By: Anto Prabowo, Deputy Commissioner of the Financial Services Authority
KNews.id- Prior to the 2008 global financial crisis, consumer protection in financial services had not become the main focus of regulators in the world. Regulations in the financial services sector are dominated by Prudential regulations which focus on institutional aspects and aspects of financial health of financial service institutions.The Global financial crisis then changed the focus of policy makers in various countries, continuing at the G20.
Regulators and supervisors of the financial services sector seek to integrate Prudential-based supervision based on the precautionary principle with market conduct supervision (behavior of financial service institutions) that focuses on consumer protection aspects in order to create an accountable financial services sector (Ot-ker-Robe&Podpiera, 2013) .
The world economy is currently also facing the era of the VUCA method: volatility (volatility) uncertainty (uncertainty), complexity (complexity), and ambiguity (ambiguity). This era causes changes to be faster and the situation more complex, the future is increasingly difficult to predict and full of uncertainty.
Along with the rapid growth of the financial services industry, the types and variations of financial products and services are also increasingly innovative. Financial services business actors (PUJK) always try to launch new products to consumers.
This situation makes the dynamics in the financial services industry more complex (complexity). The large number of new financial product and service offerings also makes consumers experience information overload even though the level of financial literacy in Indonesia is still relatively low.
The National Survey of Indonesian Financial Literacy and Inclusion (SNLKI) in 2019 stated that the level of public literacy had only reached 38.03% with an inclusion rate of 76.19%.
In addition, there are differences in the level of financial literacy and inclusion. the figures are 41.41% in urban areas and 3.60% in rural areas, and 34, 53% and 68.48% in rural areas.The factor of the low level of literacy is one of the causes for the emergence of consumer complaints and disputes. This happens because consumers have certain expectations of the purchased financial product or service, without understanding the risks or commitment to the product.
This encourages customers to agree to contract agreements with financial service institutions even though they do not fully understand the agreed clauses. In fact, each financial product has its own characteristics and requires commitment and understanding of related products.
Market Conduct
Indonesia is currently facing the development of a fast-paced financial services industry in the midst of low levels of financial literacy and access to finance. This increasingly complex financial market is vulnerable to information asymmetry due to increasingly innovative financial products.
To improve consumer protection and prevent losses in society that could reduce confidence in the financial services industry, it is necessary to strengthen market conduct supervision.
The Financial Services Authority (2017a) explains the limitations of the market conduct aspect as the behavior of financial service institutions in designing, compiling and conveying information, offering, making agreements on products and or services as well as dispute resolution and complaint handling.
This market conduct supervision is expected to ensure the integrity of the FSB in implementing consumer protection aspects at every stage of the product life cycle in the financial services industry, starting from product planning, marketing, sales and dispute resolution mechanisms.
OJK (2017a) Explains that market conduct supervision has three objectives.
First, create a culture and behavior of consumer-oriented financial service institutions (treat consumer fairly).
Second, understand market behavior in the financial services sector and individual financial service institutions to identify and mitigate risks that result in consumer and community losses.
Third, protect the interests of consumers through supervision. Campbell et al (2010) and Agarwel et al (2009) stated that the financial services sector has four main sources of risk that will have an impact on the economy.
These 4 sources of risk come from inherent, environmental, structural, and also FSP risks. This source of risk may reflect a weakness in the financial system that needs to be monitored for risk mitigation purposes.
For example, the risk of asymmetric information in the industry can lead to low levels of trust, literacy or savings levels of the public. This can be prevented if the financial sector is able to provide useful financial products and services, meet consumer expectations, and protect consumer rights.
Three other sources of risk also need the attention of regulators in implementing market conduct supervision. By identifying and monitoring each risk component, the implementation of market conduct supervision will be more focused and responsive.
Through the principle of market conduct supervision which is oriented towards emphasizing the principle of treat consumer fairly, OJK requires FSBs to prioritize consumers in the design, launch, marketing, after-sales processes of financial products and services and to provide a dispute resolution mechanism in the event of a dispute between consumers and the FSB.
Supervision Strengthening
Currently, there are two regulations governing consumer protection. First, Law No. 21/2011 concerning OJK which regulates the implementation of Consumer Protection in Financial Services in Indonesia and OJK regulation (POJK) No. 1/POJK.07/2013 concerning consumer protection in the financial services sector which regulates technical consumer protection.
To strengthen Consumer Protection according to the times, provisions that specifically regulate market conduct supervision in Indonesia are needed. The World Bank in a report entitled Indonesia Diagnostic Reviews of Consumer Protection and Financial Literacy: Volume 2 Assessed that the market Conduct supervision mandate has not been fully reflected in the existing supervisory system in Indonesia to date.
Therefore, regulations on Consumer Protection need to be further refined. Improving the regulation can be through the preparation of regulations related to market conduct originating from the principles and frameworks that have been stipulated in Law No. 21/2011 concerning OJK by establishing a regulatory structure, organizational framework, business processes, and regulatory limits, as well as market conduct supervision actions to FSAs.
The strengthening of market conduct supervision by referring to the legislation will be limited to the scope of the regulatory boundaries regulated in Law No. 21/2011. To develop further, adjustment of regulatory boundaries requires consideration of cost and benefit analysis (cost and benefit analysis) which must be able to balance between the interests of consumers and the interests of service companies being supervised.
The adjustment of regulatory boundaries for market conduct supervision is expected to accommodate all needs in increasing consumer protection according to product and service developments and be able to support Prudential supervision of the financial services industry. (AHM)
