Effective Regulators Talk to the Private Sector

> Posted by Susy Cheston, Senior Advisor, CFI

There was good news from the Alliance for Financial Inclusion (AFI) yesterday: the announcement of a partnership with MasterCard Worldwide to build technical capacity so that AFI members are better equipped to regulate innovations in products and business models.

Since its birth seven years ago, we have admired AFI for so effectively galvanizing a powerful regulator community to set a high bar on financial inclusion. Part of AFI’s strategy has been a fierce commitment to ownership of the issue by the regulators themselves. The results have been measured not only in dramatically increased access among AFI member countries, but also in higher standards around the quality of those services, as evidenced by Maya Commitments around client protection and financial capability. AFI Working Groups have also been developed for peer learning on digital financial services, financial inclusion data, and other key issues.

Yet we are among many in the industry who have felt that AFI’s circling of the wagons meant that their policy solutions were not always smart about encouraging innovation and investment in financial inclusion. To its credit, AFI got the message, and in 2014, it launched a Public-Private Dialogue Platform (PPD) to incentivize policymakers and regulators to cooperate with the private sector. Yesterday’s announcement about the new relationship with MasterCard is a strong next step toward realizing the PPD’s promise.

This trajectory resonates with recent interviews on client protection that we have carried out at FI2020. Among the regulators we interviewed, what was striking was the path many have followed toward empowering the private sector to play an active role in customer protection. We heard about a number of good practices that build capacity and break down communication silos between the public and private sectors.

As one example, the Financial Consumer Agency of Canada (FCAC) takes pride in fostering strong business relationships with its regulated entities. According to FCAC Commissioner Lucie Tedesco, “collaboration and the ability to have an open dialogue are fundamental to achieving richer outcomes.” In a keynote address to the PBOC International Seminar on Financial Consumer Protection held in Shanghai last October, Tedesco describes the Agency’s early years as ones in which their consumer protection policies were sometimes thwarted by misunderstandings and disagreements with providers. After starting a new strategy of assigning dedicated relationship managers—individual officers who worked closely with specific regulated entities–the Agency found a dramatic increase in compliance, with greater collaborative problem-solving. FCAC also actively reaches out before enacting policies to ensure their compliance materials are practical, effective, and engender corporate acceptance and support.

Similarly, we talked with regulators in Kenya and the Philippines that have adopted a “watch, dialogue and learn” approach regarding the e-money industry and non-banks providing these services. Regulators in those countries have been eager to learn more about technology and have engaged with the private sector in order to understand the practical issues of implementation. A training on financial inclusion technologies carried out by Bankable Frontier Associates for Bangko Sentral ng Pilipinas (BSP) in the Philippines was especially helpful.

What we observe with financial inclusion is that generally regulators lead, providers follow, and consumer voices are rarely to be found. In Canada, not only has FCAC engaged with the industry, but the Government has recently reached out directly to consumers for input through cross-country public consultations on the development of a new financial consumer code. Some regulators look directly at the demand side of the equation. Rudy Araujo, Secretary General of the Association of Bank Supervisors of the Americas (ASBA), told us that his members are asking how they can better understand customers at the base of the pyramid. Regulators in some countries have worked to understand different market segments and have even undertaken behavioral research on a wide range of issues, including why specific demographics complain; the impact of different delivery channels; the emerging risks of digital financial services; and borrowing habits.

Now that AFI is taking a leadership role in engaging with the private sector, will engaging directly with consumers be next? That’s the highest bar of all—but we have seen AFI rise to challenges on more than one occasion!

Have you read?

Three Ways Financial Inclusion Makes Life Harder for Regulators

Calling All Countries to Get Their Policies Right

AFI Global Policy Forum Concludes with Declaration of the Sasana Accord

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