Needed, a Financial Redressal Agency
Fixed deposits in banks and administered savings schemes such as the Public Provident Fund (PPF) are losing their sheen, making the case for people to switch to other savings options compelling. However, gaps in financial regulation leave ordinary savers, who lack financial literacy for the most part, vulnerable to mis-selling. Rightly, the Financial Sector Legislative Reforms Commission had posited consumer protection as the raison d'être of financial regulation and recommended a unified regulatory agency to enforce the consumer protection law. Having accepted its recommendation in the 2015-16 Budget, the government should swiftly set up a financial redressal agency (FRA) with legal backing to address grievances.
Rightly, a task force on the FRA has recommended empowering the agency to provide redress, given that regulators cannot be expected to resolve individual complaints. Its suggestion to offer a simplified resolution process through mediation and light touch adjudication when parties are unable to reach a settlement makes sense. A performance review of the FRA will not suffice. The agency should be made accountable to Parliament. Surely, regulators must also invest in improving financial literacy to enable people take informed investment decisions — be it in stocks, mutual funds or insurance — before pushing direct sales or completely switching to a fee-based model. Countries such as the US strengthened consumer protection in financial products and services after the financial crisis. Reportedly, the Consumer Financial Protection Bureau (CFPB) set up in 2010 has returned nearly $12 billion to 27 million consumers who were conned by financial services firms engaging in illegal practices. India direly needs a robust FRA to look out for ordinary consumers.