70339 Consultative Draft LATVIA Action Plan on Financial Consumer Protection April 2010 THE WORLD BANK Private and Financial Sector Development Department Europe and Central Asia Region Washington, DC Latvia Action Plan on Financial Consumer Protection Table of Contents Abbreviations & Acroynms ........................................................................................... 3 Background ................................................................................................................. 5 Part I: Institutions and Institutional Setup ..................................................................... 6 Part II: Disclosure of Information ............................................................................... 12 Part III: Business Practices ........................................................................................ 15 Part IV: Dispute Resolution ........................................................................................ 20 Part V: Financial Education and Financial Capability................................................. 23 Annex: Summary of Draft Action Plan ....................................................................... 27 Abbreviations & Acroynms APR Annual Percentage Rate of Charge CRPC Consumer Rights Protection Center ESIS European Standardized Information Sheet EU European Union FCMC Financial and Capital Market Commission FSA Financial Services Authority LVL Latvian Lat LTV Loan-to-Value MOE Ministry of Economy SECCI Standard European Consumer Credit Information UK United Kingdom US United States of America 3 4 Latvia Action Plan on Financial Consumer Protection Tomáš Prouza Please note: the draft action plan should be evaluated on its own merit and proposals should be viewed in the light of its added value for the well-functioning system of financial consumer protection. Many of the proposals can be funded externally, so the current budget situation of Latvian government should not be used as grounds for ruling out the measures. Background 1. The following Action Plan is based on the Diagnostic Review of Consumer Protection and Financial Capability in Latvia, as prepared by The World Bank in November 2009. The Action Plan focuses on the main issues described in the Key Findings and Recommendations, as listed in the Diagnostic Review, proposing specific actions to be undertaken by Latvian authorities, financial institutions and consumer organizations so that consumer protection is strengthened and made more effective and efficient. The Action Plan should be the base upon which specific changes are prepared and against which their implementation is evaluated. 2. Beside the Diagnostic Review itself, the Action Plan draws on best international practices and experiences of regulators and supervisors that have tried to introduce improved consumer protection regimes in their countries. It should also be noted that a well balanced consumer protection regime serves also the interest of financial institutions as it provides them with better-informed clients and also makes sure that clients understand their obligations under the contracts they signed. 3. The Action Plan takes into account the current macroeconomic situation in Latvia and focuses primarily on steps with no or low impact on state finances. When actions with a funding need are recommended, the Action Plan provides an estimate of necessary costs. 4. The Action Plan is divided into five parts that cover the key areas based on the recommendations of the Diagnostic Review: I. Institutions and Institutional Setup II. Disclosure of Information III. Business Practices IV. Dispute Resolution V. Financial Education and Financial Capability 5 Part I: Institutions and Institutional Setup 5. All countries historically based their supervision of financial markets on prudential supervision, the primary mission of the supervisors being the need to maintain the stability of the financial sector, as unstable financial sector (especially the banking industry) may have major influence on political stability in the country and can also negatively impact the country's international image. 6. However, as retail usage of financial products grew (hand in hand with the growing complexity of financial products available to the general public), experience in many countries showed that treating customers fairly is as important as stability of the whole financial sector in the financial sector’s perception by the public. Therefore, prudential supervision has been joined by market conduct supervision, and market conduct rules have started to play a more significant role in the newly drafted financial market legislation, both internationally and nationally. 7. To make sure that both the public and the financial sector understand that the country takes market conduct issues seriously, the state should unequivocally declare the importance of consumer protection in financial services and its willingness to promote proper market conduct. Therefore, when the Latvian authorities decide to develop and implement the Action Plan to increase protection of consumers of financial services, attention must be paid to publicizing the planned actions and the government’s commitment to the plan. Both public and the financial industry should be informed about the goals of the plan and its deliverables. Action: Inform the public and the financial industry about the planned changes Description: Once the government selects actions to be undertaken, explain them to the public and the financial industry so that they know what and why will be changing. Use the media to educate the public about the issues the government sees as crucial in improving their situation as users of financial products. Use the dissemination workshop for the Diagnostic Review to present these plans. Responsibility: Consumer Rights Protection Center (CRPC) and Financial and Capital Market Commission (FCMC) in joint cooperation Deadline: April 2010 Costs: No additional costs above budget Status: Agreed 8. The CRPC is the primary Latvian enforcement agency for consumer protection. While its mandate is quite broad, the CRPC should make sure it is legally equipped to deal with all relevant financial services-related complaints it receives. Therefore, it should analyze complaints it has received over the last year and compare what it could and would like to do to prevent similar cases from happening, keeping in mind that the CRPC should not be a government body to lodge complaints but a government body that takes action (based both on received complaints and its own market watch) to prevent companies from hurting consumers, and does so quickly and efficiently. Should the analysis show discrepancies 6 between legal powers and preferred solutions, the CRPC should propose legal changes of relevant legislation. Action: Analyze the legal powers of CRPC and define any deficiencies Description: Analyze whether the CRPC has all powers it needs to influence the behavior of financial institutions and if not, propose legislative changes. Responsibility: CRPC in cooperation with the Ministry of Economy Deadline: April 2010 Costs: No additional costs above budget Status: Agreed 9. While CRPC is the primary Latvian enforcement agency for consumer protection in financial services, it lacks specialized staff that understands not only consumer protection but also financial products and services and financial services-related legislation. To become more effective, CRPC needs to build institutional knowledge in the area of financial services. However, as budget constraints prevent CRPC from hiring new specialized staff in the short term, there are three other approaches the CRPC should use. The first is the secondment of a few members of the FCMC staff that would educate several CRPC employees about financial products and support them in dealing with the complaints received. FCMC should also invite CRPC when it conducts educational programs such as its planned program to educate journalists about the financial market. CRPC could add information about consumer protection for the media while itself improving its understanding of financial markets and products. 10. The second option CRPC should use is to cooperate with financial industry associations and use their training programs to increase its institutional knowledge of financial products. 11. As third approach, the CRPC should focus on developing further international contacts that could help it become increasingly effective in developing a customer-oriented culture in financial services. Within the EU, the United Kingdom and Ireland are two countries with long-term experience, while countries like Czech Republic or Slovakia would be able to provide very recent lessons from trying to improve relations between financial institutions and their customers. Action: Build up institutional knowledge of CRPC Description: Work more closely with the FCMC to build up understanding of financial products at CRPC, cooperate in educational activities with FCMC, use trainings of financial sector associations and develop international contacts across the EU. Responsibility: CRPC in cooperation with the FCMC and financial sector associations (for training programs) Deadline: Continuously Costs: No additional costs Status: Agreed 7 12. Many of the proposed actions in this Action Plan will require cooperation between CRPC and FCMC as well as an active involvement of the financial industry and consumer representatives. Ministry of Economy, as the government body responsible for consumer protection, should have a high-level oversight of the whole process. Therefore, a small Steering Committee should be established with senior representatives of the Ministry of Economy, CRPC, FCMC, the Bank of Latvia, financial industry associations and consumer representatives, meeting quarterly to set priorities, monitor the progress of the Action Plan, update it as necessary and coordinate further actions. Also, such a Steering Committee will support accountability of the institutions towards the public and will act as the top-level agenda setting body. Action: Establish Steering Committee for implementation of the Action Plan Description: Establish the Steering Committee for preparation and coordination of proposed actions with the involvement of senior representatives of the Ministry of Economy, CRPC, FCMC, the Bank of Latvia, financial industry associations and consumer representatives. Responsibility: Ministry of Economy, CRPC, FCMC, the Bank of Latvia, financial industry associations and consumer representatives Deadline: May 2010 Costs: No additional costs above budget Status: Agreed and implemented 13. An important part of effective consumer protection is the understanding of the financial industry that the government is serious about protecting the rights of consumers. Therefore, CRPC and FCMC should continue in its current active communication of cases when financial institutions breach consumer protection rules, including the names of institutions that have harmed its customers, both on its websites, the official gazette and through media. This "name and shame" policy is considered to be very effective in building a strong position of the "protector" of consumers and is also helpful in building knowledge of consumer protection organizations. Better use of websites is recommended, with CRPC drawing more attention to its new rulings as one of the hot news on its homepage, and FCMC including a section of "Financial institutions fined by CRPC for market misconduct" so that the public is more aware of cases and resulting sanctions. Action: Strengthen active communication policy for publishing cases when financial institutions harmed customers. Description: Strengthen active communication policy for publishing cases when financial institutions harmed customers, including names of institutions and sanctions awarded. Responsibility: CRPC and FCMC Deadline: Starting from June 2010 Costs: No additional costs above budget Status: Agreed 8 14. Both CRPC and FCMC would be more effective in dealing with issues regarding financial sector and consumer protection if they regularly shared information on received complaints (including telephone calls inquiries; telephone, faxed, online complaints with information of consumers; nature of complaints, etc.) and actively sought measures to prevent repeated complaints. FCMC should also include information on complaints handled by supervised institutions. Received complaints could also form the basis for staff education at both institutions. To make the information exchange easier, the data should be recorded and quantified by shared rules of classification. Action: Introduce regular sharing of received complaints and inquiries and use them in policy development Description: Share information on complaints and inquiries handled and use the information in developing proactive consumer protection policy and staff training. Responsibility: CRPC and FCMC Deadline: Starting from September 2010 Costs: To be estimated Status: Agreed 15. Any system of consumer protection can effectively function only when consumers are aware of their legal rights and about the various ways in which they can use these rights. Therefore, there should be a system of helping consumers become aware of their rights, providing common sense advice and assistance for consumers in the area of financial services and building on the experience of the helpline the CRPC currently operates for general consumer protection issues. Action: Develop an ongoing awareness campaign and assistance for consumers. Description: Prepare and test various tools (brochures, special websites, a toll-free line for financial services, media programs) that will inform the public about their rights and that will provide basic assistance for consumers to use their rights. Responsibility: CRPC Deadline: Development and testing by March 2011, start from July 2011 Costs: To be estimated Status: Agreed, but its implementation would require financial support from external donors 16. To further support the trust of the public and to stimulate public debate about the behavior of financial institutions towards customers, the CRPC and FCMC should jointly prepare a yearly report for the government and the Parliament about the main issues they dealt with regarding consumer protection in financial services, their joint evaluation of the market situation and their plans to address the key issues in the future. The report should follow up on the report of 9 complaints handled by the CRPC and FCMC. Previous reports should be checked to see whether the plans were met or whether further actions are necessary. Action: Prepare yearly report on the current state of consumer protection in financial services and plans for improvement Description: Develop the rules for the yearly report on consumer protection issues that the supervisors and other state authorities dealt with, including their market evaluation activities, and include proposals to tackle the issues that have arisen during the year. Present the report to the government and the Parliament. Responsibility: CRPC and FCMC Deadline: March 2011 and then every following March Costs: To be estimated (for preparing and publicizing the report) Status: Agreed 17. Supervision is always more effective if there is a public demand for action against those that break the rules. Besides media attention, the public demand is strengthened when there are effective consumer protection organizations. However, as financial products are complicated, the supervisors should help build the capacity of the consumer protection organizations by teaching them about financial issues and helping them in gaining knowledge about effective assistance for mistreated clients of financial institutions. Also, cofinancing from the state budget (or from fines awarded by the FCMC and/or CRPC) of some programs of consumer protection organizations should be made available in the long term to support programs the government sees as effective in promoting rights of consumers of financial products. With the current budget situation, grants should be looked for from donors instead of government funding. However, the donors and the government should support only well-defined programs with clear and measurable targets and strict accountability of organizations managing such a program. Action: Build capacity of consumer organizations Description: Educate representatives of consumer organizations and media about financial products and consumer rights, so that they can become an effective counterpart for financial institutions. Responsibility: CRPC and FCMC in joint cooperation Deadline: Continuously starting from January 2011 Costs: To be estimated (for seminars and training, for administering the assistance) Status: Agreed, but its implementation would require financial support from external donors Action: Support selected projects of consumer organizations Description: Should the budget constraints allow, the CRPC should be able to administer grants supporting projects of consumer organizations in the area of financial services. 10 Responsibility: CRPC Deadline: Yearly starting from 2011 Costs: To be estimated (for administration of grant fund) Status: Agreed, but its implementation would require financial support from external donors 18. Moreover, a regular informal communication mechanism should be established by the CRPC with financial industry associations and consumer organizations to identify and discuss important issues and try to find a common ground in dealing with them. Such consultative panels are very effective if the industry is able to self-regulate and the CRPC (in cooperation with the FCMC, the Bank of Latvia and the Ministry of Economy) should try to strengthen the self-regulation as it makes their own work more effective. There should be an informal meeting between the state and the industry at least once a year, with specific project-related agenda, discussing plans in the area of consumer protection for the next year. Action: Establish informal communication mechanisms with stakeholders. Description: Set up regular meetings between CRPC, FCMC, financial industry associations and consumer organizations to discuss arising issues, proposed legislation and results of business conduct supervision to inform all stakeholders about new developments and seek their cooperation in improving consumer protection. Responsibility: CRPC, FCMC, the Bank of Latvia and the Ministry of Economy with financial industry associations and consumer organizations Deadline: May 2010 and then at least yearly Costs: No additional costs above budget Status: Agreed 19. As the Action Plan defines various areas of cooperation and support between CRPC and FCMC as market-conduct and prudential supervisors, it might be helpful that these areas are covered by a Memorandum of Understanding between the organizations. The Memorandum should also define rules of cooperation in areas where responsibility of both bodies overlap. Action: Prepare and sign a Memorandum of Understanding between CRPC and FCMC Description: Define the rules of cooperation and information exchange between CRPC and FCMC and sign a Memorandum of Understanding. Responsibility: CRPC and FCMC Deadline: July 2010 Costs: No additional costs above budget Status: Agreed 11 Part II: Disclosure of Information 20. Full disclosure of information in formats that are understandable to an average customer and in a way that allows an easy comparison is the key for making informed decisions (along with financial literacy). 21. There are two major areas where disclosure should be legally defined:  Key Facts Statements  standardized contract provisions 22. The Key Facts Statements should be mandatory for each type of financial product1, listing the important information about the product in a standardized form and using standardized vocabulary to allow for an easy comparison of products of competing providers of financial services. When applicable, EU standards2 should be implemented for all financial institutions in the segment, preferably by self-regulation. Also, products that are legally different but similar in their nature (e.g. mutual funds, unit-linked insurance and structured investment products) should have the relevant parts of the Key Facts Statements as similar as possible. 23. To make the Key Facts Statements an effective tool of consumer protection, their existence must be continuously publicized and all financial institutions must be responsible for providing the statements publicly and prior to contract signing. Failure to provide the Key Facts Statements should be punishable either by the FCMC or the CRPC. 24. The key goal of the Key Facts Statements is to make sure that an average customer knows what he is signing and what are the risks associated with the product. It should also bring savings to FCMC and CRPC, as the experience of FCMC shows that most complaints stem from not understanding financial products. Therefore, the prioritization of Key Fact Statement development should stem from the volume of complaints in individual areas and from the general understanding of the public about each product3. 25. The Key Facts Statements should be developed by the relevant financial industry association in cooperation with consumer organizations and then jointly approved by the CRPC and FCMC. Before approval, the supervisory authority should verify the statements from four points of view:  fullness: the statement should provide all key information to make an informed decision; 1 Bank accounts, savings products, credit products (whatever their provider), life and non-life insurance, investment products, pension products. 2 ESIS (European Standard Information Sheet) for mortgages, Standard European Consumer Credit Information (SECCI) for consumer credit as defined by the new EU Consumer Credit Directive, etc. 3 For example, the Association of Latvian Commercial Banks mentioned leasing as a rather new product most of the public has not experienced yet, therefore, it could be a prime candidate – along other credit products – for development of a Key Facts Statement. 12  comparability with similar products: the statement should give enough information to compare the product not only with the same product offered by different providers, but also with other similar (but legally different) products (e.g. savings accounts vs. money market mutual funds);  understandability: tests should be run to make sure that an average customer can understand the information provided, that the statement uses plain language and that the statement does not require unnecessary calculations4 or study of other documents to find out what is needed;  key warnings: the statement must prominently list what will happen if the consumer breaches the contract (e.g. losing the consumer’s house used as collateral, penalties to be paid) and what are the risks connected with the product (e.g. impact of exchange rate fluctuations for euro-denominated loans). Action: Prepare and test Key Facts Statements Description: Develop and prepare Key Facts Statements for all financial products and test their usability for general public. Responsibility: Relevant financial industry association should prepare the Key Facts Statements with input from consumer organizations under the guidance of CRPC and FCMC. The CRPC should focus its testing on user-friendliness of the Key Facts Statements (clarity, precision, clear language, comparability, etc.) and the FCMC should focus on financial-products related issues (technical definitions, calculations, etc.). Deadline: Development for each type of products starting from July 2010 with prioritization by the Steering Committee Costs: ??? for external assistance on comparability and readability tests conducted by CRPC Action: Introduce Key Facts Statements into the laws and supervisory procedures Description: Financial institutions should be required to provide a supervisor-approved Key Facts Statement to any client prior to a transaction and make them available on their websites. The CRPC and FCMC should be given the authority to approve the Key Facts Statements, to monitor the distribution of the Key Facts Statements during inspections and through analysis of received complaints, and to impose sanctions for companies that fail to provide clients with truthful Key Facts Statements. Responsibility: Ministry of Economy, with CRPC and FCMC Deadline: August 2010 for draft law changes, October 2010 for approval of Key Facts Statements, January 2011 for implementation into the sales process as one of the legal 4 For credit products, the document should not only show the APR but also the monthly payment and the total paid by the customer, as well as all sanctions. The detailed recommendation for the content of the document for credit products is on page 18 of the Country Review and could be used to improve the pre-sale disclosure required by the Consumer Credit Directive. 13 requirements. The timing could be stretched out for various types of products, with consumer credit and casco insurance probably the first areas to be covered. For consumer credit, the SECCI disclosure format required by the Consumer Credit Directive should be used as the first measure for implementation of Key Facts Statements in credit products, using the experience for other sectors. Costs: No additional costs above budget 26. Standardized contract provisions should be developed by the financial industry associations and consumer organizations and approved jointly by the CRPC and FCMC, making them widely available to the public. The standardized contract provisions should include items such as definition of price, definition of service provided, rules for applying any fines and rules for complaining, setting minimum common standards in each segment of the financial market. Such standardized contract provisions should make it easier for customers to better understand the basic rules guiding their relationship with the financial institution and make it easier to study the rules before coming into contact with a financial institution that often does not give its clients enough time to study a proposed contract. Communication of these provisions should also educate consumers about the common minimum standards. The standardized contract provisions should clearly define the right of the financial institution and the rights of the consumer to make him aware of both his obligations and his powers. As these standards should set only the minimum requirements, it does not limit free-market competition that will focus on improving consumer terms. 27. It should be possible for financial institutions to deviate from the standardized contract provisions when needed but only if a "comply or explain" policy is in place. Such a policy means that the financial institution either uses the standardized contract provisions (thus giving its customers an assurance of following the market rules) or explains where and why it has decided to use different contractual provisions. This "comply or explain" policy gives the consumers power to find out non-standard contract provisions without the need of a detailed study of the contracts and each specific provision. It also creates a market and media pressure on those that would want to offer client-unfriendly conditions. Action: Prepare standardized contract provisions Description: Develop and prepare standardized contract provisions for all financial products and submit them to CRPC, FCMC and the Ministry of Economy. Responsibility: Relevant financial industry associations with input from consumer organizations under the guidance of CRPC and FCMC. Deadline: January 2011 Costs: No additional costs above budget Action: Introduce standardized contract provisions and the rules for the "comply or explain" policy into the laws and supervisory procedures Description: Financial institutions should be required to use supervisor-approved standardized contract provisions, and to make the standardized contract provisions (or 14 explanations for using differing provisions) available to clients before a sale (including on websites). CRPC and FCMC should be given the legal authority to approve the standardized contract provisions, to monitor the use of standardized contract provisions and application of the "comply or explain" policy during inspections and through analysis of received complaints, and to impose sanctions for companies that fail to use the standardized contract provisions or apply the "comply or explain" policy. Responsibility: CRPC with FCMC and the Ministry of Economy (for legal changes) Deadline: February 2011 for draft law changes, April 2011 for approval of standardized contract provisions, July 2011 for implementation into the sales process as one of the legal requirements5 Costs: No additional costs above budget 28. Customers should always be able to analyze contract conditions they are about to enter. To do so, they should be given a proposed contract (with all general or specific conditions attached) in advance to study it if they want to do so. Therefore, financial institutions should be required to provide full contract documentation to its potential clients. Action: Require financial institutions to provide clients with contract documentation in advance Description: Prepare legal changes across financial sectors to require financial institutions to provide clients with contract documentation in advance and empower CRPC to punish institutions that fail to disclose its contracts or contract conditions as required. Responsibility: CRPC and Ministry of Economy (for legal changes) Deadline: July 2010 defining and submitting necessary legal changes, June 2011 for implementation in the sales process of financial institutions and the preparation of supervisory process. Costs: No additional costs above budget Part III: Business Practices 29. All relevant laws governing financial sector should be amended to the effect that both financial institutions and financial intermediaries are required to act in the best interest of their clients, and appropriate sanctions should be included for breaches of this duty. All financial institutions should adopt the "Know Your Customer" approach – in other words, they should make sure they understand their client’s needs. Also, financial institutions and / or financial intermediaries should be responsible for testing whether an offered financial 5 The timing could be stretched out for various types of products, with consumer credit and casco insurance probably the first areas to be covered. 15 product and its parameters are suitable for the specific client and his needs, and should be able to prove from their records that based on the data available from the customer and a reasonable verification of his situation, the suitability test was passed. Should the client require a product that is not suitable for him, he should be given a clear and understandable warning about non-suitability and the financial institution should keep a signed copy of this warning. 30. Especially in the area of consumer credit, credit institutions should be legally required to implement rules for responsible lending, i.e. verify that the client is able to repay the provided loan based on their situation at the moment of providing the credit. Action: Define the "Know Your Customer" policy Description: Prepare legal changes across financial sectors to implement the "Know Your Customer" policy, in cooperation with the financial industry associations and consumer organizations, to make sure clients are offered only suitable products. Changes should include providing FCMC with the authority to check for the proper implementation of the "Know Your Customer" policy during inspections, and the authority to act when consumers complain they were offered an unsuitable product. Responsibility: CRPC and FCMC in joint cooperation, Ministry of Economy for legal changes Deadline: January 2011 for defining and submitting necessary legal changes, January 2012 for implementation in the sales process of financial institutions and the preparation of supervisory process. Costs: No additional costs above budget Status: ??? 31. Codes of conduct (while being generally a self-regulatory tool) should be defined in the financial sector regulation in the terms of their use and misuse. Currently, codes of conduct have already been developed by the Association of Latvian Commercial Banks, the Insurance Association and the Association of Leasing Companies. While this is a positive development, codes of conduct should be approved by the relevant supervisors and there should be a single code of conduct for each sector, with as many common cross-sectoral rules as possible to make orientation of the public among various codes as easy as possible. It should also be a rule that the codes include a mechanism for reporting and dealing with breaches of the code by financial institutions and financial intermediaries. It is also important that codes of conduct are well communicated (in branches, at financial institutions' websites, etc.) so that the average customer knows of their existence. 32. While the Codes of conduct should always mirror the level of financial services available in the given market, the Codes of conduct in the United Kingdom and in Ireland can be used as benchmarks both in the terms of content and presentation. The UK Code of conduct is further strengthened by the explanatory rules, prepared by the Financial Services Authority (the FSA Handbook), explaining how the Code of conduct should be implemented in various situations. The FSA, as market regulator, thus has a simple tool with which it can steer the behavior of 16 market participants. For the Irish Code of conduct see the following website and its documents: http://www.financialregulator.ie/processes/consumer-protection-code/pages/codes-of- conduct.aspx For the FSA Handbook, see the following website: http://fsahandbook.info, starting with the high-level principles for business: http://fsahandbook.info/FSA/html/handbook/PRIN 33. To allow for increased competition on the market, the "comply or explain" policy should also be used in this area – thus allowing financial institutions to deviate from the industry code but clearly explaining the effects and reasons for such a deviation. Action: Prepare or update sector-wide codes of conduct Description: Have financial industry associations with consumer organizations develop and prepare sector-wide codes of conduct and submit them to CRPC and FCMC for comments. With existing codes (banking, insurance, leasing), the associations should work jointly with CRPC and FCMC to include as many cross-sectoral rules as possible, possibly under the guidance of the Steering Committee. Responsibility: All financial industry associations in joint cooperation with consumer organizations. Deadline: December 2010 Costs: No additional costs above budget Status: ??? Action: Set the final codes of conduct and the rules for the "comply or explain" policy Description: Comment on and improve the codes of conduct presented and agree on the final version (including methods of their distribution and promotion), define the rules and supervisory process for the "comply or explain" policy. Responsibility: CRPC and FCMC in joint cooperation with the Ministry of Economy for any needed legal changes Deadline: March 2011 for agreement on the final version, September 2011 for implementation in the sales process and the start of an awareness campaign. Costs: No additional costs above budget Status: ??? 34. A specific area the CRPC should look at is advertising. Latvia has a good Law on Advertising and using false statements is also considered an unfair business practice under the EU legislation. Therefore, CRPC should monitor advertising of financial institutions (especially in the terms of promised returns, interest rates, etc.) and make sure the ads are not misleading. In areas where FCMC is active in monitoring advertising, develop a coordinating mechanism. 17 Action: Set a system for monitoring financial advertising Description: Using its powers, CRPC should monitor advertising of financial institutions and apply sanctions when rules are broken, as well as inform the public about the misleading advertisements. Responsibility: CRPC Deadline: January 2011 Costs: Costs for CRPC staff to enable a proactive approach Status: ??? 35. Most mis-selling incidents happen at the point of sale (rather than because of fraudulent financial products) and increased regulation should be therefore built around the sales process. Above the general "know your customer" duties and responsibility for testing the suitability of the financial product being sold, there should be rules for individuals selling financial products (a certain level of education, a test of professional knowledge periodically repeated, clean criminal record, etc.) across financial sectors to implement rules for investment and insurance mediators into other sectors. Action: Set rules of knowledge, education, competence and background for distributors of financial products Description: Develop the set of minimum requirements for distributors of financial products to make sure they understand the products they sell, including periodic testing of their knowledge. Responsibility: FCMC and CRPC, with FCMC focusing on financial sector-related knowledge and CRPC focusing on how distributors communicate their services to the public. Deadline: March 2011, implementation from January 2012 Costs: To be estimated (can actually bring budget revenues if distributors pay licensing fees) Status: To be discussed 36. Effective supervisors must have sufficient tools to identify potential threats to consumers. Besides regular supervisory tools (i.e. findings of on-site or off-site inspections, analysis of complaints lodged with the supervisors, communication with other stakeholders), the CRPC should be legally equipped to use mystery shopping as an official tool for on-the-spot control of sales processes, especially from the point of view of properly informing potential clients and disclosing all relevant information. Legal provisions must be made so that the results of mystery shopping can be used in sanctionary proceedings against a financial institution. Mystery shopping can also be used effectively by CRPC to verify some of the complaints it receives. It may also be a tool for involvement of consumer organizations that could conduct regular mystery shopping projects with results published on the CRPC website. 18 37. Moreover, financial institutions should be legally required to report to the CRPC if they learn about unfair client behavior or mis-selling by other financial institutions. Action: Introduce mystery shopping and reporting requirements Description: Include mystery shopping into the methods of supervision and ensure that financial institutions are required to report mistreating of customers they become aware of, with significant sanctions if they fail to do so. Prepare legal changes to make mystery shopping possible and provide resources for test-buying financial products. Responsibility: CRPC and Ministry of Economy (for legal changes) Deadline: January 2012 Costs: To be estimated Status: ??? 38. Especially in times of economic downturn, when the volume of unpaid consumer credit grows, tougher debt collections methods are sometimes used. To protect clients from abusive practices, there should be a legal base for debt collection, with legally required registration of debt collectors and legally defined ways of operation and supervision. Also, the law should strengthen the credit reporting system by opening the credit register to non-bank credit institutions and setting rules for private credit bureaus. Action: Set legal standards for debt collection Description: Develop and approve a draft law for debt collection, including registration, debt collection process and supervision. Responsibility: CRPC and the Ministry of Economy with support of FCMC, consumer organizations and consumer credit providers. Deadline: January 2012 Costs: To be estimated, for law drafting and for new staff required Status: There have been developed draft changes of Consumer Rights Protection Law for debt collection, including debt collection process and supervision. Action: Improve rules for credit reporting Description: Strengthen the credit reporting system by opening up the credit register to non-bank credit institutions and define rules for private credit bureaus. Responsibility: the Ministry of Economy as the regulator of consumer credit with support of the CRPC, FCMC and the Bank of Latvia Deadline: June 2011 Costs: None for the state budget Status: ??? 19 39. Very often, people become heavily indebted because they have missed relevant information or were simply overwhelmed by a situation they were not equipped to deal with. Therefore, as the level of indebtedness of individuals grows, it would be helpful to establish or support debt counseling centers that would provide information on dealing with debts, legal rights of borrowers and using the social security network properly. Action: Establish or support debt counseling centers Description: Establish or support debt counseling centers that would assist indebted people and provide advice on responsible borrowing, including training of the debt counselors. Responsibility: CRPC, with support of banks and non-bank credit institutions Deadline: ??? Costs: To be estimated Status: To be agreed Part IV: Dispute Resolution 40. Many consumers never complain as they fear the financial institution and / or do not believe a complaint may have a positive result for them. Also, many potential complainants are put off by not knowing a proper complaint procedure. To alleviate their worries, financial institutions should be required by law to set up a unified complaint-handling system that will be monitored by the FCMC as part of prudential supervision. All financial product account statements should include information on how the customer can complain if he thinks the statement is not correct. Also, maximum reaction times should be set up and customers should be clearly informed (preferably on a separate information sheet) about ways for lodging a complaint and their further rights of appeal should they not be satisfied with the outcome. When responding to a consumer complaint, the institution should be required to provide an explanation for its decision. Action: Set up a standardized complaint-handling system Description: The FCMC should define the general rules of how complaints should be handled by financial institutions (recording, handling times, reporting and analysis), and of how the FCMC will monitor the application of the rules during on-site inspections of financial institutions. Responsibility: FCMC with assistance from CRPC Deadline: June 2010 for setting the standards, implementation from January 2011 Costs: No additional costs above budget Status: ??? 20 Action: Set up a standardized complaint information sheet Description: All financial institutions should be legally required to include an information sheet regarding complaints procedures with all contracts and publish the information on their websites. The information sheet should include: contact information, guaranteed response times, information about codes of conduct the institution follows, and advice of whom to contact further in case the customer is not satisfied with the resolution of his complaint (an industry ombudsman, a supervisory agency, a court). CRPC should also be given powers to sanction failures to inform the consumers. Responsibility: The format should be proposed by financial industry associations and approved by CRPC and FCMC, with FCMC monitoring implementation of the requirement during on-site inspections of financial institutions. Deadline: June 2010 for setting the standards, implementation from January 2011 Costs: No additional costs above budget Status: ??? 41. Information about complaints is a very important tool for both the prudential and business conduct supervisors that may help them define the key areas requiring attention and potential systemic weaknesses. Therefore, all financial institutions should be required by law to report twice a year to FCMC and CRPC all complaints that were received, their categorization and the way they were handled. Both FCMC and CRPC should jointly analyze these reports and identify areas or institutions with higher number or frequency of complaints. Institutions that receive an above-average number of complaints should be supervised more actively by the FCMC as they may pose an increased risk to the stability of the financial sector. Action: Include complaints analysis into defining priorities of the business conduct supervisor and for the risk-based prudential supervision Description: Require financial institutions to submit a report on complaints twice a year. Develop rules for the use of complaints analysis to identify potential systemic weaknesses and to increase prudential supervision in specific financial institutions. Responsibility: FCMC and CRPC in joint cooperation Deadline: Implementation from January 2011 Costs: No additional costs above budget Status: To be discussed 42. To provide additional pressure on financial institutions to deal with consumer complaints fairly, the CRPC should publish systematically important cases it has dealt with. Such a "name and shame" policy can be very effective6, especially if the media are made aware of such cases and are assisted by the CRPC in reporting them (through proper explanation of the 6 As shown by about 80,000 unique users of CRPC’s website every month. 21 complaint, by an example of how the complaint should have been dealt with, etc.). CRPC – in cooperation with FCMC – must also have effective tools to get unfairly operating financial institutions out of the market by severe sanctions, withholding their licenses and informing the public about the misconducts and loss of a license of the institution. However, the maximum fine CRPC can use is only 10,000 LVL, which is not a significant sum for a large financial institution. Therefore, sanctioning powers of CRPC and FCMC should be aligned, using the FCMC’s system of fines of up to 5% of turnover of the company that breached the rules Action: Upgrade public information policy about systemically important complaints, legally define what information can be published about cases, and empower CRPC to deal with offenders effectively Description: Use the complaints analysis and results of complaints handling to inform the media and the public about those that break the rules and make sure the supervisors have enough powers to stop the offenders. Use the published cases to draw general educational examples based on legal powers to publish cases. Increase the ability of CRPC to punish companies that mistreat customers. Responsibility: CRPC and FCMC in joint cooperation, with Ministry of Justice in the area of sanctions and publication of cases (for necessary legal changes) Deadline: January 2011 Costs: No additional costs above budget Status: Agreed 43. To improve the effectiveness of the state authorities that deal with financial product-related complaints, there should be a program of in-depth education of selected CRPC staff, police investigators and judges to educate them about the complexity of financial products and the rules that govern their sales. Also, the authorities should make sure the police and judiciary are capable of dealing with complaints they may face and be efficient in prosecuting and judging the cases brought. The Banking Academy could be tasked with developing and overseeing this continuous educational program, with input from FCMC, CRPC and financial industry associations. Action: Establish a capacity building system for CRPC staff, police and judges Description: Develop a system that will help CRPC staff, police prosecutors and judges deal effectively with cases related to financial products and their mis-selling. Responsibility: FCMC, CRPC and financial industry associations Deadline: 2011 Costs: To be estimated, for program setup and for every year of operation Status: ??? 44. Some countries have decided to establish a financial services ombudsman to deal with individual complaints. However, such a major decision requires a very careful analysis that is 22 beyond the scope of this action plan. It is preferable that Latvian authorities for the moment deal with more pressing issues, including the analysis of reasons of received complaints and reconsider the potential combination of self-regulation, financial supervision and an ombudsman within 2-3 years when there is more experience with the other consumer protection activities and the time will come to review the effectiveness of the whole system. However, the state should provide ample guidance to financial sector associations if they want to (or already have) set up an industry-specific ombudsman. The guidance should focus on ensuring independence of decisions made by the ombudsman, low costs for the public and the binding nature of ombudsman's decisions for financial institutions. Also, existing industry ombudsmen should publish cases they have dealt with, and publish their yearly activity report that should also be provided to the FCMC and CRPC. Action: Provide guidance about industry-operated ombudsman schemes Description: Support financial sector associations in developing a strong and publicly accepted ombudsman service that could deal with some complaints now dealt with by the government agencies. Responsibility: CRPC and FCMC under the guidance of the Steering Committee Deadline: January 2012 Costs: To be estimated Status: Agreed Part V: Financial Education and Financial Capability 45. To measure the effectiveness of any financial education system, a baseline financial literacy survey should be conducted across Latvia and then regularly repeated (every 3-5 years) to see whether conducted programs have the required impact. The survey should also define areas or sociodemographic groups that require special attention. Action: Run a baseline financial literacy survey and repeat it every 3-5 years Description: Use a nation-wide financial literacy survey to define the base level of financial capability of Latvians and then repeat it to verify usefulness of financial literacy programs. Responsibility: FCMC and CRPC in joint cooperation Deadline: September 2010 Costs: To be estimated Status: Agreed, but its implementation would require financial support from external donors 23 46. Besides general financial literacy surveys, a special diagnostic test for schoolchildren should be conducted (with repetition every 3-5 years) to define how they understand financial issues and money in general. The diagnostic test should be a part of the system of diagnostic tests already being conducted in Latvia. Action: Run a financial issues related diagnostic test of schoolchildren Description: Use the system of diagnostic tests of schoolchildren to define the baseline knowledge of financial issues and measure it against the agreed levels of financial literacy of schoolchildren. Repeat the test periodically to verify usefulness of financial literacy programs in school. Responsibility: Ministry of Education, CRPC and FCMC in joint cooperation Deadline: November 2011 Costs: 3,000 LVL Status: Agreed, but its implementation would require financial support from external donors. The diagnostic test can be developed for students in grade 9 to measure knowledge of financial issues at the end of compulsory basic education. 47. When discussing financial education and financial capability, the distinction should be made between financial education for children and young people on one hand and financial education for adults on the other. 48. As for children and young people, the state should be primarily responsible for building up financial literacy of this target group during their school years. Standards of financial literacy should be set up for young children (up to 10 years), older children (up to 14 years) and young people (up to 18 years). Action: Define standards of financial literacy Description: Define standards or levels of financial literacy for young children, older children and young adults to use as benchmarks for setting up financial education programs. Responsibility: FCMC, CRPC and Ministry of Education in joint cooperation Deadline: September 2010 Costs: No additional costs above budget Status: Agreed, but its implementation would require financial support from external donors. 49. Once the financial literacy levels are set, special guidelines for teachers should be developed o that they can include financial issues into their lessons (e.g. in social science courses). Special training programs should also be developed focusing on the most effective ways to teach financial issues. The already existing system of continuous teacher training could be used effectively. 24 Action: Introduce financial literacy issues into school classes. Description: Once the financial literacy levels are set, develop special guidelines and training programs for teachers so that they can incorporate financial issues into their lessons. Responsibility: Ministry of Education, CRPC and FCMC in joint cooperation Deadline: June 2012 Costs: 2,000 LVL for developing training programs, for running training programs (yearly), and for training materials. Status: Agreed, but its implementation would require financial support from external donors. 50. As for adults, the state should primarily be a clearinghouse for information about various educational activities, monitoring effectiveness of each program and disseminating the best practices. If possible or needed, the state could also run specific programs for minority groups requiring special attention. Action: Establish information exchange about adult-oriented financial education programs Description: Develop methods for gathering, analyzing, evaluating and sharing information about successful adult-focused financial education programs, increase involvement of the financial industry as it has a day-to-day experience of requests and knowledge of the public. Responsibility: Financial sector associations, FCMC, CRPC and the Ministry of Education in joint cooperation Deadline: Starting from January 2011 Costs: To be estimated for collecting and communicating the information Status: Partially agreed. FCMC has agreed with Banking Academy about development of courses and incorporation of courses in appropriate study programs. There are plans to incorporate similar courses in programs of other universities of Latvia. 51. One of the accessible financial capability building tools is a regular series of tariff surveys showing comparison pricing of financial services. A series of tariff surveys (e.g. for basic bank services, several types of insurance, pension products, credit cards and other credit products) repeated every six months is a powerful tool for teaching people that comparative shopping can bring them substantial savings and also educating them about the key features they should compare when choosing a financial product. Action: Develop and run a system of tariff surveys 25 Description: Prepare a series of tariff surveys for selected financial products and develop a communication strategy for this series. Responsibility: CRPC in cooperation with financial industry associations and media Deadline: March 2011 for preparation and first tests, first publication in June 2011 and then continuously Costs: To be estimated for tariff survey design, and for running it There are many possible recommendations regarding financial literacy. However, more detailed discussion is needed to see what would be feasible in Latvia in the short term. 26 Annex: Summary of Draft Action Plan Action Responsibility Description Deadline Costs Status Institutions and Institutional Setup 1 Inform the public CRPC and FCMC Once the government selects actions to be April 2010 No additional Agreed and the financial in joint undertaken, explain them to the public and the costs above industry about the cooperation financial industry so that they know what and budget planned changes on why will be changing. Use the media to educate financial consumer the public about the issues the government sees protection as crucial in improving their situation as users of financial products. Use the dissemination workshop for the Diagnostic Review to present these plans. 2 Analyze the legal CRPC in Analyze whether the CRPC has all powers it April 2010 No additional powers of CRPC and cooperation with needs to influence the behavior of financial costs above define any MOE institutions and if not, propose legislative budget deficiencies changes. 3 Build up institutional CRPC in Work more closely with the FCMC to build up Continuously No additional Agreed knowledge of CRPC cooperation with understanding of financial products at CRPC. costs the FCMC and Cooperate in educational activities with FCMC. financial sector Use trainings of financial sector associations. associations (for Develop international contacts across the EU. training programs) 4 Establish Steering MOE, CRPC, Establish the Steering Committee for preparation May 2010 No additional Agreed and Committee for FCMC, Bank of and coordination of proposed actions with the costs above implemented implementation of Latvia, financial involvement of senior representatives of MOE, budget the Action Plan industry CRPC, FCMC, Bank of Latvia, financial industry associations and associations and consumer organizations. consumer organizations 5 Strengthen active CRPC and FCMC Strengthen active communication policy for Starting from No additional Agreed communication publishing cases when financial institutions June 2010 costs above policy for publishing harmed customers, including names of budget cases when financial institutions and sanctions awarded. institutions harmed customers 27 6 Introduce regular CRPC and FCMC Share information on complaints and inquiries Starting from To be sharing of received handled and use the information in developing September estimated complaints and proactive consumer protection policy and staff 2010 inquiries and use training. them in policy development 7 Develop an ongoing CRPC Prepare and test various tools (brochures, Development To be Agreed, but its awareness campaign special websites, a toll-free line for financial and testing by estimated implementation and assistance for services, media programs) that will inform the March 2010 would require consumers public about their rights and that will provide Starting financial basic assistance for consumers to use their campaign from support from rights. July 2011 external donors 8 Prepare yearly report CRPC and FCMC Develop rules for the yearly report on consumer March 2011. To be Agreed on the current state protection issues that the supervisors and other Then every estimated, for of consumer state authorities dealt with, including their following March preparing and protection in market evaluation activities, and include publicizing the financial services and proposals to tackle the issues that have arisen report plans for during the year. Present the report to the improvement President and the Parliament. 9 Build capacity of CRPC and FCMC Educate representatives of consumer Continuously To be Agreed, but its consumer in joint organizations and media about financial products starting from estimated, for implementation organizations cooperation and consumer rights, so that they can become January 2011 seminars and would require an effective counterpart for financial institutions. training and financial for support from administering external donors the assistance 10 Support selected CRPC Should the budget constraints allow, the CRPC Yearly starting To be Agreed, but its projects of consumer should be able to administer grants supporting from 2011 estimated, for implementation organizations projects of consumer organizations in the area of administration would require financial services. of grant fund financial support from external donors 11 Establish informal CRPC, FCMC, Set up regular meetings between CRPC, FCMC, May 2010. No additional Agreed communication Bank of Latvia financial industry associations and consumer Then at least costs above mechanisms with and MOE with organizations to discuss arising issues, proposed yearly budget stakeholders financial industry legislation and results of business conduct associations and supervision to inform all stakeholders about new consumer developments and seek their cooperation in organizations improving consumer protection. 28 12 Prepare and sign a CRPC and FCMC Define the rules of cooperation and information July 2010 No additional Agreed Memorandum of exchange between CRPC and FCMC and sign a costs above Understanding Memorandum of Understanding. budget between CRPC and FCMC Disclosure of Information 13 Prepare and test Key Financial industry Develop and prepare Key Facts Statements for Development To be Facts Statements association with all financial products and test their usability for for each type of estimated, for input from general public. The CRPC should focus its testing products assistance on consumer on user-friendliness of the Key Facts Statements starting from comparability organizations (clarity, precision, clear language, comparability, July 2010, with and readability under guidance etc.) and the FCMC should focus on financial- prioritization by tests of CRPC and products related issues (technical definitions, the Steering conducted by FCMC. calculations, etc.). Committee CRPC 14 Introduce Key Facts MOE, with CRPC Financial institutions should be required to August 2010 for No additional Statements into the and FCMC provide a supervisor-approved Key Facts draft law costs above laws and supervisory Statement to any client prior to a transaction changes. budget procedures and make them available on their websites. October 2010 for CRPC and FCMC should be given the authority to approval of Key approve the Key Facts Statements, to monitor Facts the distribution of the Key Facts Statements Statements. during inspections and through analysis of January 2011 for received complaints, and to impose sanctions for implementation companies that fail to provide clients with in sales process truthful Key Facts Statements. as legal requirement. Timing could be stretched out for various types of products. SECCI to be used as first measure in credit products. 15 Prepare standardized Financial industry Develop and prepare standardized contract January 2011 No additional contract provisions associations with provisions for all financial products and submit costs above input from them to CRPC, FCMC and MOE. budget consumer organizations under guidance of CRPC and FCMC. 29 16 Introduce CRPC with FCMC Financial institutions should be required to use February 2011 No additional standardized and MOE (for supervisor-approved standardized contract for draft law costs above contract provisions legal changes) provisions, and to make the standardized changes. budget and the rules for the contract provisions (or explanations for using April 2011 for "comply or explain" differing provisions) available to clients before a approval of policy into the laws sale (including on websites). CRPC and FCMC standardized and supervisory should be given the legal authority to approve contract procedures the standardized contract provisions, and to provisions. monitor use of standardized contract provisions July 2011 for and application of the "comply or explain" policy implementation during inspections and through analysis of in sales process received complaints, and to impose sanctions for as legal companies that fail to use the standardized requirement. contract provisions or apply the "comply or explain" policy. 17 Require financial CRPC and MOE Prepare legal changes across financial sectors to July 2010 for No additional institutions to (for legal require financial institutions to provide clients submitting costs above provide clients with changes) with contract documentation in advance and necessary legal budget contract empower CRPC to punish institutions that fail to changes documentation in disclose its contracts or contract conditions as June 2011 for advance required. implementation in sales process of financial institutions and preparation of supervisory process Business Practices 18 Define the "Know CRPC and FCMC Prepare legal changes across financial sectors to January 2011 for No additional To be agreed Your Customer" in joint implement the "Know Your Customer" policy, in submitting costs above policy cooperation, with cooperation with the financial industry necessary legal budget MOE (for legal associations and consumer organizations, to changes changes) make sure clients are offered only suitable January 2012 for products. Changes should include providing implementation FCMC with the authority to check for the proper in sales process implementation of the "Know Your Customer" of financial policy during inspections, and the authority to institutions and act when consumers complain they were offered preparation of an unsuitable product supervisory process. 30 19 Prepare or update All financial Have financial industry associations with December 2010 No additional Agreed sector-wide codes of industry consumer organizations develop and prepare costs above conduct associations in sector-wide codes of conduct and submit them budget joint cooperation to CRPC and FCMC for comments. With existing with consumer codes (banking, insurance, leasing), the organizations associations should work jointly with CRPC and FCMC to include as many cross-sectoral rules as possible, possibly under guidance of the Steering Committee. 20 Set the final codes of CRPC and FCMC Comment on and improve the codes of conduct March 2011 for No additional Agreed conduct and the in joint presented and agree on the final version agreement on costs above rules for the "comply cooperation with (including methods of their distribution and the final version budget or explain" policy MOE (for any promotion), define the rules and supervisory September needed legal process for the "comply or explain" policy. 2011 for changes) implementation in sales process and start of awareness campaign 21 Set a system for CRPC Using its powers, CRPC should monitor January 2011 Costs for To be agreed monitoring financial advertising of financial institutions and apply CRPC staff to advertising sanctions when rules are broken, as well as enable a inform the public about the misleading proactive advertisements. approach 22 Set rules of FCMC and CRPC Develop the set of minimum requirements for March 2011 To be To be knowledge, distributors of financial products to make sure Implementation estimated discussed education, they understand the products they sell, including from January (can actually competence and periodic testing of their knowledge. 2012 bring budget background for FCMC focusing on financial sector-related revenues if distributors of knowledge and CRPC focusing on how distributors financial products distributors communicate their services to the pay licensing public. fees) 23 Introduce mystery CRPC and MOE Include mystery shopping into the methods of January 2012 To be shopping and (for legal supervision and ensure that financial institutions estimated reporting changes) are required to report mistreating of customers requirements they become aware of, with significant sanctions if they fail to do so. Prepare legal changes to make mystery shopping possible and provide resources for test-buying financial products. 31 24 Set legal standards CRPC and MOE Develop and approve a draft law for debt January 2012 To be Developed for debt collection with support of collection, including registration, debt collection estimated, for draft changes FCMC, consumer process and supervision. law drafting of Consumer organizations and for new Rights and consumer staff required Protection Law credit providers for debt collection 25 Improve rules for MOE as the Strengthen the credit reporting system by June 2011 None for the credit reporting regulator of opening up the credit register to non-bank credit state budget consumer credit institutions and define rules for private credit with support of bureaus. CRPC, FCMC and Bank of Latvia 26 Establish or support CRPC, with Establish or support debt counseling centers that To be To be agreed debt counseling support of banks would assist indebted people and provide advice estimated centers and other on responsible borrowing, including training of consumer credit the debt counselors companies Dispute Resolution 27 Set up a FCMC with FCMC should define the general rules of how June 2010 for No additional Agreed standardized assistance from complaints should be handled by financial setting costs above complaint-handling CRPC institutions (recording, handling times, reporting standards. budget system and analysis), and of how FCMC will monitor the Implementation application of the rules during on-site from January inspections of financial institutions. 2011 28 Set up a Financial All financial institutions should be legally June 2010 for No additional Agreed standardized industry required to include an information sheet setting costs above complaint associations, regarding complaints procedures with all standards budget information sheet CRPC and FCMC contracts and publish the information on their Implementation websites. The information sheet should include: from January contact information, guaranteed response times, 2011 information about codes of conduct the institution follows, and advice of whom to contact further in case the customer is not satisfied with the resolution of his complaint (ombudsman, supervisory agency, court). The format should be proposed by financial industry associations and approved by CRPC and FCMC, with FCMC monitoring implementation of the requirement during on-site inspections. CRPC should also be given powers to sanction failures to inform the consumers. 32 29 Include complaints FCMC and CRPC Require financial institutions to submit a report Implementation No additional To be analysis into defining in joint on complaints twice a year. Develop rules for the from January costs above discussed priorities of the cooperation use of complaints analysis to identify potential 2011 budget business conduct systemic weaknesses and to increase prudential supervisor and for the supervision in specific financial institutions. risk-based prudential supervision 30 Upgrade public CRPC and FCMC Use the complaints analysis and results of January 2011 No additional Agreed information policy in joint complaints handling to inform the media and the costs above about systematically cooperation, with public about those that break the rules and budget important Ministry of make sure the supervisors have enough powers complaints, legally Justice in the to stop the offenders. Use the published cases to define what area of sanctions draw general educational examples based on information can be and publication legal powers to publish cases. Increase the published about of cases (for ability of CRPC to punish companies that cases, and empower necessary legal mistreat customers. CRPC to deal with changes) offenders effectively 31 Establish a capacity FCMC, CRPC and Develop a system that will help CRPC staff, 2011 To be To be building system for financial industry police prosecutors and judges deal effectively estimated, for discussed CRPC staff, police associations with cases related to financial products and their program and judges mis-selling setup and for every year of operation 32 Provide guidance CRPC and FCMC Support financial sector associations in January 2012 To be Agreed about industry- under the developing a strong and publicly accepted estimated operated guidance of the ombudsman service that could deal with some ombudsman Steering complaints now dealt with by the government schemes Committee agencies. Financial Education and Financial Capability 33 Run a baseline FCMC and CRPC Use a nation-wide financial literacy survey to September To be Agreed, but its financial literacy in joint define the base level of financial capability of 2010 estimated implementation survey and repeat it cooperation Latvians and then repeat it to verify usefulness would require every 3-5 years of financial literacy programs. financial support from external donors 34 Run a financial Ministry of Use the system of diagnostic tests of school November 2011 3,000 LVL Agreed, but its issues related Education, CRPC children to define the baseline knowledge of implementation diagnostic test of and FCMC in financial issues and measure it against the would require schoolchildren joint cooperation agreed levels of financial literacy of school financial children. Repeat the test periodically to verify support from usefulness of financial literacy school programs. external donors 33 35 Define standards of FCMC, CRPC and Define standards or levels of financial literacy for September No additional Agreed, but its financial literacy Ministry of young children, older children and young adults 2010 costs above implementation Education in joint to use as benchmarks for setting up financial budget would require cooperation education programs financial support from external donors 36 Introduce financial Ministry of Once the financial literacy levels are set, develop June 2012 2,000 LVL for Agreed, but its literacy issues into Education, CRPC special guidelines and training programs for developing implementation school classes and FCMC in teachers so that they can incorporate financial training would require joint cooperation issues into their lessons programs, for financial running support from training external donors programs (yearly) and for training materials 37 Establish information Financial sector Develop methods for gathering, analyzing, Starting from To be Partially agreed. exchange about associations, evaluating and sharing information about January 2011 estimated, for FCMC has adult-oriented FCMC, CRPC and successful adult-focused financial education collecting and agreed with financial education Ministry of programs, increase involvement of the financial communicating Banking programs Education in joint industry as it has a day-to-day experience of the information Academy on cooperation requests and knowledge of the public. development and incorporation of courses in study programs. Plans to incorporate similar courses in other universities. 38 Develop and run a CRPC in Prepare a series of tariff surveys for selected March 2011 for To be Agreed system of tariff cooperation with financial products, and develop a communication preparation and estimated, for surveys financial industry strategy for this series. first tests tariff survey associations and First publication design and for media in June 2011 running it and then continuously Acronyms CRPC Consumer Rights Protection Center LVL Latvian Lats EU European Union MOE Ministry of Economy FCMC Financial and Capital Market Commission 34