Oran Hall | The value of consumer protection to personal financial management
ADVISORY COLUMN: PERSONAL FINANCIAL ADVISER
Consumers stand to lose much when they do not know their rights or when they know them but do not exercise them. There are many laws, regulations, policies, and institutions expressly for protection of the consumer of services, including financial services.
The Financial Services Commission (FSC) acknowledges that it has an important consumer-protection role as by law, it exists to protect the users of financial services. In what it sees as threats from economic trends, consumer behaviour patterns, and unregulated financial organisations, it sees itself, like the Jamaica Stock Exchange (JSE) as having a role in providing financial education to give consumers the knowledge required to make good financial decisions and to adopt good financial behaviours.
The role of the FSC in consumer protection is much wider, though. In licensing and registering the institutions and professionals providing investment services, it approves only applicants with the required educational, financial, reputational, experiential, and character profile. Its powers to monitor licensees and registrants, coupled with powers of enforcement, go a far way in giving consumers comfort that their rights are being protected.
Similarly, its role in regulating the insurance and pension industries also ensures that the structures and behaviours necessary to protect the long term financial resources and interests of consumers are in place and that such resources are managed in their best interest.
In the securities industry, the Know Your Client and Know Your Product rules are effective mechanisms for ensuring that investment recommendations are suitable to the needs of investors, thereby protecting them from risks they should not be exposed to, while also facilitating the creation of portfolios that can effectively help to realise their goals.
The various types of orders for buying and selling securities on the stock exchange are means of protecting investors from loss by setting the limits within which traders must operate when executing their orders. Rules relating to settlement of transactions, including a time frame within which sellers should be paid and buyers should have securities registered in their names are means of consumer protection.
Investors may have recourse to the Compensation Fund of the Jamaica Stock Exchange in certain situations. According to the JSE: “The purpose of the fund is to compensate clients of member-dealers who have lost money as a result of a defalcation or fraudulent misuse of securities or document of title to securities or of other property, by a member-dealer or any of his directors or employees”.
Deposit insurance through the Jamaica Deposit Insurance Corporation, JDIC, provides insurance protection against the loss of deposits in commercial banks, trust companies and merchant banks, and building societies. Depositors may enjoy coverage of up to $600,000 in a deposit-taking institution which has failed or is unable to make payments on deposits. Because the JDIC does not insure deposits in all financial institutions, depositors should ensure that they place their funds only in those institutions that have a JDIC Certificate of Deposit Insurance.
Consumer protection is not limited to financial matters. There are several institutions which offer consumer protection, for example, the Consumer Affairs Commission, CAC, the National Consumers League and the Fair Trading Corporation. The scope of the CAC is quite wide. Some of the areas it relates to are physical safety, including food and drugs; the promotion and protection of consumer’s economic benefit, including hire purchase and fair trading; standards for safety and the quality of consumer goods and services, including weights and measures; and measures enabling consumers to obtain redress in accordance with the requirements of the Rent Restriction Act and the Trade Act, for example.
Many of the measures common to financial institutions are in place to ensure that there is order in the financial market place, but it is also clear that they aim to protect consumers who rely on financial institutions and their employees.
Effective consumer protection, by protecting consumers from financial loss or by compensating them for losses sustained, puts consumers in a better position to build a better and more secure financial position for themselves and their families in the short term as well as in the long term.
It is imperative that, the provisions made by regulatory and advocacy bodies notwithstanding, consumers make every effort to know their rights and exercise them, and that they take action to reduce their exposure to loss bearing in mind the potential such losses have to compound over time.
Oran A. Hall, principal author of The Handbook of Personal Financial Planning, offers personal financial planning advice and counsel.