Karachi : State Bank of Pakistan SBP Friday issued minimum standards for sale of third party products by banks, development finance institutions DFIs to safeguard interest of depositors, general public and prevent banks from incurring operational and reputational risks.
Banks offering third party products must establish a centralized control function entrusted with responsibility to verify information given in a sales proposal, application forwarded by sales staff. It is up to banks how to structure requisite control function. However, underlying principle is that person verifying information should not have any incentive linked with sales volume, SBP circular issued to Presidents, Chief Executives of all scheduled banks, DFIs.
In addition to existing set of documents, banks shall introduce a basic fact sheet elaborating at least following facts: i. Two liner definition of the product. ii. Disclaimer of bank stating that it is only working in capacity of a distributor. iii. Return mechanism in terms of investment and premium schedule in terms of bancassurance. iv. Free look period in case of bancassurance. v. Premature encashment procedure and its repercussions. vi. Redressal Mechanism in case of any grievance. vii. Checklist of all other documents signed or attached.
Basic fact sheet should be a distinct looking document including an undertaking by customer that he/she understands all stated terms and conditions of product. This document, along with all other documents, shall be printed in both Urdu & English with a font size not smaller than 10.
Banks must institute a call back confirmation mechanism equipped with Integrated Voice Response system whereby every customer is contacted, briefed about salient features of product and his/her confirmation is obtained before approving a sales proposal, circular said.
To ensure that bank has proper evidence of fact that investor was duly briefed about product and related terms, conditions, record of every call made should be retained for at least three years or until maturity of product whichever is earlier. There should be a well designed script for each product which should be followed for every verification call.
In Bancassurance incentive structure, if any, must be focused on persistency of policy. For instance commission earned by sales staff may be paid with a time lag of one year. Banks should ensure that personnel involved in sales have adequate understanding of product and are familiar with bank s policy. For the purpose, banks must impart training to their existing staff to improve their understanding and knowledge of product. Complaint management department, service quality must conduct quarterly reviews to analyze complaint trends and give feedback to relevant business line.
The aforementioned list of controls is by no means exhaustive; Banks and DFIs are expected to establish additional control measures commensurate with complexity and size of their operations.
Over past few years, banks in Pakistan have ventured into sale of Bancassurance and other third party products. This initiative has been viewed as a positive development, however, complaints of mis-selling from general public indicate that focus of banks has largely remained on pitching sales and due attention was not given to control and monitoring mechanism in relation to distribution of third party products.