SBP brings transparency in sale of third-party products

KARACHI: The State Bank of Pakistan (SBP) on Wednesday issued instructions to address concerns and bring transparency in the sale of third-party products for consumers’ convenience and protection, a statement said.

The central bank said in addition to the typical banking products or services, the banks often offer or sell other financial products that are provided by other financial institutions, generally referred to as bancassurance or third-party products.

Such offers are often prone to mis-declaration about the quality or pricing of products. Further, the banks also don’t assume any responsibility after the sale of products, which leads to difficulties for the customers and disputes.

To address such concerns and bring transparency to such transactions, the SBP has issued a comprehensively revised set of instructions on the sale of the third-party products.

In addition, these instructions will also facilitate the sale of the products through digital channels and promote financial inclusion.

Explaining key features, the central bank said it will be mandatory for the banks to assess the suitability of the customers for the sale of the third-party products. In addition, they will take extra care, while selling such products to vulnerable consumer segments such as widows, senior citizens, etc.

All Islamic banks along with Islamic branches of conventional banks will strictly ensure that the sale of the third-party products is in compliance with the Shariah law and the SBP regulations, while their agreements with the third parties should also be approved by their Shariah boards.

The banks are directed to use their audit and compliance function to ensure compliance of the SBP’s regulations in their business practices related to the sale of the third-party products.

The senior management and the board of directors will ensure that the risks to consumers in the sale of the third-party products are identified and addressed in a proficient manner.

With the added disclosure requirements, the banks have been required to mention explicitly that the product is being sold as an agent or distributor of a third-party.

To further increase accountability of the bank employees involved in selling the third-party products, the banks have been advised to develop and enforce a code of conduct.

The banks will also ensure collection/registration/analysis of consumer complaints and feedback for continuous improvements in the sale of the third-party products by the banks.

The banks will introduce proportionate controls to foster consumer convenience and financial inclusion, especially for less risky/small size/low value products being sold through the Alternate Delivery Channels.

They have been directed to ensure the provision of special training to their staff for the sale of the third -party products and take disciplinary action against the employee(s) concerned in case of fraud.

The direct debit facility can only be used if the consent of the customers is obtained in writing or through electronic means in case the Alternate Delivery Channels are used for distribution.

The central bank has also directed the banks to design and implement a Call Back Confirmation (CBC) mechanism to ensure and verify the identity of consumers and the genuineness of the transaction.

To confirm the information provided by the customer, the Call Back Confirmation mechanism based on a predefined script should be used for suitability assessment and his/her understanding of the product.

The instructions will be applicable from November 1, 2021, and will supersede the previous instructions, it added.

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