Financial service operators are often perceived to be in a dominant position when it comes to providing services to their consumers, especially the smaller ones who have little experience in dealing with financial products.

In the last few years, especially following the financial crisis that started in 2007, international organisations issued reports with strong recommendations on how local regulators should protect financial services consumers by making them aware of both their rights and obligations when buying financial products.

At the local level, Parliament last year approved the setting up of the Office of the Arbiter for Financial Services who has the power to decide on disputes between consumers and financial services providers. With the aim of minimising disputes, the Malta Competition and Consumer Affairs Authority, in collaboration with the Ministry of Social Dialogue, Consumer Affairs and Civil Liberties, has just issued two charters that aim to inform financial services consumers about their rights and obligations when provided with financial and banking services.

A G20 report on consumer protection in financial services states that “the ongoing global financial crisis dramatically illustrated that weak consumer protection poses a significant risk to the wider economy”.

While consumer education will always be the best line of defence against abusive practices, especially in the financial services sector, strong legislation is needed to ensure that all parties treat each other fairly while consumers’ hard-earned money is kept safe.

The two charters seek to address various issues to ensure consumers are protected as much as possible while service providers are allowed to sell their services in a transparent, fair and equitable way. Information design and disclosure, the essential elements of fair financial services contracts, a list of charges and practices, the structure and functions of national financial consumers’ protection bodies, redress and dispute resolution systems and the promotion of competition in financial services are all fundamental elements of a good consumer protection regime.

The complexity and high risks associated with many of the financial services products on the market, the rapid pace of innovation and the long-term nature of transactions means that consumers need protection to avoid the considerable risks such services pose, especially to unsophisticated financial consumers.

What will certainly not help the financial services industry, including consumers, in the long term is political interference with the delicate mechanism that has been put in place to protect consumers’ rights. It is all well and good for political parties to promise proper consumer protection processes in their electoral manifestos. But it is unacceptable for politicians to put pressure on industry operators to follow a populist agenda, say, by exonerating consumers from their obligations to inform themselves on risks involved in buying any financial service from an operator.

Comments by politicians on how banks and other financial institutions should conduct their business are acceptable in a democracy. What is not acceptable, even if done on the pretext of defending consumers’ rights, is undue pressure on operators to curry favour with sections of the electorate. This is why regulators are becoming increasingly intrusive in ensuring that banks and other financial services providers follow best practices that are built on the principle of managing financial risks according to the risk tolerance of every consumer.