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The Forward Markets Commission (FMC) has directed exchanges under it to implement the Financial Sector Legislative Reforms Commission (FSLRC)’s recommendations on consumer protection from May 1 (for new members) and December 31 (in the case of existing ones).
The FSLRC had suggested significant changes in the rights and obligations of members, authorised persons and clients of exchanges. In December 2013, the FMC had sought comments in this regard from exchanges and the public. The exchanges had favoured the changes.
According to the FSLRC’s proposals, an unfair term of a non-negotiated contract will be void. The FMC has re-defined the term ‘unfair’, which causes a significant imbalance in the rights and obligations of the parties under a financial contract, to the detriment of the client and the member. Even if some terms of a financial contract are negotiated in form, the contract might be regarded as a non-negotiated one, if this is indicated by an overall assessment and the circumstances surrounding the contract.
For a claim that a financial contract is non-negotiated, the onus of demonstrating otherwise will be on the member, FMC has said. It cautioned members not to collect more information from clients than required for financial dealings; it added they should update the information and ensure the clients concerned could access their personal information. A member can, however, disclose client information after securing the permission of the client concerned; the onus to protect a client’s personal information against fraud, unauthorised transactions, claims, etc, was with the member.
The FMC has asked members to put in place an effective grievance redressal mechanism, accessible to all clients. Also, members should advise clients in terms of the instruments identified by the regulator, albeit in the light of relevant personal circumstances. Members should also share with clients information on conflict of interest, if any. The regulator prohibited unfair conduct in relation to financial products/services and directed members to exercise diligence while entering into a financial contract or discharging obligations under it, with strict adherence to honest market practice, principles of good faith, etc.
