day
In a discussion paper on its proposed Financial Inclusion Framework 2023-2026, issued in early February, BNM points out that the pandemic has shown that financial vulnerability can affect anyone, irrespective of income or education.
In other words, it is naïve to believe that we will always stay one step ahead of vulnerability. This is reflected in the breadth of BNM’s definition of a vulnerable consumer.
According to the central bank, there are four categories of financial consumers who may be deemed vulnerable. Some have the capacity to make their own financial decisions but may face challenges in accessing financial services or may require assistance to engage in such services. These include people with disabilities or senior citizens. Another group are those with a low ability to withstand financial shocks. Examples are people with too much debt or too little savings.
In the third category are those who are experiencing or have experienced life events that lead to temporary or long-term financial hardship. The descent into vulnerability can be triggered by just one awfully bad day, when you are hit by a natural disaster, loss of income, or the death or permanent disability of your family’s main breadwinner.
The final class of vulnerable consumers are those who lack the knowledge, skills or experience of the average financial consumer in Malaysia. They may, for example, be illiterate, have poor financial literacy and digital savviness, or speak neither Bahasa Malaysia or English.
Caring sector
It is good to see that the central bank is lighting the way to a more caring and conscientious financial sector. But FSPs are not the only businesses that need to improve how they identify and handle customer vulnerability.
For instance, in December last year, Securities Commission chairman Dato’ Seri Dr Awang Adek Hussin said that the notion of a vulnerable investor is a key priority to ensure a more inclusive capital market. ‘This means that all investors are served, irrespective of their circumstances,’ he added.
There is much to learn from the initiatives by financial regulators around the world to address consumer vulnerability. If a business cannot immediately make a customer’s life better, the next best thing is to not make it worse.
