Customer protection is one of the ACPR’s central concerns, alongside prudential risks.
Prudential risks and the risks to which customers are exposed are different and require specific treatment by the prudential authority. But they are also complementary: prudential supervision primarily covers institutions and looks chiefly at the financial solvency of reporting entities. It does not take account directly of customer interests. But individual customers are not always in a position to assess the risks that they are required to bear, either because of the complexity of the products sold to them or because they lack information. Information asymmetries between the institution (or intermediary) and customer may then result in the taking-on – or transfer – of poorly controlled risks and inadequate recognition of customer interests.
The 2008 US subprime crisis demonstrated how banks’ aggressive sales policies prevented customers from properly assessing the risks they had incurred on property loans extended to them; those loans were subsequently securitised and resold as complex financial products to ill-informed counterparties. Because of the scale on which they were carried out, these practices triggered many defaults by individual borrowers and sapped investor confidence, with major economic and social consequences. These failures severely destabilised the financial sector.
Learning the lessons from the 2008 crisis, international bodies such as the G20 and OECD made a connection between customer protection and financial stability and drafted a set of principles to guide prudential authorities.
France’s authorities drew heavily on this guidance, and in 2010 the ACPR set up a customer protection framework, which consisted in promoting early processing of transactions, curbing improper business practices and encouraging responsible behaviour that is respectful of customer interests. This framework helps to limit the risk borne both customers and financial institutions alike.
Customer protection plays a part in boosting confidence in reporting institutions, as well as the transparency and effectiveness of the financial system. This makes it a significant factor in financial stability.
Accordingly, it is essential to recognise the interests of banking and insurance customers, and the services offered to them must be the subject of clear and explicit information. It is especially important that the risks for which they are responsible or that are transferred to them should be understood and manageable.
To perform this task, the ACPR is continually strengthening its actions through on-site inspections as well as market initiatives based around recommended best practices. It ensures that action plans are introduced to address shortcomings and may also impose sanctions on companies, as it did in connection with unclaimed life insurance contracts.
Furthermore, to bolster consumer protection nationwide, the ACPR leverages the Banque de France’s branch network to enhance its supervision of financial intermediaries around the country. The central bank plays an important role as the single ACPR-AMF gateway for handling customer requests and complaints. The ARCOP network for oversight of business practices, which is part of the Ambition 2020 plan, is designed to further increase the network’s involvement in customer protection activities.
The ACPR works closely with the AMF within the Joint Unit established by law (see 1.5, above), providing financial sector customers with a single gateway for mail-in, email and phone-in requests (Assurance-Banque-Épargne Info Service helplines).
Moreover, the ACPR collaborates regularly with the DGCRF to ensure a better insight into market trends and improve the ACPR’s effectiveness in the area of business practices.
The ACPR’s customer protection tasks also include an international dimension. Accordingly, the ACPR participates actively in work by EBA and EIOPA in this area. This involvement enables the ACPR to be readier for forthcoming regulations and to convey the characteristics and expectations of the French market. The ACPR also takes part in work organised by IAIS, the OECD and FincoNet, an international financial consumer protection organisation.
The decision to house prudential supervision and customer protection under one roof also reflects the desire to strike a balance between individual and collective interests. This organisation makes it possible to protect customer interests while still taking into account the consequences of decisions on the solvency of institutions. In this way, the ACPR can reconcile the interests of individual customers and the collective interest of depositors and insurance policyholders, while preserving the overall stability of the financial sector. However, the ACPR has no jurisdiction over individual disputes between customers and professionals.