New and proposed financial regulations, such as South Africa’s Pension Funds Amendment Bill, often make headline news because of their wide-reaching and often controversial impact. Financial regulations such as these underpin the financial system and have direct implications for consumers and how they engage with financial services. Whether the focus is on financial system stability, fair competition, financial crime prevention and reduction, market conduct or financial inclusion – consumer protection is at the heart of financial sector regulation.  

It follows, then, that consumers themselves should have a voice in the process of developing new financial regulation. Internationally, it is well established that engaging directly with consumers helps ensure that their short and long term interests are being met. Engaging consumers also increases transparency in regulatory decision-making, helping to build consumer trust and confidence in the financial sector. 

In practice, however, this is easier said than done. 

Regulators do consult on their frameworks: A 2018 study found that close to 75% of over 180 ministries or regulatory agencies worldwide were requesting comments on proposed regulation. However, there are significant challenges in sourcing direct consumer inputs as part of the consultation process. This holds particularly true for financial regulation due to its complex nature, and is compounded by the socio-economic challenges facing consumers in developing countries. Ultimately, many vulnerable consumers are simply not actively engaged with government processes or may lack the resources to contribute, be it because they are unable to attend meetings due to transport costs or to easily view documentation due to limited internet access.  

The other typical way of bringing consumer perspectives on board is through complaints – through an ombudsman or other dispute resolution structures. However, re-dress is reactive and does not proactively draw in the consumer in creating appropriate regulation. Once again, it also does not really work for vulnerable or low-income individuals, who may find it difficult to access and navigate the complaints system. Our research across countries has further shown that, while the importance of these consumer recourse channels is known, they are not yet well developed.  

In our work in the African region overall, we see that, while financial regulators are starting to implement umbrella financial consumer protection regulation and market conduct frameworks, they are not yet finding explicit ways of bringing the consumer perspective on board.  

What can be done to give consumers a more direct voice? 

An organisation that has been giving a lot of consideration to this particular question is CGAP. A recent study of theirs highlighted three ways in which the consumer voice can be incorporated in financial regulation:  

• Empowering consumer groups such as consumer associations  

A 2013 Consumers International survey found that financial services was the highest priority issue among members. These types of associations can influence policy and regulation in a variety of ways by presenting consumer views and experiences to regulators, either through the initiative of the associations or through prompting by regulators. So building the capacity of such organisations is a first step. 

• Leveraging technology, such as social media, IVR, and sup-tech 

Technology such as social media has significant potential for direct engagement between consumers and policymakers and a few government agencies have begun to use it or have developed their own mobile apps to engage the public. Engagements so far have mainly been around complaints, however. Sup-tech can also be useful; using technology to monitor social media and extract noteworthy insights to help inform regulatory positions.  

• Creating regulatory mechanisms, such as consultative bodies or panels 

Consultative bodies set up by the regulator to consult industry and consumers are recommended by the World Bank in its Good Practices for Financial Consumer Protection. These bodies or panels can vary greatly, depending on their mandate and the extent to which regulators seek their consultation.  

Consumer consultative bodies or panels hold particular potential, as the experience of for example the UK has shown. They can provide independent and expert advice and, due to a fixed meeting schedule, they can be relied on for early engagement at a given date. Additionally, panel members are able to develop a deep understanding of the issues through repeated interactions with regulatory staff and ongoing engagement in the policy making process. It may also be possible to share more sensitive data with them than with external groups.  

However, there is no evidence of such panels yet being used in middle- and low-income countries. This could be related to a number of challenges. Recruiting for a non-remunerated panel, for example, can be difficult. Further, the secretariat resources required to coordinate a panel could be particularly limited in developing countries. Most importantly, consumer bodies may not have the capacity or financial expertise to make for effective panel membership. 

South Africa is a case in point. We recently took stock of the landscape of consumer bodies in South Africa and a number of challenges became apparent. The key challenge is recruiting a panel that is truly representative, as small, grass-roots organisations often lack the capacity to take part in such initiatives. There is also a limited number of grass roots organisations that have relevant financial sector touch points. Additionally, consumer-bodies who would be well placed to get involved also often have limited capacity. This is borne out by our broader research in the SADC region, we we’ve seen that the landscape of consumer bodies in the region is very sparse, and capacity is an even greater challenge than in South Africa.  

What does this mean for the scope to include the consumer voice more explicitly in financial sector regulation in the developing country context? 

It would seem that it is important to draw in a mix of representatives so that there is some financial expertise, but also broad representation, and then to leverage the panel engagement process to explicitly build financial sector regulatory know-how. In this way, a consultative consumer panel can itself become a vehicle for consumer body empowerment. 

However, it is clear that there is “no one size fits all” approach; whatever method is chosen should be fit for purpose. It also cannot be considered in isolation, but should be part of a broader approach to finding ways of tapping consumer insights to inform financial regulation and policymaking.  

The first step can be as simple as adopting an explicit consumer outcomes mindset within the financial sector regulatory authorities. For regulators in Sub-Saharan Africa, who are developing and entrenching their market conduct mandate, this is key. It will enable them to proactively consider the consumer angle and build trust among consumers.  

Adopting an explicit consumer mindset will ultimately help regulators ensure that they are able to positively contribute to the core purpose of financial regulation: consumer protection.