Customer Protection through MFI Self-Regulation in India


By Rachit Khaitan, IFMR Finance Foundation

Comments on the Revised Code of Conduct for the Microfinance Industry

M-FIN and Sa-Dhan, two key Self-Regulatory Organisations (SROs) of the microfinance industry jointly released their revised Code of Conduct for the Microfinance Industry in December 2015. The revised Code of Conduct following from the original 2011 version, is vital for setting standards of behaviour and maintaining norms through collective action[1], with a view to uphold client protection in the industry in line with and in some aspects beyond regulatory statutes.

In this post, a few salient and commendable features of the revised Code of Conduct are highlighted, alongside potential concerns and recommendations.


This section features an important commitment to “disclose all terms and conditions to the client, in a form and manner that is understandable, for all services offered.” It further indicates a commitment to securing clients’ informed consent and communicating details in a language understood by the client. These details include simple concepts such as all associated fees and charges but also more complex aspects such as interest and fees payable as an all-inclusive Annual Percentage Rate (APR) and equivalent monthly rate. This is in line with the RBI Guidelines for Fair Practices Code for NBFCs[2].

However, given the sometimes complex aspects of information that are imparted to clients, there is necessity for MFIs to better ensure truly informed consent based on demonstrated customer understanding. This could be implemented, for instance, in the form of a short verbal quiz about product features and obligations to be administered to the client at the point of sale based on some rules of thumb.

Avoiding over-indebtedness:

The sub-section on over-indebtedness is an important part of the Client Protection section.

It includes a commitment to “conduct proper due diligence as per [the MFI’s] internal credit policy to assess the need and repayment capacity of clients before making a loan and must only make loans commensurate with the client’s ability to repay”. This addresses a key aspect of preventing bad outcomes by verifying that loan clients are able to afford paying back the principal and the interest by the end of the loan tenure. Given the critical nature of this commitment, there is also a necessity to put in place a commitment for a Board-approved policy to ascertain client ability to repay and prevent financial distress. This would be in line with the RBI Charter of Customer Rights[3] and the IBA Model Customer Rights Policy[4] which includes a commitment to prepare Board-approved policy incorporating the Right to Suitability, stated as “products offered should be appropriate to the needs of the customer and based on an assessment of the customer’s financial circumstances and understanding.”

There is a concern that this does not however include a commitment to ascertain whether clients are able to make repayments without substantial financial stress throughout the tenure of the loan. For instance, liquidity mismatches between structured instalment frequencies (typically weekly or monthly) and household cashflows could lead households to take on additional loans from informal sources or sell off assets such as livestock or land at below market prices, even though such households are comfortably able to repay the loan by the end of the tenure. This concern is exacerbated by the absence of adequate savings mechanisms for MFI clients, who are oftentimes unable to safely put away relatively large sums of money for future use. There is thus a necessity to enhance the nature of MFI due diligence for better client outcomes. There is also a necessity for a commitment to design and distribute products that are appropriate and flexible to address the needs and financial situations of customers, while preventing financial distress. This is in line with the RBI Master Circular on Customer Service in Banks which indicates the role of a Customer Service Committee of the Board to address the product approval process “with a view to suitability and appropriateness.”[5]

The sub-section also includes a commitment for an MFI not to exceed the borrowing limit of Rs. 60,000 for a JLG customer (which is lower than the RBI mandated total indebtedness cap of Rs. 100,000)[6] in a group arrangement or to be the third lender to a client. There is a concern that such caps on lending might be restrictive to households that might have a genuine need and ability to repay higher loan amounts. Moreover, there does not seem to be clear basis for both cap values, especially when MFIs are already committing to conduct proper due diligence on client need and repayment capacity of every client.

There is an additional concern that customer data from credit bureaus may not provide a complete assessment of overall household indebtedness. Credit institutions are yet to fully act upon RBI’s requirement[7] to report to all credit bureaus, especially in terms of loans from the bank and SHG channels, although there has been steady progress[8]. Credit bureau data is also, at best, unable to include household debt outstanding from informal sources such as local moneylenders. There is thus a need for a commitment to better understand customer indebtedness and financial situation through customer self-reported information, which when triangulated with credit bureau information can provide a more complete assessment of household indebtedness.

The sub-section includes important commitments with regard to authenticating client identity and sharing client information. The move towards Aadhaar-based KYC within two years will commendably enable more accurate credit bureau assessments of outstanding debt. The challenges of implementing a seamless KYC interface will need to be overcome with robust yet low-cost technology solutions that enable error-proof and real-time authentication.


The new Code of Conduct lays out commitments to have in place several Board-approved policies for debt restructuring, dealing with delinquent clients, fair collection practices, and processes to raise client awareness. Board-approval is valuable for putting in place policy for important client protection aspects that is pervasive across all levels of an MFI. This is therefore a very progressive development.

There is also a commendable commitment to prepare a monthly report on grievances received, resolved, and pending for senior management review and periodic reports to the Board. However, by the same rationale as the commitment on audit and compliance, there needs to be an additional commitment for appointing an independent grievance redressal committee that is directly accountable to the Board. This is in order to prevent a potential conflict of interest that operations staff could face leading to under-reporting of customer grievances.

Customer rights:

The new Code of Conduct also includes an important section that outlines the rights of a customer, in addition to commitments from participating MFIs, in similar vein as the RBI Charter of Customer Rights[9]. There are customer rights outlined to ascertain terms and conditions and current status of the loan and avail necessary documents and receipts, which are in line with the RBI’s Right to Transparency, Fair and Honest Dealing. There are also customer rights outlined to access a grievance redressal mechanism with the help of designated staff, receive acknowledgment and a response to grievance within a prescribed time limit, and appeal to a higher internal level or an external redressal mechanism (the nodal office of the RBI) if desired, which are in line with the RBI’s Right to Grievance Redress and Compensation. Other rights outlined in the RBI Charter, including the Right to Fair Treatment and Right to Privacy are included as commitments to customers, although given their relevance, need to be included as rights as well. Finally, there is a need for a stronger commitment and customer right to Suitability.

[1] SEEP Network – Codes of Conduct and the Role of Microfinance Associations in Client Protection (2012): http://www.seepnetwork.org/codes-of-conduct-and-the-role-of-microfinance-associations-in-client-protection-resources-345.php

[2] RBI Master Circular – Fair Practices Code (July 2015): https://rbi.org.in/Scripts/BS_ViewMasCirculardetails.aspx?id=9823

[3] RBI Charter of Customer Rights (December 2014): https://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=32667

[4] IBA Model Customer Rights Policy (January 2015): http://www.iba.org.in/Model%20Policy/Model_Customer_Rights_Policy_Amended_Final_27_1_15.pdf

[5] RBI Master Circular on Customer Service in Banks (July 2015): https://www.rbi.org.in/scripts/BS_ViewMasCirculardetails.aspx?id=9862

[6] RBI Master Circular on PSL Targets and Classification (April 2015): https://rbi.org.in/Scripts/NotificationUser.aspx?Id=9688&Mode=0#ANN

[7] RBI Directive on Membership of Credit Information Companies (CICs):

[8] Article on Livemint (August 29th, 2015): http://www.livemint.com/Industry/FRgAFR9Clo3nvMCdGFl37L/MFI-credit-bureaus-comb-client-data-to-smooth-microloans.html

[9] RBI Charter of Customer Rights (December 2014):


Towards a Suitability-based Customer Protection Regime in India

This post is part of IFMR Finance Foundation’s blog series on the CCFS Report.

By Vishnu Prasad, IFMR Finance Foundation

The current regulatory approach to customer protection in India can be divided into two complementary ex-ante approaches- mandated information disclosure, and financial literacy and education. Both approaches, predicated on the principle of ‘buyer beware’, seek to improve the decision-making ability of the consumer by reducing the information asymmetry between the buyer and the seller. However, recent studies find that these approaches do not adequately protect the customer. For example, customers are often ‘over-loaded’ with information by disclosure documents and this leads them to take sub-optimal decisions1. Evidence also suggests that firms do not use these measures to act in the best interest of the customer. For example, in the Indian mutual fund context, studies have shown that firms respond to disclosure policy relating to un-shrouding of fees by altering products to essentially maintain lack of clarity in pricing2. Evidence also points to the weak relationship between financial literacy and financial behaviour. For example, a recent meta-analysis of 168 papers that study the relationship between financial literacy and financial behaviour finds that interventions to improve financial literacy explain only 0.1 per cent of the variance in financial behaviours studied, with weaker effects in low-income samples3. When the fact is considered that asymmetry in information, expertise, and power between the buyer and seller of financial products will only be exacerbated in the future, it becomes clear that existing approaches cannot underpin the customer protection regime in India.

The report of the Committee on Comprehensive Financial Services (CCFS) argues that India needs to move to a customer protection regime where providers need to be held accountable for the service to the buyer. Taking the lead from the FSLRC, the CCFS Report envisions that each low-income household and small-business would have a legally protected right to be offered only suitable financial services. The Committee recommends that the RBI should issue regulations on Suitability, applicable specifically for individuals and small businesses, to all regulated entities within its purview. These regulations should be applicable specifically for individuals and small businesses defined under the term ‘retail customer’ by the FSLRC4.


As described in the table above, the notion of Suitability should be viewed as a process followed by the provider rather than as a guaranteed outcome for the customer. Suitability as a process requires every financial services provider to have a Board approved Suitability Policy that the company must follow in all interactions with customers and it will be the implementation of the Suitability process that will determine if a financial services provider has indeed acted in the best interests of the customer. Global financial customer protection regimes in Australia, UK, and USA have shifted to a provider-liability regime and mandated a process for ensuring Suitability. For example, in the case of a standard home loan product, regulators in these countries require that Suitability assessment take into account three parameters:

a. Customer’s requirements and objectives: The Australian Suitability assessment mandates that the financial services provider look into several aspects of the customer’s requirements and objectives including the purpose for which the credit or customer lease is sought, the nature of the credit requested by the customer, and the customer’s understanding of the proposed contract.

b. Financial Situation of the customer: CFPB regulations in the USA require that monthly payments be calculated based on the highest payment that will apply in the first five years of the loan and that the customer have a total debt-to-income ratio that is less than or equal to 43 per cent.

c. Other parameters: Certain regulations like the US guidelines deem specific characteristics of a home loan product (like loans with negative amortisation, interest-only payments, balloon payments, terms exceeding 30 years and the so-called no-doc loans) to be “globally unsuitable” for all categories of customers.

Suitability is by no means a new concept in India. For example, the RBI itself has issued Suitability and Appropriateness guidelines for derivative products. These guidelines mandate that market-makers should undertake derivative transactions, particularly with users with a sense of responsibility and circumspection that would avoid, among other things, mis-selling. SEBI’s Investment Advisers Regulations, 2013 mandate that the investment advice provided should be appropriate to the risk profile of the client and that the structure and risk reward profile of the recommended product should be consistent with client’s experience, knowledge, investment objectives, risk appetite and capacity for absorbing loss.

The CCFS also endorses the creation of a unified Financial Redress Agency (FRA) as a unified agency for customer grievance redress across all financial products and services. This Agency is envisaged to be consumer facing and will in turn coordinate with the respective regulator for customer redress. This way, the consumer will not be expected to understand regulatory architecture to lodge a grievance.

Furthermore, the report recommends a citizen-led approach to surveillance and monitoring. The report provides the example of the Economic Offenses Wing (EOW) of the Tamil Nadu Police Department which has engaged members of the public to monitor non-banking financial institutions in the state. Taking a lead from this, the Committee recommends that RBI should create a system by which any customer can effortlessly check whether a financial firm is registered with or regulated by RBI. Customers should be able to access this service by phone, through SMS or on the internet.

  1. See: Spindler, Gerald. “Behavioural Finance and Investor Protection Regulations.” Journal of Consumer Policy 34, no. 3 (2011): 315-336.
  2. See: Anagol, Santosh, and Hugh Hoikwang Kim. 2012. “The Impact of Shrouded Fees: Evidence from a Natural Experiment in the Indian Mutual Funds Market.” American Economic Review, 102(1): 576-93
  3. See: Fernandes, Daniel, John G. Lynch, and Richard G. Netemeyer. “Financial Literacy, Financial Education and Downstream Financial Behaviors.” Management Science (2013).
  4. FSLRC defines a retail customer as “an individual or an eligible enterprise, if the value of the financial product or service does not exceed the limit specified by the regulator in relation to that product or service.” Further, an eligible enterprise is defined as “an enterprise that has less than a specified level of net asset value or has less than a specified level of turnover.”


FSLRC on Financial Consumer Protection

By Deepti George, IFMR Finance Foundation

This post is a continuation of our blog series on FSLRC report.

Keeping in mind the existing state of consumer protection measures in place for India, FSLRC has proposed a consumer protection framework for financial services, with the stated objectives being – to protect and further the interests of consumers of financial products and services; and to promote public awareness in financial matters. It is pertinent to mention here that the Commission has included, in its definition of retail consumer, not just individuals but also enterprises that avail a financial product or service whose value does not exceed a limit as prescribed by the regulator1, or who has less than a specified level of net asset value or turnover, also as prescribed by the regulator . The previous post mentioned the rights and protections that the draft Code sets out. Among these rights are the right against unfair contract terms and the right to redress of complaints.

The right against unfair contract terms

The Draft Code deems an unfair term of a non-negotiated contract2 to be void. A term is unfair if it causes a significant imbalance in the rights and obligations of the parties, to the detriment of the consumer, and is not reasonably necessary to protect the legitimate interests of the provider3. Further, the Draft Code enlists a set of factors that would be considered in determining whether a term is unfair or not – such as the nature of the service, the extent of transparency of the term, the extent to which the term allows comparison with other financial products or services, and the dependency of the term with the remaining contract and with other contracts under question. If a term was found to be unfair, the contract will continue to be enforced with the remaining terms as long as it can do so without the unfair term.

This is very much in line with the laws laid out in Australia, in as late as 2010, through the Competition and Consumer Act 2010. While Australia already had laws in place to protect consumers against unfairness in contractual dealings (ex: prohibition of unconscionable or misleading and deceptive conduct), this Act introduced a new ‘unfair contract terms’ regime to standard form consumer contracts4 under which courts can decide if a term in the contract is found to be unfair5, in which case the contract is void. However, the contract will continue to bind parties if it is capable of operating without the unfair term. Examples of unfair terms are set out in an indicative list in the law6.

The right to redress of complaints

The Commission addresses this right in two steps – the first, is by placing a requirement on providers to have in place an effective mechanism to redress complaints internally, to inform consumers about their right to redress, and the process to be followed for it; and the second, is by having a statutory body external to the provider, that will be a unified grievance redressal system to redress complaints. This body termed the Financial Redress Agency (FRA), will replace sector-specific Ombudsmans currently in existence such as those for banking and insurance. Whether or not the FRA will replace the Consumer Courts (instituted by the Consumer Protection Act, 1986), will be decided later based on how well the FRA succeeds in its task.


FSLRC has also created a niche for consumer advocates to contribute to the regulator’s functions, through the creation of an Advisory Council on Consumer Protection. This body, with adequate representation from experts in the fields of personal finance and consumer rights, is expected to advice, comment on, and review the effectiveness of regulator’s policies. The regulator in turn is held accountable to respond to such proposals made by the Council, thereby bringing in an element of transparency to the regulatory decision-making process.

  1. This is not uncommon. In Australia, for instance, retail consumer includes small businesses, which are defined by s761G of Corporations Act 2001, as a business employing fewer than 100 people (if the business manufactures goods or includes manufacture of goods), or 20 people (otherwise)
  2. A non-negotiated contract is one in which the provider has a substantially greater bargaining power relative to the customer in determining the terms of the contract; and it is a standard form contract
  3. This however does not include a term that is reasonably needed to protect the legitimate interests of the provider, is a basic term such as the price of a product, or is a term required under any law or regulations
  4. All contracts will be presumed to be standard form contracts unless otherwise established. It is typically one that has been prepared by one party to the contract (the supplier) and is not subject to negotiation between the parties
  5. A contract term is considered unfair if:
    • – It would cause a significant imbalance in the parties’ rights and obligations arising under the contract, and
    • – It is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term, and
    • – It would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.
  6. s25, CCA 2010. Some are given below: A term permitting one party (but not another party)
    • – to avoid or limit contractual performance or to terminate the contract
    • – to renew or not to renew the terms of the contract
    • – to unilaterally determine whether to determine whether the contract has been breached
    • – a term limiting one party’s vicarious liability for its agents


FSLRC moots shift in onus of consumer protection from consumer to provider

By Anand Sahasranaman, IFMR Finance Foundation

This post is a continuation of our blog series on the recently released FSLRC Report.

Why does consumer protection assume so much more significance in financial services, more so than perhaps for other services? Financial services don’t have fixed characteristics. They can have almost infinite variations and in a sense, can be synthesised on the spot by the provider varying one or more features. They are also constantly interacting with the context of the user. Given the complexity in designing products to suit diverse consumer situations, there exists a gap in information and understanding between the providers and the consumers; a gap that has been widening over time and is only expected to widen further. The nature of financial services therefore points to consumer protection as the central objective that should drive financial sector regulation. India’s consumer protection regime has been built on the doctrine of caveat emptor or ‘buyer beware’, which holds that, since the buyer has been given all information relating to a product, the buyer is to be responsible for all risks associated with the product after its purchase. The FSLRC rightly recognises that there needs to be a shift in the approach to consumer protection and that a higher standard is required.

The ‘buyer beware’ doctrine has translated into several pages of legal and technical documentation which a customer signs on, and which the representative of the seller is usually unclear about. The real risk here is the chance that the product sold is unsuitable and therefore will result in bad customer outcomes. This is further exacerbated by industry-level sales-incentives such as commissions and soft-benefits given to agents to push product uptake. The ULIP controversy involved the commission driven mis-sale of equity-linked investment product to customers seeking an insurance cover. Entry loads in mutual funds is another example of mis-sale where agents get unsuspecting customers to churn their portfolios in order to cash in on the entry-loads each time the customer bought into a new mutual fund. Since agent incentives do not reward maintenance of customers, this has inevitably led to lapsed insurance policies, clearly making a massive portion of the customer base worse-off with the policy.

In this context, it is heartening that the FSLRC “marks a break with the tradition of caveat emptor, and moves towards a position where a significant burden of consumer protection is placed upon financial firms.” The draft code establishes basic rights for financial consumers:

  1. Financial service providers must act with professional diligence;
  2. Protection against unfair contract terms;
  3. Protection against unfair conduct;
  4. Protection of personal information;
  5. Requirement of fair disclosure;
  6. Redress of complaints by financial service providers.

Retail consumers have three additional protections:

  1. The right to receive suitable advice;
  2. Protection from conflicts of interest of advisors;
  3. Access to the redress agency for redress of grievances.

It is especially significant that the Commission has decided that retail consumers have the right to receive suitable advice in relation to the purchase of a financial product or service, and that the provider must collect all relevant information on the needs and situation of the consumer in making its recommendation. It could be argued that this decisively shifts the onus of consumer protection from the consumer to the financial services provider.

Since providers have greater expertise on financial products and can get the household-level information they need to make an informed judgment on the suitability of a product for a particular consumer, it is only appropriate that the onus of consumer protection be placed on the provider. Enshrining this right in the law will mean that financial service providers will be legally required to act in the best interest of consumers and that consumers will have legal recourse in case they have been sold unsuitable products or given unsuitable advice. While the penalties for errant financial service providers are not clear yet, enacting legal liability on providers to ensure suitability is possibly the single most powerful step to align the incentives of providers with those of consumers.

It is useful to take a moment to consider how a “Suitability” based consumer protection framework could actually work. “Suitability” should be seen as a process that covers all aspects of consumer interactions, right from the time of enrolment, data collection and analysis, through to the communication of product recommendation or advice, and follow-up with consumers on recommendations made. The financial services provider needs to ensure through the implementation of the “Suitability” process that the design and sale of services meets the needs of the consumer. The provider should be held legally liable on the implementation of this process of “suitability”, and not the intentions of the provider or consumer outcomes (which are difficult to objectively measure).

Such a provider-led regime might seem alien to many but it is the standard being followed in corporate banking and investment products in most countries. While insurance and credit providers are not being held to this standard, it is only a matter of time before this anomaly gets corrected.

The principles-based approach of law-making suggested by the FSLRC also indicates that while the right to suitable contract is enshrined in law, it is possible to meaningfully interpret “Suitability” only through the development of case law over time, reflecting the evolution of ground-level realities of consumer protection in the Indian context.

The application of ex-ante firm-level “Suitability” processes combined with the creation of a credible ex-post redressal mechanism such as the proposed Financial Redressal Agency (FRA) together can create a robust framework to meaningfully protect the interests of financial consumers.

Read our previous posts on Suitability: A Paradigm for Suitability


Regulator Supervision of the Suitability process: An example from UK

By Deepti George, IFMR Finance Foundation

We have presented Suitability as the paradigm of choice for India’s financial system and have put forward the idea of Suitability as a board-approved process that each financial services provider develops and adheres to across all functions of the firm. This ex-ante liability for the firm is complemented by increased supervisory responsibilities for the regulator, in addition to an ex-post redressal mechanism to handle complaints arising from wrongful advice and sale. We share results of such a supervisory effort by UK’s regulator, the Financial Services Authority (FSA).


The Financial Services Authority (FSA) undertook a mystery shopping review of the quality of investment advice in the retail banking sector between March-September 2012, specifically to check whether firms were giving their customers suitable investment advice. Mystery shopping is a supervisory tool used by regulators across the world, and is considered to be among the more intrusive approaches to supervision of market players. The exercise spanned 231 mystery shops across 6 large firms in UK. The representatives of the exercise posed as customers looking to invest a lump sum and were seeking investment advice.


While three-fourths of the mystery shop customers received good advice, the quality of advice was under question for the remaining one-fourth. All 6 firms exhibited some form of ‘poor advice’ – where customers were at a risk of suffering detriment as a result of being recommended products that were not suitable for their needs and circumstances. Poor advice reflects a breach of FSA’s Conduct of Business (COBS) Rules and the FSA’s Principles for Businesses. The table below summarises the cases1 of poor advice:

 Nature of poor advice  Instances observed in the mystery shopping exercise
Poor risk-profiling
Risk profiling tools with complex and limited questions • Questions within a tool that required customers to use percentages to calculate potential investment losses based on different scenarios and then confirm the level of loss they were willing to accept.
• Advisor failing to check whether customers understood a question from the tool even when the customer was struggling to answer it, and instead proceeding to execute the advice.
Unclear customer risk category descriptions The middle-risk category at a firm highlighted the potential to lose money but did not indicate the extent of potential losses; this was further exacerbated by advisors failing to give further clarifications to customers.
Failing to check whether the results from risk-profiling tool are correct Advisor failing to check whether the customer’s ‘self-selected’ risk profile accurately reflected the actual level of risk he was willing and able to take with his investment. This was in spite of the advisor having identified that the customer had no previous investment experience and limited financial knowledge. (This is especially so because firms relying on risk-profiling tools need to ensure they manage any of its limitations through the suitability and ‘know your customer’ process2)
 Failing to consider customers’ needs and circumstances
Failing to consider customers’ financial circumstances and needs (13%3)  • Advisor failing to gather enough information on the customer’s income, current and future tax status, existing assets and regular financial commitments.
• Advisor failing to recommend the customer repay the existing credit card debt (that was accruing significant interest), and instead recommending investment in a collective investment scheme.
Failing to consider the length of time customers wanted to hold the investment (6%) Advisors recommending medium to long-term investments (product feature requiring customer to remain invested for 5 years) even though customers made it clear they needed their money after 3-4 years (in time for the customer to purchase a house for her son).
Failing to give customers the correct information
 Failure to describe or giving a misleading description of initial disclosure on the firm, its services and remuneration (13%) Advisor telling the customer ‘you don’t pay me a penny and you don’t pay the bank a penny for this advice’, while in reality the service was not free. Although the customer was not paying anything upfront, he would be paying indirectly through product charges. 
 Advisor making statements that were unclear, unfair or misleading (15%) • Advisor incorrectly stating, and reinforcing that the customer would ‘always get a return’ for a product and that the potential returns would be 3.5 times the achievable maximum return.
• Advisor making incorrect statements about how a fund was managed and failing to give risk warnings.
 Issues with suitability reports (17%) The suitability report mentions that customer wants to invest for ‘at least 5 years’ and was keen to follow a medium to long-term strategy, when in reality the customer had clearly stated she wanted to invest for 3 years and use the money for a holiday.(Such reports can cause further problems as it would be relied on by business monitoring and compliant-handling functions within the firm, and would go undetected as a case of poor advice)
Inappropriate use of investment sales aids • Advisor emphasising potential returns from investment without mentioning the potential for losses.
• Undervaluing the returns on cash deposits in sales aids in order to make other investment options look more attractive.
• Sales aid indicating a positive return on a medium-risk investment portfolio, and advisor emphasising the same, while in reality the medium risk portfolio did not guarantee a positive return.
Weaknesses in firms’ controls Unable to override the firm’s advice processes/systems, advisor deliberately entering inaccurate customer information (income or investment term) to overcome the system constraints. (This also had the added danger of generating inaccurate suitability reports which would be difficult for customer to use to complain if needed; nor would this manipulation be detected by monitoring teams)
Other factors causing poor advice may be at play for the following instances (possibly incentives, sales targets, performance management) • In spite of collecting all relevant information, advisor recommending an investment product when a deposit product should have been advised.
• Recommendations that appeared to be at odds with the firm’s advice policy.

1 – These are not mutually exclusive; a mystery shop may exhibit more than one of the instances below
2 – As per http://www.fsa.gov.uk/pubs/guidance/fg11_05.pdf
3 – % implies percentage of mystery shops