Among these initiatives, we are joining with the Consumer Council in their consumer awareness campaigns. Another very important initiative I’d like to highlight, is our work with the Securities and Futures Commission to establish an Investor Education Centre (IEC). The HKMA will supplement this with additional consumer education independent of the IEC, focusing on areas such as banking products and services, as well as other investment products that may not be covered by the IEC. “The role of the consumer” So, as well as good practice among financial institutions, financial authorities also have an important role to play in enhancing consumer protection and education. But focusing on just those two groups leaves out possibly the most important group of all – the consumers themselves, to whom I will devote my remaining remarks. One of the things on which the global financial crisis cast a cold light was the implicit cost to households – and indeed to society and financial markets – of low levels of financial literacy. Financial literacy is increasingly recognised as an important individual life skill that people need to thrive in a modern economy like Hong Kong. Without it, consumers can be at risk of mis-buying and bank employees are themselves at a higher risk of mis-selling. For example, one of the hallmarks of our financial sector in this city is the universal banking regime that allows banks to offer basic services as well as a wide range of financial products.
In response to the changing landscape following the collapse of Lehman Brothers, the HKMA expanded its efforts to protect and educate consumers, and this change resulted in the creation in April 2010 of our Banking Conduct Department. I will focus first on our work to strengthen consumer protection before going on to saying something about our work on consumer education. HKMA & consumer protection In terms of consumer protection, first, the HKMA has introduced new requirements on banks and issued guidelines on the selling of investment products. These include (a) requiring audio-recording the customer risk profile assessment and sales process to provide audit trails for reviews by banks and the regulators; (b) implementing a pre-investment cooling-off period in the sale of unlisted structured products to less sophisticated customers (such as the elderly or first-time buyer); and (c) requiring banks to carry out continuous reviews of product risk and inform investors of any upward changes to the risk ratings of the products they have purchased. These requirements were in addition to existing measures introduced by the Hong Kong Securities and Futures Commission (SFC) on the supervision of securities companies’ selling activities. Second, the HKMA is active in monitoring banks’ compliance with these and other regulatory requirements through thematic on-site examinations. Banks are expected to have control processes and procedures in place to ensure adherence to the conduct regulations. In addition, to monitor compliance levels among banking staff, the HKMA conducts mystery shopping trips. Third, the HKMA has strengthened consumer protection by working with partners.