The Reserve Bank of India has issued a major guideline to prevent the mis-selling of financial products, in which the RBI has given strict instructions to banks to prevent mis-selling. If you also purchase insurance from a bank or invest in NPS or mutual funds, this news is for you. Let us explain the entire guideline in detail.

In its guidelines issued to prevent mis-selling, the RBI states that agents selling financial products within a bank branch and bank staff must be clearly separated. Banks must implement a sales code of conduct, violation of which can result in penalties. Additionally, consent must be obtained separately for various products and services, and they must not be combined. Banks must design the user interface in such a way that customers cannot consent without reading the terms and conditions. Banks cannot market third-party products as their own. Agents cannot impersonate bank employees. Furthermore, staff and agents cannot call or meet customers without prior approval.

The Dangers of Mis-Selling
Mis-selling means selling a product that doesn't fit the customer's profile, age, income, financial information, or risk appetite. This includes providing incomplete or misleading information, selling services without the customer's explicit consent, requiring the purchase of a second insurance policy to enhance an offer, and using dark patterns to defraud customers online.

These are strictly prohibited.
Banks will not be able to sell products that are not appropriate or suitable for the customer's profile, even if they have explicit consent. This closes the loophole for errant banks. They cannot use the customer's signature on the agreement to deny claims of mis-selling.

Sometimes, bank relationship managers try to sell unit-linked insurance policies to naive customers as mutual funds. Banks may now be required to use separate application forms and clearly state the type of product, such as insurance, mutual fund, or hybrid, on their application forms.

What happens if mis-selling occurs?
If mis-selling is proven, banks may be required to refund customer payments and cancel transactions. They may also be required to provide additional compensation for financial losses. According to the proposed regulations, banks will be required to collect customer feedback through a non-discriminatory survey within 30 days of the sale. Banks will be required to prepare a report on the results every six months to help review existing policies and service practices.

What should customers do?
File a mis-selling complaint with the bank within 30 days of receiving a signed agreement or according to the timelines provided by the relevant financial sector regulator. These are draft guidelines issued by the RBI for public feedback. After reviewing stakeholder comments, the final regulations will be implemented on July 1.

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