Heightened regulatory zeal over consumer protection in financial services requires senior executives in banking, insurance and investment management to re-evaluate their core strategies, says a new report from KPMG International, New Light on Old Truths: Consumer protection and good business sense.
Consumer protection is now a major regulatory imperative in many jurisdictions, part of the process of creating a fair market infrastructure. However, it is not fundamentally a new issue, nor is the appropriate response principally a matter of compliance, says the KPMG report.
“It’s about taking care of customers in a way that recovers their trust, provides them with clear choices they can understand, and satisfies their needs – all while earning a profit for stakeholders,” said Linda Gallagher, a principal in KPMG LLP, the U.S. audit, tax and advisory firm, and co-author of the report. “Failure in this important aspect of the business can destroy value in the brand and shareholder value.”
The KPMG analysis underscores the need for financial institutions to manage consumer protection risk as a strategic and cultural priority.
“Compliance is not the issue,” Gallagher added. “It’s no longer enough to require customers to sign documents containing ‘fine print’ that say they understand their rights and obligations. This is a key business issue to be considered at the board level and across all operations and functions.”
The KPMG report outlines three main areas of focus for the new consumer protection standard:
A company that engages actively with its customers, that treats them fairly and that provides them with products and services to meet their needs is simply pursuing competitive advantage. Those leading companies will have a focus on doing business well, understanding their customer, designing products to meet their needs appropriately, and providing those products at a reasonable price consistent with customers’ risk profile and risk appetite.
A financial services company doing business in an effective and proper manner should already be following a consumer protection paradigm.
“The best companies will do these things automatically, not because of consumer protection regulation but because delivering consumer value is just good business,” said Linda Gallagher. “To regard consumer protection as simply a risk or compliance issue would be a major strategic mistake.”
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KPMG LLP, the audit, tax and advisory firm (www.kpmg.com/us), is the U.S. member firm of KPMG International Cooperative (“KPMG International.”) KPMG International’s member firms have 145,000 people, including more than 8,000 partners, in 152 countries.
About KPMG International
KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 152 countries and have 145,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
According to the KPMG report, there are some questions to be considered before implementing a consumer protection strategy. They include:
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