RBI proposes to ban third-party incentives to bank staff to cut mis-selling | Finance News

In a bid to curb mis-selling of financial products, the Reserve Bank of India (RBI) has proposed banning incentives paid by third parties, such as insurance companies or mutual fund institutions, to bank staff for the sale of their products and services. He also suggested that the bank should ensure that its user interfaces do not use any dark patterns to lure customers.

In the ‘Draft Amendment Order on Advertising, Marketing and Sale of Financial Products and Services by Supervised Entities’ published on Monday, it has been suggested that a bank shall not bundle the sale of any third-party products with its own products. If the sale of the bank’s own product is contingent on the purchase of a third-party product, the customer must be offered the option of purchasing the product from another company.

Banks are obliged to refund the entire amount if mis-selling is detected, and will compensate the customer for any losses incurred due to mis-selling in accordance with the bank-approved policy.

The regulator must ensure that a bank’s policies and practices, such as organizing competitions between business units for the sale of products and services, do not encourage mis-selling or encourage employees or direct sales agents to ‘push’ the sale of products or services.

In the draft norms, it was stated that “It will be specifically ensured that employees involved in the marketing or sales of third-party products or services do not receive any direct or indirect incentives from the third party.”

The proposed norms could be a major blow to both banks and insurance companies or mutual fund houses, which are heavily dependent on banks for distribution. Banks receive fees for distributing such products.

In November last year, Finance Minister Nirmala Sitharaman stressed the need to maintain public confidence in the country’s banking system, while calling on lenders to stop mis-selling. The banking regulator also highlighted the problem of mis-selling and stressed that banks should focus on their core activities.

The RBI also said that a bank should not finance the purchase of a product or service by a customer, whether its own or a third party’s, from any credit facility extended to the customer without his express consent. Customers may lodge a complaint against mis-selling within 30 days of receiving a signed copy of the terms and conditions, unless the industry regulator has set any time frame for such a complaint.

“To ensure that customers understand the features of the product or service as well as the risks associated with such product or service, a bank shall establish a mechanism to obtain feedback from customers within 30 days of the sale of any product or service,” the draft norms said. Banks were asked to prepare a semi-annual report on feedback findings and use this to review existing policies and features of products or services.

The draft also includes norms regarding the behavior of direct sales representatives. It has been suggested that telephone contact or customer visits should normally be between 09.00-18.00, and that such contacts can only be made beyond the specified time after receiving the customer’s approval. It was also proposed that, for the benefit of customers, any bank representative or representative of a third party present on bank premises for the sale of the bank’s own or third party product should be distinguishable from bank employees, including through clear ‘personal’ identification.

Before a product is marketed or sold, banks are asked to take into account risk-return characteristics, time horizon, complexity, fee structure, etc., taking into account the customer’s age, income and financial literacy. They were asked to determine the suitability and suitability of a product for the customer based on

“A bank will not advertise or market any third-party product or service as its own,” the bank said.

Banks have also been asked to develop a code of conduct for both employees and DSAs and obtain an undertaking from the DSAs or DMAs that they agree to abide by the code of conduct. If the rules are violated, a penal regulation should be introduced.

It is recommended that the bank ensure that its own or third-party products or services are sold to customers only with their express consent.

In the draft norms, which emphasize the need to avoid using dark patterns, creating false urgency for the customer, sneaky carts, confirmation shaming, subscription traps, etc. Examples of specific activities such as were given and banks were asked not to create such scenarios for customers.

The regulator has proposed that the norms come into force from July 1, 2026. Feedback on the draft can be submitted until March 4, 2026.