OECD / BDL Conference on Financial Education
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Transcript of OECD / BDL Conference on Financial Education
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OECD / BDL Conference on Financial EducationOECD / BDL Conference on Financial Education
The Role of Government & Central Bank The Role of Government & Central Bank in the Financial Education Processin the Financial Education Process
Dr Amine AwadExecutive Director, Lebanon’s Banking Control CommissionMember of the Higher Banking CouncilCoordinator of Basel II Implementation and Enhancement Task Force Beirut October 21st, 2010
Banque du Liban
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OutlineOutline
- IntroductionIntroduction
- The Supervisory Preventive Measures for The Supervisory Preventive Measures for
“ “Consumer Protection”Consumer Protection”
- An Example of Educational DocumentAn Example of Educational Document
“ “The Consumer’s Advocate” - BCC Guide toThe Consumer’s Advocate” - BCC Guide to
Mutual FundsMutual Funds
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IntroductionIntroductionU.SU.S..
On June 30, 2010, the U.S. House of Representatives passed On June 30, 2010, the U.S. House of Representatives passed the the “Dodd Frank Wall Street Reform and Consumer “Dodd Frank Wall Street Reform and Consumer Protection Act”.Protection Act”.
On July 15, 2010, the U.S. Senate passed this Act.On July 15, 2010, the U.S. Senate passed this Act.
In August 2010, President Obama signed this Act.In August 2010, President Obama signed this Act.
This legislation is a sweeping reaction to perceived This legislation is a sweeping reaction to perceived regulatory failings revealed by the most severe financial regulatory failings revealed by the most severe financial crisis since the Great Depression.crisis since the Great Depression.
The Legislation is intended to restructure significantly the The Legislation is intended to restructure significantly the regulatory framework of the U.S. Financial System.regulatory framework of the U.S. Financial System.
A significant portion of this Act is devoted to measures A significant portion of this Act is devoted to measures specifically intended to protect Consumers and Investors.specifically intended to protect Consumers and Investors.
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Introduction (Cont.)Introduction (Cont.)FranceFrance
- In France, the Governement put Mr Jacques Delmas – In France, the Governement put Mr Jacques Delmas – Marsalet in charge of making a survey on the marketing Marsalet in charge of making a survey on the marketing process of Financial Instruments (including Insurance process of Financial Instruments (including Insurance programs); he issued a report, which was adopted by the programs); he issued a report, which was adopted by the “ “Comité Consultatif du Secteur Financier – CCSF” in May Comité Consultatif du Secteur Financier – CCSF” in May 2006; this new regulation complement the previous regulation2006; this new regulation complement the previous regulation of April 2004.of April 2004.
-The report focus on the following major points:The report focus on the following major points: * Ensure more relevant information on Financial Products* Ensure more relevant information on Financial Products and Services (including: fees, risks, stress scenarios,…)and Services (including: fees, risks, stress scenarios,…) * Provide the right advice* Provide the right advice * Educate the “Financial Instruments” potential clients* Educate the “Financial Instruments” potential clients
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Introduction (Cont.)Introduction (Cont.)LebanonLebanon
In Lebanon, the B.D.L. published a regulation “Basic In Lebanon, the B.D.L. published a regulation “Basic Circular No 124”, on May 17, 2010 entitled:Circular No 124”, on May 17, 2010 entitled:
““Transparency in the Loan Processes”Transparency in the Loan Processes”
This circular concerns mainly the relationship between the This circular concerns mainly the relationship between the Retail Customers and their Banks or Financial Institutions.Retail Customers and their Banks or Financial Institutions.
The three parts of this new regulation cover:The three parts of this new regulation cover:
* * The general framework of the AdvertisementThe general framework of the Advertisement
* The legal framework of the Agreement * The legal framework of the Agreement
* The minimum information to be included in the Statement of * The minimum information to be included in the Statement of
accountaccount
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The Supervisory Preventive Measures for The Supervisory Preventive Measures for “Consumer Protection“Consumer Protection””
In addition to its role of supervision of the procedures and In addition to its role of supervision of the procedures and processes in Banks and Financial Institutions, (As per processes in Banks and Financial Institutions, (As per Article 26 of the BDL Circular), the Banking Control Article 26 of the BDL Circular), the Banking Control Commission (B.C.C.) is in the process of issuing a series of Commission (B.C.C.) is in the process of issuing a series of “Brochures”, each one related to a category of financial “Brochures”, each one related to a category of financial transactions, that help the Customers of Banks and F.I’s to transactions, that help the Customers of Banks and F.I’s to understand the risks underlying these operations, in order to understand the risks underlying these operations, in order to make the right choice, thus avoiding unnecessary losses and make the right choice, thus avoiding unnecessary losses and legal conflicts with their Bankers.legal conflicts with their Bankers.
These brochures, once validated, will be published (in the 3 These brochures, once validated, will be published (in the 3 languages: Arabic, French and English) and distributed languages: Arabic, French and English) and distributed complimentary at the counters of Banks and F.I.’scomplimentary at the counters of Banks and F.I.’s
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An Example of Educational DocumentAn Example of Educational Document
How to explain to the Customers of Banks and How to explain to the Customers of Banks and F.I.’s the risks underlying “Mutual Funds”.F.I.’s the risks underlying “Mutual Funds”.
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The Consumer’s AdvocateThe Consumer’s Advocate
Guide Guide
To To
Mutual FundsMutual Funds
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BCC Guide to Mutual FundsBCC Guide to Mutual Funds
What is a What is a
Mutual FundMutual Fund
??
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What is a Mutual FundWhat is a Mutual Fund??
A Mutual Fund is a company that pools money from A Mutual Fund is a company that pools money from investors and makes investment in cash and securities such investors and makes investment in cash and securities such as stocks and bonds. Investors who buy shares of a Mutual as stocks and bonds. Investors who buy shares of a Mutual Fund are shareholders. Their primary financial interest Fund are shareholders. Their primary financial interest would be “the return of investment” ( i.e. principal and would be “the return of investment” ( i.e. principal and return on investment) dividend and interest.return on investment) dividend and interest.Mutual Funds are usually divided into three types:Mutual Funds are usually divided into three types: * Stocks (Equity)* Stocks (Equity) * Bonds (Fixed Income)* Bonds (Fixed Income) * Money Market (Cash and Quasi – Cash Placements)* Money Market (Cash and Quasi – Cash Placements) * Hybrid Funds, that invest in both stocks and bonds * Hybrid Funds, that invest in both stocks and bonds (Balanced Funds). (Balanced Funds).
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BCC Guide to Mutual FundsBCC Guide to Mutual Funds
Why invest in Mutual Funds?Why invest in Mutual Funds?
DiversificationDiversification
Professional ManagementProfessional Management
VarietyVariety
LiquidityLiquidity
Low FeesLow Fees
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BCC Guide to Mutual FundsBCC Guide to Mutual Funds
What are the different types of Mutual Funds?What are the different types of Mutual Funds?
Balanced Funds
Equity FundsMoney Market Funds
Guaranteed or Protected Funds
Bond Funds
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BCC Guide to Mutual FundsBCC Guide to Mutual Funds
Who should invest inWho should invest in
Mutual Funds?Mutual Funds?
Almost everybody can, but you should know the Almost everybody can, but you should know the answers to some key questions to decide in which answers to some key questions to decide in which category of category of Risk / Return Risk / Return you fit you fit
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Who should invest in Mutual FundsWho should invest in Mutual Funds??
Almost everybody can, but you should know the Almost everybody can, but you should know the answers to some key questions to decide in which answers to some key questions to decide in which category you fit:category you fit:
1- 1- What type of investor you are?What type of investor you are? A- ConsumerA- Consumer B- InvestorB- Investor C- Sophisticated InvestorC- Sophisticated Investor
2- 2- What is your risk tolerance or appetite?What is your risk tolerance or appetite? A- LowA- Low B- ModerateB- Moderate C- HighC- High
3- 3- Are you ready to accept loss?Are you ready to accept loss? A- NoA- No B- SlightlyB- Slightly C- YesC- Yes
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Who should invest in Mutual Funds? (Cont.)Who should invest in Mutual Funds? (Cont.)
4- 4- Do you borrow to invest?Do you borrow to invest? A- NoA- No B- MaybeB- Maybe C- YesC- Yes5- 5- What is your income level?What is your income level? A- LowA- Low B- ModerateB- Moderate C- HighC- High6- 6- What is your personal status?What is your personal status? A- >4 dependentsA- >4 dependents B- Up to 4 dependentsB- Up to 4 dependents C- SingleC- Single 7- 7- How old are you?How old are you? A- >50 YearsA- >50 Years B-35 – 50 YearsB-35 – 50 Years C- <35 YearsC- <35 Years8- 8- Do you believe in luck?Do you believe in luck? A- NeverA- Never B- SometimesB- Sometimes C- AlwaysC- Alwaysetc…etc…Give 1 point to answer “A” , 2 points to answer “B” and 3 points to Give 1 point to answer “A” , 2 points to answer “B” and 3 points to answer “C”.answer “C”.
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Who should invest in Mutual Funds? (Cont.)Who should invest in Mutual Funds? (Cont.)
* * ResultsResults: To which category of Risk/Return you belong?: To which category of Risk/Return you belong?
PointsPointsLess than 12Less than 1213 to 1713 to 17More than 18More than 18
Risk / ReturnRisk / ReturnLowLowModerateModerateHighHigh
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Money Market Funds
Balanced Funds
AggressiveGrowth StockFunds
Short & Intermediate-term
Bond
Long-term Bond Funds
Growth & Income Stock
Growth Stock Funds
Max. Current Income &
Protection of Capital
High Current Income
Current Income &
Capital Growth
Max. Capital Growth
Capital Growth
High Capital Growth
Objectives
Risk/Return
Very Low
Low
Moderate to Low
Moderate to High
High
Very High
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BCC Guide to Mutual FundsBCC Guide to Mutual Funds
What information you should consult?What information you should consult?
The Prospectus is the most valuable document The Prospectus is the most valuable document that contains among other information the that contains among other information the followings:followings:
Investment StrategyPast Performance
Investment ObjectiveFees & Expenses
Risk & Reward
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BCC Guide to Mutual FundsBCC Guide to Mutual Funds
Protect YourselfProtect Yourself
Do…Do… Check for yourself that the fund is licensed Check for yourself that the fund is licensed
by the Regulator (B.D.L.)by the Regulator (B.D.L.) Ask as many questions as you want so you Ask as many questions as you want so you
are satisfied, are satisfied, it’s your money!it’s your money! Make sure you will know which fund is Make sure you will know which fund is
right for youright for you Read carefully the ProspectusRead carefully the Prospectus
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BCC Guide to Mutual FundsBCC Guide to Mutual Funds
Protect YourselfProtect Yourself
DON’…TDON’…T Sign any document before you have read it. Sign any document before you have read it.
Remember, Style was never a Substitute for Remember, Style was never a Substitute for Substance, so read it carefullySubstance, so read it carefully
Confuse information with advice.Confuse information with advice.
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BCC Guide to Mutual FundsBCC 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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2222E – Mail: E – Mail: [email protected]@bccl.gov.lb