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  • Conference "Empowering Consumers of Financial Products and Services through Improved Financial Literacy and Effective Consumer Protection Systems"

Russian experts speak at G20 conference on financial literacy

On 13-14 June, a conference entitled "Empowering Consumers of Financial Products and Services through Improving Financial Literacy and Effective Consumer Protection Systems" has taken place in Moscow as part of Russia's G20 Presidency. The conference participants heard opening remarks from Russian G20 Sherpa, Chief of the Presidential Experts Directorate Ksenia Yudaeva, Deputy Finance Minister of Russia Sergei Storchak, and Head of the Federal Service for Supervision of Consumer Rights Protection and Welfare of Russia Gennady Onishchenko.

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Sergei Storchak: You see that the conference we are going to have today is focused on a problem that is touches on the interests of the ordinary people. One could even say that it is as important as Russia's G20 presidency agenda - stimulating economic growth and creating jobs.

During these 2 days we will discuss financial literacy and financial inclusion. As an official I will be speaking in Russian after this introduction. So please prepare your headphones. My presentation will not be that long. Thank you.

Ladies and gentlemen, colleagues! On behalf of the Russian Ministry of Finance I am honored to welcome you to this wonderful hall painted in the colors of Russia's G20 Presidency. Russia is hosting this conference as part of its presidency, although personally I prefer describing such events as seminars or high-level seminars, because conference sounds as if we are going to have a lot of people giving reports and very few people participating. But I hope that will not be the case today.

I would like to thank the World Bank, the OECD and all of our international partners and experts for their active contribution to promoting the issue of financial services and access to financial literacy services, as well as for upholding the priorities of Russia's G20 presidency. A special thanks goes to Her Majesty Queen Máxima of the Netherlands, who has sent us her greetings, which I hope we will hear soon.

Very many experts on public and government activities are present here today. Many of you have traveled thousands of kilometers to be here in Moscow, and we are grateful to you for this effort. It is not every day that we see so many supporters of the ideas we are promoting.

Much has been done over the past five or six years. Not that long ago I attended the events related to the United States' APEC Presidency and was pleased to see that APEC has taken up an issue which was introduced by the G8 several years ago. The G20 has also become involved in it, and all of us together are doing a great deal, although it appears that much more will have to be done in the near future.

My colleagues tell me, citing UN data, that over one-third of the world's population still has limited access to financial services. These are the most basic, inexpensive, simple services, but people's well-being and the well-being of their families depend on them, including children's access to education and families' access to healthcare. And we are still left with the problem of a lack of knowledge about risk-free and at the same time efficient access to financial services and through them to a higher quality of life for Russian nationals and for people in other countries.

Efficient use of financial services is increasingly becoming an issue, because the diversity of financial services keeps growing and these services are based on increasingly sophisticated technology so that their use entails special knowledge and skills as well as adjustment to the rapidly changing market situation. Therefore those who work in the field of financial literary must keep abreast of changes and address these issues professionally. We also want people to use their financial knowledge and opportunities professionally.

It is perhaps logical that the recent financial crisis began with problems in mortgage lending in one of the world's leading powers. Mortgage lending and financial services are two sides of the same coin. It may sound harsh, but that is the truth. There is a short distance between this issue and the issue of financial stability. Surveys conducted by various international organizations and our own experience show that there is a connection between financial literacy and financial stability. It is difficult to hope for long-term and sustainable growth of financial markets and stability of financial institutions if consumers of financial services act unpredictably and misuse the opportunities available to them. In short, the issues which we will be discussing over the next two days are vital for the well-being of families and for the well-being of national financial systems.

In 2011, the Russian Government, represented by the Finance Ministry, the Federal Service for Supervision of Consumer Protection and Welfare and executive agencies, launched a program, a large-scale project to improve consumers' financial literacy and to ensure effective consumer protection. Our goal is very simple: Russian citizens must have access to quality information and quality advice and must be able to assess the financial products offered by various financial institutions in order to make informed decisions. The project will be implemented in schools, universities and in the workplace. We hope that Russian nationals will soon be able to conduct professional discussions of financial issues in situations where conflicts arise. It is clear that we cannot expect financial relations to be completely free of disputes, and hence we want the parties to these conflicts to be equally savvy in those matters where there are disputes.

We've been addressing financial education issues for many years. I would like to remind you that Russia first raised this issue as G8 President in 2006. At that time, this issue received some attention, but it was not until a few years later that serious discussion of it began after the Organization for Economic Cooperation and Development (OECD) and the World Bank brought up this theme and after the developed countries discovered that, for example, US citizens had difficulty understanding certain elementary things, including how to open a bank account. Currently, we are working with the World Bank and the OECD to actively promote these issues at various levels.

The G20 is only one of the platforms where this work is being conducted. In October 2011, the G20 approved its High-Level Principles on Financial Consumer Protection. In 2012 at the Los Cabos summit, the G20 leaders approved the High-Level Principles on National Strategies for Financial Education, which were drafted by the OECD with the support of the Russian Trust Fund. I would like to draw particular attention to the existence of the Russian Trust Fund. Funding has been allocated from the federal budget for these measures, and it is important that these Trust Fund allocations are used to address both national and global problems.

During Russia's 2013 presidency in the G20, we've suggested a system-wide approach that involves greater access to financial services and additional efforts to protect the rights of all consumers of financial services and work to improve the financial education of the population. The Russian Trust Fund operates in close cooperation with the Global Partnership for Financial Inclusion and also within the format of the G20 Development Working Group.

After our conference, Moscow will host the first meeting of a new sub-group of the Global Partnership for Financial Inclusion. The sub-group is linked with follow-up issues of this conference, including issues to do with financial education and the protection of consumers of financial services. It may be very symbolic that this working group is co-chaired by the United States, Russia and China. As you can see, we represent the entire range of modern financial relations and contemporary politics.

In conclusion of my introductory presentation speech, I would like to wish all conference participants good spirits and good humor, which will be key to the successful completion of Russia's presidency in this very important, interesting and promising aspect of the G20's work. Thank you for your attention.

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Gennady Onishchenko: Thank you, Mr. Speaker. As all the compliments have already been voiced with regard to the conference, I would like to immediately proceed to outlining the essence of today's agenda which our Federal Service has put together for this conference.

We believe that consumer rights protection in the financial sphere is more important today than ever. It is no surprise that in 2010-2012 the main focus of World Consumer Rights Day was on consumer rights in the financial services market.

The great openness of national economies, extensive international trade, the movement of capital, modern transportation systems, etc. - all this requires us to protect our consumers in the most effective way possible. And, most importantly, we must do this in line with our current development. And one of the tasks in our country today is to recognize the need to use more effective consumer rights protection methods, including those at the international level, as well as the organization of a comprehensive and system-wide approach toward improving current forms and methods of consumer rights protection and the education of socially responsible business in this area. Like many other countries, Russia naturally chose to base its national consumer rights protection legislation on the Guidelines for Consumer Protection, adopted by the United Nations in 1985.

That is why consumer protection legislation, and this country marked the 20th anniversary of such legislation only last year, has become an inalienable part of the Russian legal system. This legislation has demonstrated its stability in conditions of a rapidly changing economy.

Despite all this, Russia is determined to improve the national consumer rights protection system, taking into account best international practices, and we hope that we will hear about this too at our current forum.

Over the past few years, Russia has been drafting and implementing the national consumer policy in cooperation with the OECD Committee on Consumer Policy.

In 2013, during a meeting between Russian Prime Minister Dmitry Medvedev and President of the European Commission Jose Manuel Barroso, the Federal Service for Supervision of Consumer Protection and Welfare and the European Commission Directorate General for Health & Consumers signed an Administrative Memorandum of Understanding on Cooperation in the Field of Consumer Policy. The document sets out the relevant principles of cooperation and dialogue in the field of consumer rights protection, primarily in the financial services market.

We have already started implementing this memorandum, and we have compiled and agreed the plan for 2013. This plan outlines consultations and swapping of experiences and those ceremonial events that are endemic to officialdom as part of any kind of cooperation, including this segment, which is in such high demand in the modern economic world and Russia.

The Russian side has a wealth of experience in this area and is ready to share it with governments who are interested in it.

The Federal Service for Supervision of Consumer Protection and Welfare (Rospotrebnadzor), which received a growing number of complaints about the operation of some lending institutions in 2008, took the side of borrowers/consumers who fell victim to the banks' speculative interests. The regulator believes that the banking community, which is undeniably stronger than its clients, clearly abused the freedom of civil law relations, better known as contractual freedom. It was apparent in some cases that contracts were not signed to derive profit, but to take over the rights to the borrowers' property.

The past seven years have shown that the assessment was objective and the conclusions correct. The proliferation of crisis elements shows what can happen in Russia if the lobbying of the banking community's interests, not all of them legitimate, goes on, including when these interests clash with the legitimate stand of Rospotrebnadzor. We have taken a harsh stand on this issue, and we are willing to share the details with anyone who is interested.

The stability of the Russian economy has traditionally been ensured by the predominance of internal borrowing over foreign loans. Therefore transactions between residents, between individuals and corporate entities, whose real goal is not mutually beneficial cooperation but property speculation, have a destructive impact on the national economy, create social tension and encourage people's mistrust in financial instruments.

Rospotrebnadzor is using its authority to prevent any abuses of the freedom of civil law relations and to demand that all consumer market players unconditionally comply with Russian legislation, including laws protecting consumer rights.

At the same time, the regulator as the authorized federal executive agency responsible for the federal supervision of consumer rights legislation consistently upholds the principle that the use of administrative mechanisms is only necessary when the actions of economic entities in the consumer market are harmful to the public, infringe on the interests of an indeterminate group of people or create a threat of systemic infringements.

One of the ways to ensure the law-enforcement function of the state in this field is the participation of government agencies, in this case Rospotrebnadzor, in civil proceedings aimed at protecting the rights, freedoms and legitimate interests that have been infringed upon or are being disputed at the request of the persons involved, or the rights, freedoms and legitimate interests of an indeterminate group of consumers that have been infringed upon or are being disputed.

The Russian civil procedure legislation sets out two basic methods of protecting the rights, freedoms and legitimate interests of consumers in courts with the participation of Rospotrebnadzor as an authorized federal agency. The regulator can provide conclusions relevant to the case in order to protect the rights of consumers, or file complaints with courts to protect the rights of consumers and the legitimate interests of an indeterminate group of consumers; file requests to shut down the producer (contractor, seller, authorized organization or importer) or to stop the operation of sole proprietors for repeated or gross infringement of consumer rights specified in laws and other legislative instruments of the Russian Federation.

At present, the territorial agencies and subordinate organizations of Rospotrebnadzor are using all available mechanisms of civil law to achieve the goal formulated by the government regarding the protection of consumer rights, including consultations of the citizens on the protection of their consumer rights. However, Rospotrebnadzor believes that they are not doing enough and so must redouble efforts and also improve the instruments they are using.

Understanding the importance of this issue, the Russian Government has proposed launching a Financial Education and Financial Literacy Project. It was developed jointly with the World Bank. I would like to use his occasion to thank the Ministry of Finance and the World Bank for making an active, meaningful and effective contribution to this project.

The main objectives of the project are to improve the financial literacy of Russian citizens, especially among school-age and college students, and active and potential low and middle income users of financial services, and to strengthen the foundations for improving consumer protection in financial services.

The project includes drafting and implementing a plan to strengthen the capacity of Rospotrebnadzor for financial consumer protection and also analyzing the existing legal framework in this field. I only received the initial wording of this document five minutes ago and so cannot comment on it. I hope we will greatly benefit from this analysis.

It is very important to remember that the implementation of the right to protect one's consumer rights as set out in the Consumer Protection Law is only possible through interconnected and consolidated actions of all branches of government.

On the other hand, the strategic goal of ensuring the effective use and protection of consumer rights in this field is considered in Russia with due account for developments in the financial markets of other countries.

This is an objective requirement, as one can see from the G20 agenda for 2013 which includes developing multilateral trade, restoring public trust in the financial system and lowering financial services risks.

As regards enhancing the rights of financial services consumers, the G20 countries support the high-level principles on financial consumer protection formulated by the OECD and are working on effective ways to implement them.

As the previous speaker has said, one of the key issues of Russia's G20 Presidency is financial deglobalization, increased access to financial services, financial literacy and other issues related to promoting the development of the financial market.

Russia is using its G20 Presidency to create conditions for Rospotrebnadzor to take more energetic action in the areas related to the creation of an effective consumer protection system, primarily in Russia.

I would like to say in this respect that the main goal for the near future, until 2020, is to draft and approve a consumer rights protection strategy in Russia, which should take into account best international practices and become the fundamental systemic document specifying the priorities and the areas of development of relevant legislation with the assistance of consumers, as well as a list of measures designed to implement the national consumer protection system at the federal, regional and municipal levels and to strengthen the role of public consumer organizations. This is a key priority for us and one of the main and most effective instruments for helping each Russian citizen feel protected in the sphere of financial services.

Thank you. I wish you successful work at this conference.

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Ksenia Yudaeva: Dear delegates, ladies and gentlemen,

I am very pleased to welcome you all here in Moscow to discuss the increasingly important issues of financial literacy and financial services consumer rights protection. I must inform you that just right now as we speak, we are having a meeting of an expert committee on these issues from Russia's perspective, discussing how to promote financial literacy in Russia, for the benefit of the population of Russia.

Going back to the global economy, I would like to start my remarks with a reminder that today more than 2.5 billion people around the world still do not have access to any financial services. In the developing countries, only 18% of small and medium-sized enterprises have access to formal credit, insurance and savings accounts. Greater access to the financial services can have an invigorating effect on production and job creation, greatly improve people's living standards. But we also remain mindful of the fact that it would become possible only if the financial products and services are affordable and appropriate for consumers, and used in an effective way. Therefore, along with targets of greater participation in the formal financial sector, it is important to encourage countries to adopt rules, create institutions, and promote norms of transparency and consumer protection that can protect new/less experienced financial actors from potential abuse by defaulting market participants.

Moreover, consumer rights protection and regulation is not enough, it is also important to improve financial literacy of population.

And the latest financial crises have shown that financial literacy and financial protection can be important not only for the developing but also for the developed countries. In Russia over the last decade, the financial industry expanded in line with economic growth and increasing incomes. Basic financial services, such as money transfers and bank deposits, accounts and cards, all became available. The rapid growth of household lending over the last decade has been accompanied by increasing number of households that had difficulty in understanding the risks and obligations they assumed or the full range of choices available. The population still demonstrates a low ability to "plan ahead" and save for retirement. In general, the vast majority of people lack basic financial literacy skills and confidence.

Financial literacy is becoming the core skill for everyone in 21st century. Being financially illiterate can have a major negative impact on people's lives. This is particularly true for the low-income groups: financial illiteracy undermines their capacity to set and achieve long-term goals and exposes them to worst suffering from severe financial crises.

The G20 Principles for Innovative Financial Inclusion acknowledge that the efforts to extend access to the financial system must be complemented by the hand-in-hand promotion of sound consumer protection and financial education frameworks.

The financial crisis triggered the demand for financial literacy programs as well as the need to develop more integrated and strategic approach aimed at broader access to financial services and awareness, improved financial literacy and better financial consumer protection. Many recent examples illustrate the new approach at global level, as well as in particular G20 countries. Let me highlight just a few:

1. Australia launched National Financial Literacy Strategy in 2011.
2. The United States recently created a new Consumer Financial Protection Bureau and launched Financial Literacy Strategy.
3. The Russian Government launched in 2011 a five-year nationwide program to support financial education and consumer protection. This program targets low income and vulnerable social groups as well as the country's youth. And it aims to provide individuals with the essential skills to improve their wellbeing and protect themselves, including understanding the importance of having a financial cushion for life emergency and crisis situations, the basics about retirement and the trade-off between risks and rewards in choosing financial products.

The Russian Government adopted a long-term strategy to strengthen the financial sector, which includes measures of extending services to a broad range of the population, and promoting consumer protection and financial literacy. We believe that improved financial literacy would provide a more favorable environment for increased savings, influence responsible financial behavior, and facilitate financial sector development, including reduction in non-performing loans, and increase in households' bank deposits, a more careful selection of financial institutions, and reduction in the number of unreliable or fraudulent financial intermediaries.

We realize that such changes are impossible to achieve within a short period, it requires more strategic and sustainable long-term approach for all of us. But we also need to keep momentum in fulfilling these priorities within the G20 framework. We believe there is a strong case for the development of better design and enforcement of evidence based public policies and strategies aimed at further financial empowerment and protection of population.

That is why Russia in its G20 Presidency role reaffirms the G20 commitments in this area. Given our previous experience and initiatives within the G8 and APEC, we are working on developing further a comprehensive - threefold - approach aimed at rebalancing and reinforcing the financial inclusion, financial literacy and financial consumer protection policies in order to support financial stability, inclusive development and people's wellbeing.

We are going to present to the G20 Leaders a set of deliverables in this area elaborated jointly with the World Bank, the OECD, the Global Partnership for Financial Inclusion and other partnering organizations. And some of these deliverables and practical approaches as well as countries experiences are the subject of these two day discussions. The goal of this conference is also to promote the practical tools for policy makers and financial education practitioners to make financial literacy strategies and programs more effective and efficient. And I am delighted that the Russia's Trust Fund on Financial Literacy accomplishments will be presented today. Many countries benefit from the Russia Trust Fund work and I would like to commend all the researchers and practitioners who worked on these accomplishments for the remarkable achievements of the Fund's work.

I hope this conference will be helpful for the whole G20 and non-G20 countries as well, in order to improve our efforts to support financial stability, inclusive development and people's wellbeing.

We certainly will use the results of this conference in the official G20 process. I have just said that we are currently discussing the Russian strategy on financial inclusion and financial education, and I hope that pretty soon we will be able to use some of the results of your discussion in the Russian context as well. We understand that fast development of the financial sector provides more and more challenges in this area. And I hope that in your work during this conference you will recognize these new challenges and address them in your recommendations.

That is where I would like to stop. Let me wish you fruitful discussion and every success in your very important work! Thank you.