RBI issues final rules for sale of financial products, effective January

The Reserve Bank of India (RBI) on Monday issued final guidelines for the sale of financial products by banks and non-bank lenders, effective January.

In its draft guidelines in February, the banking regulator introduced a formal definition of ‘mis-selling’, covering the sale of products that are unsuitable for a customer’s profile, providing misleading or incomplete information, selling without ‘explicit consent’, and ‘compulsory bundling’ of products.

The guidelines mandated explicit, recorded consent for every product, barred coercive cross-selling, and required full refunds and compensation where mis-selling is proven.

On Monday, the central bank said the directions adopt a principle-based and channel-agnostic approach, placing overall responsibility on the regulated entity (RE) for all advertising, marketing, and the sale of financial products undertaken directly or through agents or outsourced arrangements.

It said influencers, affiliates, lending service providers, or any other similar digital marketing intermediaries engaged for promotion or customer acquisition would fall within the broader category of direct selling agents.

On 6 February, while announcing its intent, RBI said mis-selling financial products and services by any REs has significant consequences for both customers and lenders. “There is a felt need to ensure that third-party products and services that are being sold at the bank counters are suitable to customer needs and are commensurate with the risk appetite of individual clients.”

Emphasis on consent

The RBI has defined explicit consent as a specific, informed and unambiguous indication of agreement that must be recorded by the bank. Consent for multiple products cannot be clubbed together and must be obtained separately.

On Monday, RBI said illustrative modes of obtaining consent include a signed declaration (either physically or electronically), OTP-based approval, digitally recorded confirmation, and consent embedded in a clearly demarcated section of the agreement for the product and service.

“However, irrespective of the mode of obtention of consent, REs need to ensure that the records related to consent are stored securely and can be relied upon to demonstrate that the consent was obtained properly. To illustrate, in case of consent obtained over a telephonic call from a customer (digitally recorded confirmation), the conversation may be transcribed and a transcript thereof shared with the customer,” it said.

RBI’s draft guidelines required banks to put in place a comprehensive, board-approved policy covering suitability assessments, customer feedback mechanisms, and compensation mechanisms. Lenders must determine whether a product is appropriate for a customer based on factors such as age, income, financial literacy and risk tolerance.

However, RBI declined to prescribe any specific format for this. It said prescribing detailed parameters, standardized formats, or operational frameworks for suitability assessment may not be feasible given the diversity of products, distribution channels, customer segments and business models.

“Self-regulatory organizations (SROs)/industry associations in the financial sector may collaborate with each other and their respective members to design appropriate suitability assessment frameworks commensurate with their products and customer segments to bring in sectoral-level uniformity in this regard,” it said.

RBI said that while it will not prescribe a format, compliance with the broad principles is required.