Banque du Liban
OECD / BDL Conference on Financial Education
The Role of Government & Central Bank
in the Financial Education Process
Dr Amine Awad
Executive Director, Lebanon’s Banking Control Commission
Member of the Higher Banking Council
Coordinator of Basel II Implementation and Enhancement Task Force
Beirut October 21st, 2010
Outline
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Introduction
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The Supervisory Preventive Measures for
“Consumer Protection”
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An Example of Educational Document
“The Consumer’s Advocate” - BCC Guide to
Mutual Funds
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Introduction
U.S.
On June 30, 2010, the U.S. House of Representatives passed
the “Dodd Frank Wall Street Reform and Consumer
Protection Act”.
On July 15, 2010, the U.S. Senate passed this Act.
In August 2010, President Obama signed this Act.
This legislation is a sweeping reaction to perceived
regulatory failings revealed by the most severe financial
crisis since the Great Depression.
The Legislation is intended to restructure significantly the
regulatory framework of the U.S. Financial System.
A significant portion of this Act is devoted to measures
specifically intended to protect Consumers and Investors. 3
Introduction (Cont.)
France
-
-
In France, the Governement put Mr Jacques Delmas –
Marsalet in charge of making a survey on the marketing
process of Financial Instruments (including Insurance
programs); he issued a report, which was adopted by the
“Comité Consultatif du Secteur Financier – CCSF” in May
2006; this new regulation complement the previous regulation
of April 2004.
The report focus on the following major points:
* Ensure more relevant information on Financial Products
and Services (including: fees, risks, stress scenarios,…)
* Provide the right advice
* Educate the “Financial Instruments” potential clients 4
Introduction (Cont.)
Lebanon
In Lebanon, the B.D.L. published a regulation “Basic
Circular No 124”, on May 17, 2010 entitled:
“Transparency in the Loan Processes”
This circular concerns mainly the relationship between the
Retail Customers and their Banks or Financial Institutions.
The three parts of this new regulation cover:
* The general framework of the Advertisement
* The legal framework of the Agreement
* The minimum information to be included in the Statement of
account
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The Supervisory Preventive Measures for
“Consumer Protection”
In addition to its role of supervision of the procedures and
processes in Banks and Financial Institutions, (As per
Article 26 of the BDL Circular), the Banking Control
Commission (B.C.C.) is in the process of issuing a series of
“Brochures”, each one related to a category of financial
transactions, that help the Customers of Banks and F.I’s to
understand the risks underlying these operations, in order to
make the right choice, thus avoiding unnecessary losses and
legal conflicts with their Bankers.
These brochures, once validated, will be published (in the 3
languages: Arabic, French and English) and distributed
complimentary at the counters of Banks and F.I.’s
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An Example of Educational Document
How to explain to the Customers of Banks and
F.I.’s the risks underlying “Mutual Funds”.
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The Consumer’s Advocate
Guide
To
Mutual Funds
8
BCC Guide to Mutual Funds
What is a
Mutual Fund
?
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What is a Mutual Fund?
A Mutual Fund is a company that pools money from
investors and makes investment in cash and securities such
as stocks and bonds. Investors who buy shares of a Mutual
Fund are shareholders. Their primary financial interest
would be “the return of investment” ( i.e. principal and
return on investment) dividend and interest.
Mutual Funds are usually divided into three types:
* Stocks (Equity)
* Bonds (Fixed Income)
* Money Market (Cash and Quasi – Cash Placements)
* Hybrid Funds, that invest in both stocks and bonds
(Balanced Funds).
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BCC Guide to Mutual Funds
Why invest in Mutual Funds?
Diversification
Professional Management
Variety
Liquidity
Low Fees
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BCC Guide to Mutual Funds
What are the different types of Mutual Funds?
Equity Funds
Money Market Funds
Bond Funds
Balanced Funds
Guaranteed or Protected Funds
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BCC Guide to Mutual Funds
Who should invest in
Mutual Funds?
Almost everybody can, but you should know the
answers to some key questions to decide in which
category of Risk / Return you fit
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Who should invest in Mutual Funds?
Almost everybody can, but you should know the
answers to some key questions to decide in which
category you fit:
1- What type of investor you are?
A- Consumer
B- Investor
C- Sophisticated Investor
2- What is your risk tolerance or appetite?
A- Low
B- Moderate
C- High
3- Are you ready to accept loss?
A- No
B- Slightly
C- Yes
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Who should invest in Mutual Funds? (Cont.)
4- Do you borrow to invest?
A- No
B- Maybe
C- Yes
5- What is your income level?
A- Low
B- Moderate
C- High
6- What is your personal status?
A- >4 dependents
B- Up to 4 dependents
C- Single
7- How old are you?
A- >50 Years
B-35 – 50 Years
C- <35 Years
8- Do you believe in luck?
A- Never
B- Sometimes
C- Always
etc…
Give 1 point to answer “A” , 2 points to answer “B” and 3 points to
answer “C”.
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Who should invest in Mutual Funds? (Cont.)
* Results: To which category of Risk/Return you belong?
Points
Risk / Return
Less than 12
Low
13 to 17
Moderate
More than 18
High
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Risk/Return
Very
High
Aggressive
Growth
Stock
Funds
High
Growth Stock
Funds
Growth &
Income Stock
Moderate
to High
Balanced
Funds
Moderate
to Low
Long-term
Bond Funds
Short &
Intermediate-term
Low
Bond
Money
Market
Funds
Very
Low
Objectives
Max. Current
Income &
Protection of
Capital
High
Current
Income
Current
Income &
Capital
Growth
Capital
Growth
High
Capital
Growth
Max.
Capital
Growth
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BCC Guide to Mutual Funds
What information you should consult?
The Prospectus is the most valuable document that
contains among other information the followings:
Investment Objective
Fees & Expenses
Investment Strategy
Past Performance
Risk & Reward
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BCC Guide to Mutual Funds
Protect Yourself
Do…
Check for yourself that the fund is licensed
by the Regulator (B.D.L.)
Ask as many questions as you want so you
are satisfied, it’s your money!
Make sure you will know which fund is
right for you
Read carefully the Prospectus
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BCC Guide to Mutual Funds
Protect Yourself
DON’…T
Sign any document before you have read it.
Remember, Style was never a Substitute for
Substance, so read it carefully
Confuse information with advice.
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BCC Guide to Mutual Funds
The Banking Control Commission requires Banks and
Financial Institutions (F.I.’s) to provide the public with all
available information needed in order to judge the best
investment that suit each one of them.
The regulation require Banks and F.I.’s to be Honest,
Competent and Financially Sound.
The BCC does not guarantee or recommend any fund, firm
or advisor or tell you whether a particular investment is
right for you.
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E – Mail: amawad@bccl.gov.lb
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