In a move aimed at curbing the mis-selling of financial products, the Reserve Bank of India (RBI) has proposed banning incentives paid to bank staffers by third parties such as insurance companies and mutual fund houses for selling their products and services. It has also proposed that banks must ensure their user interfaces do not deploy “dark patterns” to lure customers. 

In the Draft Amendment Directions on the “Advertising, Marketing and Sales of Financial Products and Services by Regulated Entities”, issued on Monday, the regulator proposed that a bank shall not bundle the sale of any third-party product with any of its own products. Where the sale of a bank’s own product is contingent on the purchase of a third-party product, customers should be given the option to buy the product from any other provider. 

Banks would be required to refund the entire sum in cases where mis-selling has been established, and to compensate customers for any losses arising from mis-selling, in line with their approved policies. 

The RBI said banks must ensure that policies and practices, such as organising competitions among business units for the sale of products and services, neither create incentives for mis-selling nor encourage employees or direct sales agents to “push” products or services. 

“It shall be ensured specifically that no incentive is directly/indirectly received by the employees engaged in marketing/sales of third-party products/services from the third party,” the draft norms said.

The proposals could deal a significant blow to banks as well as insurance companies and mutual fund houses, which rely heavily on banks for distribution. Banks typically earn fees from distributing such products.

In November last year, Union Finance Minister Nirmala Sitharaman highlighted the need to retain public confidence in the country’s banking system while asking lenders to curb mis-selling. The RBI has also repeatedly flagged the issue, emphasising that banks should focus on their core activities.

The regulator’s draft norms further stated that a bank should not fund the purchase of a product or service — whether its own or a third party’s — from any loan facility sanctioned to a customer without that customer’s explicit consent. Customers may lodge complaints about mis-selling within 30 days of receiving the signed copy of the terms and conditions, where the relevant sector regulator has not specified a timeframe.

“A bank shall establish a mechanism to seek feedback from customers, within a period of 30 days from the sale of any product/service to ensure that customers have understood the features of product/service and also the risks associated with such product/service,” the circular said. Banks have been asked to prepare a half-yearly report on the findings of the feedback and utilised for review of existing policies and features of products or services.

The draft also sets out conduct norms for direct selling agents (DSAs). Telephonic contact and visits to customers should normally take place between 9 am and 6 pm, with any contact beyond those hours permitted only with customer consent. In addition, any agent of the bank or representative of a third party present on bank premises for sales must be clearly distinguishable from bank employees, including through visible “on person” identification.

Banks have been asked to assess the suitability and appropriateness of products for customers based on risk-return attributes, time horizon, complexity and fee structure, as well as customers’ age, income and financial literacy. “A bank shall not advertise/market any third-party product/service as its own,” the RBI proposed.

Banks have also been directed to devise a code of conduct for employees and DSAs, and to obtain undertakings from DSAs and direct marketing agents (DMAs) agreeing to abide by it. Penal provisions should apply in cases of violation.

It is proposed that banks ensure products and services, whether their own or third-party offerings, are sold only with customers’ explicit consent.

Highlighting the need to refrain from using dark patterns, the draft cited examples including creating false urgency, basket sneaking, confirm shaming and subscription traps, and instructed banks not to create such scenarios.