Muhammad bin Ibrahim: Of TRUST, wellbeing of society and the role of
financial ombudsman
Remarks by Mr Muhammad bin Ibrahim, Governor of the Central Bank of Malaysia (Bank
Negara Malaysia), at the Launch of the Financial Ombudsman Scheme "Of TRUST,
Wellbeing of Society and the Role of Financial Ombudsman", Kuala Lumpur, 3 November
2016.
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TRUST is the bedrock of a financial system. The numbers and figures we diligently report to
reflect financial positions, the close regulation and scrutiny by supervisory authorities - all
these ultimately serve to uphold the TRUST of our people in our financial system. But
TRUST is fragile, and when it is eroded, the smooth functioning of the system becomes
threatened.
We see this clearly in economies most affected by the Global Financial Crisis. Even today,
societal and political backlash against financial institutions still continues. It is imperative that
we rebuild and enhance TRUST.
This is especially important in an operating landscape that is undergoing rapid changes
brought about by technological advancement, demographic shifts, changing expectations
and norms of society. Over the years, financial institutions have responded to these changes
in their offerings of products and services, in marketing strategies, and in the delivery and
usage of financial services.
Consumers have also become increasingly discerning, better informed and assertive of their
rights. With the advent of information and communication technology, we can only expect
these trends to accelerate as information becomes more widely available, more transparent
and more insightful.
It is in response to these developments that the consumer protection framework must evolve
in tandem, to provide the right balance for consumers in terms of fair treatment, access to
information to make informed choices, and the need for an effective mechanism to resolve
disputes with financial institutions.
The Bank has consistently worked to build TRUST in our financial system. Much investment
in resources has been made over the years. Significant progress has been achieved. The
necessary institutional arrangements and a strong regulatory framework for market conduct
were put in place. These measures were supported by efforts to continuously improve the
transparency and comparability of financial products, and suitability assessments of financial
products offered to consumers. At the same time, efforts to raise the level of professionalism
of financial service providers and intermediaries have also been intensified.
Ensuring adequate avenues for consumers to resolve disputes through an equitable process
has been another long-standing priority of the Bank. We embarked on this journey way back
in 1991 with the establishment of the Insurance Mediation Bureau followed by the Banking
Mediation Bureau in 1996. We integrated both these entities in 2004 to form the Financial
Mediation Bureau. The transformation of the Financial Mediation Bureau into Financial
Ombudsman Scheme backed by legislation marks an important milestone in this evolution,
putting Malaysia on par with international best practices for consumer protection in terms of
effective redress mechanisms.
The establishment of the Financial Ombudsman Scheme will further strengthen consumer
confidence and market discipline in the financial sector. It will provide consumers with a
userfriendly and efficient redress mechanism to resolve disputes. This mechanism will continue to
benefit both consumers and financial service providers (FSPs). Our data bear proof to this
point. Over the past 12 years, the Ombudsman for Financial Services has helped to resolve
close to 25,000 financial disputes. It saved significant costs and time for both consumers and
FSPs. Assuming a cost of about RM15,000 to resolve a case through a court proceeding, it
will translate to a cost savings of RM375 million.
TRUST is the vital ingredient for the Ombudsman for Financial Services' integrity and
credibility in the delivery of its services. For this to happen, there are a few fundamental
principles that are absolutely critical for success; namely, independence, fairness and
impartiality, accessibility, accountability, transparency and effectiveness. These principles
must be embedded in perpetuity into its governance and operational arrangements.
Recognising its importance, these principles have also been enshrined in the legislation.
In line with the principle of accessibility, the services will continue to be treated as a public
good and offered free of charge to financial consumers, with minimum formality.
The Ombudsman for Financial Services will also have an important role in identifying
systemic issues and serious misconduct, and escalating these issues to FSPs and the
regulator, where appropriate.
In recent months, further episodes of large-scale misconduct have again come to light,
highlighting the growing concerns at the global level that misconduct increases systemic
risks and will further erode confidence in the financial system. Addressing this risk will require
closer coordination and understanding between FSPs, the Ombudsman for Financial
Services and the regulator.
Expectations on Financial Service Providers
The fragility of TRUST is evident today in the news headlines. Time and again, we had
witnessed how poor culture and misaligned compensation practices drive behaviours to the
detriment of consumers' interest. These behaviours cannot be allowed to proliferate and
ought to be unacceptable under any circumstances; it is particularly intolerable when it
affects the most vulnerable segments of our society, whose wellbeing should be held in high
priority by financial institutions. In recent years, financial institutions paid a heavy price for
indiscretions in terms of heavier fines and loss of reputation. Even institutions that have not
been at the centre of misconduct have had to work substantially harder to maintain TRUST
with their customers.
Let me focus on three key areas that FSPs should strengthen to inspire TRUST, namely,
instilling the right corporate culture, inspiring confidence through exceptional customer
service and assisting efforts to empower consumers.
On instilling fair dealing into the core corporate culture
First, industry players must ensure that strategies, business models and governance
arrangements are aligned with their underlying culture, shared values and an attitude that
place customers' interests at the very core of the business model. Indeed, the true north of
an organisation's culture is often tested when there are no written rules to dictate behaviour.
This can only be cultivated over time through a consistent demonstration and enforcement of
intended values and behaviours in every aspect of its business and operations. In this
respect, it is critical that the Board and senior management 'set the right tone' from the top,
and supplemented by incentive structures that reward appropriate behaviours.
Strengthening public confidence in FSPs' customer service
Second, FSPs should strive and commit to exceptional customer service. This should define
their value propositions. A few things come to mind; simplify procedures to speed up service
delivery, ensure complaints are properly handled, and develop a feedback mechanism that
consumers can use to channel their views and concerns. One key aspect that FSPs should
consider is to link organisational and staff performances to customers' satisfaction and
perceptions. We have learnt over the years that ultimately, a leading indicator of impending
problems faced by an institution often started with abnormal trends in the number of
complaints received.
As consumers ourselves, we should all agree on the rights of consumers to be treated with
fairness, dignity and respect. This is the very reason behind the Bank's efforts to invest
significantly in strengthening consumer feedback channels and ensuring that alternative
avenues are available for consumers to resolve their disputes with financial institutions.
In Malaysia, the central bank is pleased that all financial institutions have reciprocated by
creating a dedicated complaints units complemented by additional channels at the respective
industry associations, BNM's LINK and the Ombudsman for Financial Services. These
additional channels also provide an important feedback loop for insights on financial sector
developments that may be useful in shaping regulatory policies and supervisory priorities.
Bank Negara Malaysia has handled 6,695 banking and insurance complaints in 2015, a
slight reduction compared to 7,197 in 2014. The Bank expects this number to come down
further as FSPs enhance and improve their complaints handling practices. Bill Gates once
said, "Your most unhappy customers are your greatest source of learning." FSPs should
mine customers' complaints data and use the insights to explore new opportunities to
connect, learn and improve services, and build long-term relationships with customers.
Moving forward, the Bank will consider publishing the outcome of the FSPs customer service
index to generate long-term benefits for consumers who can make informed decisions and
exercise their right of choice.
Over time, the survey findings will drive industry's performance by facilitating comparison and
performance measurement. Competition will also drive players to up their game.
Raising awareness on financial products and services
Consumer protection is however not a one-sided pursuit. To enjoy protection, consumers
have to exercise some responsibilities too. Which brings me to a third point - it is equally
important to empower consumers to make financial decisions that are well-informed,
effective and responsible.
Malaysia ranked relatively low among 30 countries that had participated in the OECD/INFE
International Survey of Adult Financial Literacy Competencies. The survey results
corroborate the Bank's own findings which were published earlier this year that Malaysian
consumers generally lack the capability to make good financial decisions. We are determined
to improve this situation. Greater public and private sector collaboration is required to elevate
the financial knowledge, skills and behaviours of our consumers. When consumers
understand the characteristics of the financial products and transactions, they can make
wellinformed decisions and know their rights and responsibilities.
FSPs also stand to benefit from empowered and well-informed consumers. Greater
participation from more informed consumers will increase demand for financial products,
build competitiveness and promote alignment with consumer expectations.
Enhancing consumer awareness is therefore a shared responsibility, one that the
Ombudsman for Financial Services and FSPs should embrace as an important part in their
engagements with the public at large.
Conclusion
A sound financial system is a central pillar for a thriving economy and for the betterment of
society. It plays a catalytic role and at its best, a financial system goes beyond managing
risks and allocating resources. It uncovers and creates opportunities and facilitates
entrepreneurship that creates value and drive innovation. And the higher the integrity of the
system, the more effective a force it will become to serve the public good. It is a symbiotic
relationship that has always been built on TRUST. To uphold this TRUST is to preserve the
functioning and advancement of our nation.
The financial ombudsman scheme is an essential part of our overall efforts to nurture and
deepen this TRUST. It is this precious bond with society that will ultimately secure the
objectives of enhancing our societal growth, prosperity and wellbeing.