Friday, 19 November 2010

Financial consumer protection: a ray of light in the G20 gloom?

CI's Robin Simpson gives a blow by blow account of the G20 commitment to financial consumer protection.

While the world’s press and the financial markets were raining on the G20's parade, we poor toilers at Consumers International (CI) were enjoying a moment of satisfaction at the outcome. Lobbying by our members in the G20 countries seems to have paid off.

Efforts involved meetings with heads of governments (VZVB in Germany), finance ministers (CLCV in France, and CHOICE in Australia) and relevant officials and ‘Sherpas’ (the term of art for those officials who prepare the ground and do the ‘heavy lifting’ for the summiteers).

Together with our members we were also able to build up a significant media presence in key areas. The Financial Times, The Daily Mail (both UK), Huffington Post (US), Times of India and The Canberra Times (Australian) to name but a few.

So what do we have to show for these efforts? Para 11 of the summit leaders main declaration states: “..we have agreed to..enhance consumer protection..”. Note the wording, this is not an appeal to others to enhance consumer protection, this is a commitment by the heads of governments of the G20 to take this action themselves.

This paragraph also includes a range of other commitments, many of which we have argued for in our evidence to the UN NGO consultation chaired by Joseph Stiglitz and elsewhere. So the G20 governments have also agreed to: “work further on macro-prudential policy frameworks” and to “strengthen regulation and oversight of shadow banking”, particularly significant in the context of the activities of ‘non-bank’ (and therefore not regulated as banks) financial institutions. These bodies also contributed to the financial crisis, or as Paul Krugman calls it: “the non-bank banking crisis”.

There is commitment to integrating the “perspective of emerging economies in financial regulatory reforms... improving ‘market integrity” and improving governance of the IMF. Para 12 also commits to prioritising action on “exclusion from financial services” and a Financial Inclusion Action Plan, “to expand opportunities for poor households and SMEs”. This latter coupling of domestic consumers with SMEs is significant as discourse on financial inclusion in developing countries has tended to overlook or even faintly disapprove of developing new mechanisms for household consumer credit, leaving the way open for undesirable forms of credit to predominate. Commitments are also made on “green growth”, social safety nets and infrastructure development.

Para 41 of the text of the full Seoul Summit Document addresses “enhancing consumer protection” in slightly more detail. The Financial Stability Board (FSB) is asked to work with the OECD and “other international organisations” (that had better mean Consumers International!) “to explore and report back by the next summit” (so all leave cancelled next year!!), “on options to advance consumer finance protection through informed choice that includes disclosure, transparency and education; protection from fraud, abuse and errors; and recourse and advocacy”. (us again)

Realistically, as summit statements are frequently so vague, this is almost as good as we could have expected. Almost, for there are two disappointments in terms of what is not there.

Firstly there is no mention of the development of the institutional framework that CI wants to see so that dangerous practices in one market are signalled to regulators around the globe to prevent ‘contagion’. But, there is nothing there to argue against such a development and we intend to press for it.

Secondly, there is no explicit reference to competition, which is of great concern to our member organisations following the bank mergers that have taken place under recent financial emergencies (some of which resembled shotgun weddings). But there is reference in para 9 of the Action Plan to ‘too big to fail problems’, and to ensuring ‘a level playing field’. CI intends to press on these issues to ensure that bank shareholders accept full responsibility for their actions and not be shielded by the threat of being ‘too big to fail’.

The action now moves on to the French presidency of the G20 and we are already in contact through our members in France, with the G20 team there. We are already pushing for fulfilment of the commitments described above, and you can join us by sending a letter to the French Presidency.

Our members are working strenuously, and with increasing success on the issues mentioned above and we have much of that experience to bring to the table. This is all the more important as the G20 commitments seem to apply at a national as well as an international level, and are not confined to the G20 member states but have global application. If we were in the FSB’s place we would want to involve us. Let us hope they feel the same way.

Now for the hard part.

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