When it comes to buying and selling of financial products, the principle governing the transaction should shift from “let the buyer beware” to “let the seller beware”, said a senior Reserve Bank of India official.

According to Deepali Pant Joshi, Executive Director, RBI, once the caveat venditor (let the seller beware) principle is ushered in, it will force the seller to take responsibility for the product and discourage the seller from purveying products of inferior quality.

The “let the seller beware” principle vests the burden of proving that shortcoming/ deficiency in service was absent from the seller’s side. “We need to enshrine these principles in a Customer’s Charter of Rights and Duties banks have towards their customers,” said Joshi at the annual conference of Principal Code Compliance Officers of Banks.

The Nachiket Mor Committee on Comprehensive Financial Services for Small Businesses and Low Income Households pointed outthat “When the fact is considered that imbalances in information, expertise, and power between the buyer and the seller of financial products will only be exacerbated in the future, then it becomes clear that existing approaches to customer protection have severe limitations.”

The caveat emptor (let the buyer beware) principle has led to fundamental flaws in India’s customer protection architecture and has created large welfare losses for customers. “There is a need to move to a customer protection regime where the provider is held accountable for the service to the buyer, by ascertaining that the products sold or the advice given is suitable for the buyer considering his/her needs and current financial situation, i.e. the customer must have a Right to Suitability,” said the Committee.

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