KARACHI: The State Bank of Pakistan (SBP) on Wednesday issued a comprehensively revised set of instructions on the sale of third-party products to address concerns over sale and bring transparency to such transactions.

“The instructions will be applicable from Nov 1,” the SBP said.

Banks often offer or sell financial products that are provided by other financial institutions, generally called third party products. Such offers are often prone to misdeclaration about the quality or pricing of products, according to the regulator.

“Banks also don’t assume any responsibility after the sale of products, which leads to difficulties for customers and disputes,” the central bank said.

Central bank says such offers are often prone to misdeclaration about quality or pricing of products

The new instructions will also facilitate the sale of products through digital channels and promote financial inclusion.

“It will be mandatory for banks to assess the suitability of customers for the sale of third party products. In addition, they will take extra care while selling such products to vulnerable consumer segments like widows, senior citizens, etc,” said the SBP.

Senior management and board of directors will ensure that risks to consumers in the sale of third party products are identified and addressed in a proficient manner, it added.

With added disclosure requirements, banks have been required to mention explicitly that the product is being sold as an agent or distributor of a third party.

The SBP has advised the banks to develop and enforce code of conduct to further increase accountability of bank employees involved in selling third party products.

All Islamic banks along with Islamic branches of conventional banks will strictly ensure that the sale of third party products is in compliance with Sharia law and SBP regulations while their agreements with third parties should also be approved by their Sharia board.

Banks have been directed to use their audit and compliance function to ensure enforcement of SBP’s regulations in their business practices related to the sale of third party products.

The SBP has asked banks to ensure collection, registration and analysis of consumer complaints and feedback for continuous improvements in the sale of third party products.

Banks will introduce proportionate controls to foster consumer convenience and financial inclusion, especially for less risky, small size and low value products being sold through Alternate Delivery Channels (ADCs).

“Banks have been directed to ensure the provision of special training to their staff for the sale of third party products and take disciplinary action against the concerned employee(s) in case of fraud,” the SBP said.

The direct debit facility can only be used if the consent of customers is obtained in writing or through electronic means in case ADCs are used for distribution.

Banks have been directed to design and implement a Call Back Confirmation (CBC) mechanism to ensure and verify the identity of consumers and the genuineness of the transaction. To confirm the information provided by the customer, the CBC mechanism based on a predefined script should be used for suitability assessment and his or her understanding of the product.

Published in Dawn, August 26th, 2021