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Code of Conduct for Consumer Financial Protection and a Global Trademark of Ethical Service Delivery as a Response to Consumer Financial Illiteracy

Anna Grochowska, Economist, DG ECFIN, European Commission
Ideas Fair

 

Anna Grochowska
Financial education has become a crucial skill nowadays, not only for prosperous investors but also for ordinary consumers, helping them budget and manage their income, save and invest efficiently, and avoid becoming victims of fraud. Despite sizeable efforts devoted to strengthen the foundations of financial education and protection, numerous international surveys still demonstrate consumers’ generally low level of understanding of financial matters and basic economics. The current financial and economic crisis shows how improper knowledge about certain financial instruments can trigger waves of losses, bankruptcies and a high degree of market uncertainty all over the world. Most of the measures taken so far rely on industry self-initiative and have not proven fully effective. Hence, more concrete efforts and binding mechanisms may be needed to successfully fight financial illiteracy. One possible tool could be related to reputation, banks’ key asset and a potentially effective “corrective device” against conflicts of interest. The tool would be twofold. First, a voluntary code of ethical practice would be signed. By signing the code of ethical conduct, an institution would acknowledge its commitment to ethical standards and client protection, endorsed by the OECD and G-20. The list of signatories would be available publicly so that consumers can compare the ethical standards of various financial services providers.

In the second step, a certification process would be developed for a new trademark of ethical and client-focused financial service delivery. The certification process would be based on a set of measurable indicators and benchmarking. Institutions which fulfill all requirements would obtain official accreditation, which could be used for marketing purposes. Financial regulators would be responsible for accreditation decisions as well as for the standardization of the certification process. The project would start in the Eastern European market, where action is especially desirable given the rapid development of the financial sector, often outpacing the availability of financial education resources. Then the initiative would be extended worldwide, so that the trademark becomes a global quality symbol for customer-friendly financial institutions.

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