Oran Hall | The value of regulation to consumers

When David Miller, the executive director of the Fair Trading Commission, noted in 2012 that a “regulator is supposed to bridge the gap between investors and consumers in the interest of maintaining a market that functions for all”, he was right. His words are still sound today.

He noted that the objective of investors was to maximise profits while consumers had their own set of needs. These positions are often in tension, and governments, including ours, have tended to see the need to protect consumers by establishing bodies by legislation to protect them, in addition to passing legislation that directs how the providers of goods and services should conduct themselves and what the regulators should do to carry out their mandate.

Two areas that are regulated in Jamaica are financial services and utilities. The Financial Services Commission, FSC, regulates the securities, insurance and pensions industries, and the Bank of Jamaica, BOJ, regulates deposit-taking institutions, including commercial banks, merchant banks, and building societies. The Jamaica Stock Exchange, which is regulated by the FSC, is also a self-regulated organisation, meaning that it regulates itself. The Office of Utilities Regulation, OUR, regulates the electricity sector, including the Jamaica Public Service Company and independent power producers; water and sewerage, including the National Water Commission; other water and sewerage providers and the National Irrigation Commission; and telecommunications.

Whereas the entities that fall under the regulation of the named regulators are owned privately, some of which are publicly listed, the water and irrigation commissions are owned by the Government of Jamaica but operate commercially, so they charge for their services.

The OUR has a role in determining the fixing of the rates they charge, in addition to the role it plays in setting standards and providing for them to be monitored and maintained as well as providing an avenue of appeal for consumers who have grievances with the utility companies and for them to be investigated.

There is good reason why so much emphasis is put on regulating the financial sector. In a general sense, consumers who do not have confidence in the financial sector are not likely to participate in it meaningfully, thus holding back the growth and development of the economy.

Consumer protection is vital in today’s economy because of how sophisticated it has become. Many consumers do not know of or understand many of the products and how to use them. Thus, they make poor financial choices, including incurring too much debt and choosing unsuitable financial products. Too many of their decisions are based on emotion, and they often do not act in their best interest. Regulation is aimed at protecting consumers from themselves and the providers of financial services and products.

The regulators provide information to consumers on their role, the entities they regulate, entities that they have taken action against, or are operating when they should not be, among other types of information through their websites and hard publications. Additionally, they sometimes engage the public through public-education initiatives, including through the media, their websites, and educational institutions. Consumers who are informed should be able to make better decisions and know what to do in the event of the occurrence of actions that are unfavourable to them.

The FSC supervises the operations of the entities it regulates and requires them to be financially sound. It licenses and registers them and approves products. It licenses and registers people who have appropriate training and educational qualifications and who are financially sound. And it puts value on integrity and protection against fraud. Regulated operators are required to file reports, and on time, and delinquents risk incurring serious penalties. Importantly, aggrieved consumers are able to make reports to the FSC.

The JSE has an independent division – the Regulatory Market Oversight Division – which regulates member organisations through the enforcement of market rules and regulations. It monitors them for sales -practice compliance and to determine if there are transactions that involve abusive or manipulative trading practices, which tend to be to the disadvantage of consumers. Importantly, it also provides a forum for the resolution of securities industry disputes between investors and member organisations.

A principal aim of the BOJ as a regulator is to promote the safety, soundness, and stability of the financial system, thereby protecting the consumer from financial loss. Like the other regulators, it has a mechanism to ensure that the regulated entities comply with an enforceable code of conduct, which sets the minimum standards of good banking practices when dealing with customers.

It requires the financial institutions to disclose information on fees, charges, and conditions of contracts prior to their acquiring or using a product or service and notifications of changes thereto, as well as a requirement for them to ensure that customers are aware of their complaints policy and procedure, for example.

Regulation is valuable to consumers because it creates an environment in which they can feel confident that their rights are protected, that they have access to products and services of an acceptable standard on a reliable basis, that they have access to a process that allows them redress, that their assets are safe, that they can make informed decisions, and that fair treatment is available to them.

Oran A. Hall, author of Understanding Investments and principal author of The Handbook of Personal Financial Planning, offers personal financial planning advice and counsel. finviser.jm@gmail.com