- The Consumer Council (the Council) is pleased to submit views to the Hong Kong Deposit Protection Board (the Board) regarding the consultation on the second phase of the review of the Deposit Protection Scheme (DPS).
THE COUNCIL’S RESPONSE
- The Council is pleased to see that the Board has made specific recommendations in the second phase of the review to address the Council’s previous comments concerning the protection status of structured deposits and the representation arrangements for protected deposits.
- The following lists the Council’s response to the recommendations raised in the consultation paper for consideration of the Board.
A) Simplifying the process for determining compensation
Determination of accrued interests and valuation of annuities and future and contingent liabilities
- In light that depositors are expected to benefit from the proposed “best rate” approach which would speed up the payout process and that compensation entitlements would not be jeopardized, the Council supports the recommendation of incorporating flexibility in the compensation determination process to give the Board the power to determine the amount of accrued interest by approximation.
- It is noted from the consultation paper that, unlike the estimation of accrued interest, the Board will tilt to the conservative side in estimating value of annuities, future and contingent liabilities which can significantly affect the amounts deductible from protected deposits of depositors, and hence their compensation entitlements.
- The Council understands that enhancing payout efficiency is one of the key determinants to the effectiveness of the DPS. But adopting a conservative approach may affect a depositor’s compensation entitlement if there is any overestimation of the depositor’s liabilities by the Board. The Council is of the view that the Board should ensure that there is effective communication to depositors and the public of the application of the approximation approach and depositors are aware of the appeal mechanism available for reviewing the Board’s assessment.
Amount of interim payment
- With regard to the recommendation of applying differential treatment to depositors in making interim payments, the Council considers that clear explanation with details of the payout process, such as the rationale for applying differential treatment and the criteria used in setting the amount of payment for each class of depositors, should be made known to the public to avoid any misconception of unfair treatment or refusal to receive interim payment. Any misconception about propriety of the payout process can erode the credibility of the DPS.
B) Strengthening the representation regime
Disclosures for protected and non-protected deposits
- The Council is pleased to note that the Board has taken on board the Council’s repeatedly calls for introducing positive disclosures by formalising the positive representation regime under the DPS. On the whole, the Council supports the proposed recommendations to strengthen the disclosure requirements for both non-protected and protected deposits.
Prominence of the disclosure statements
- Apart from imposing a minimum standard on the font size for both positive and negative disclosures made in relation to the DPS as proposed in the consultation paper, the Council suggests that the disclosures should be written in simple and easily understood language and be highlighted and printed on the cover page (or in the key summary box/key facts statement if available) of the product documentation to ensure depositors’ attention is drawn to the disclosure statements quickly and effectively. The Council considers that the protection status of a financial product is an important piece of information to depositors so it warrants special attention.
Structured deposits
- For the first phase of the review, the Council expressed concern that some banks’ structured deposits rendered the protection status of the products ambiguous and that can create confusion to the public. The Council is glad to see that the Board has taken into consideration the Council’s comments in proposing a prohibition against banks calling any new financial products “structured deposit” if such products do not meet the definition of “structured deposit” under the Deposit Protection Scheme Ordinance.
- For clarity of the protection status of financial products in general, the Council reiterates its view that the Board should advise banks to be more cautious in the use of the term “deposit’ in naming and marketing their financial products, to put to prevent any confusion that consumers may have with regard to the protection status of the products concerned.
Consumer Council
October 2009
