The Central Bank of the UAE has stepped up action against banks following complaints of mis-selling on consumer and investment products, a senior executive at the institution said on Tuesday,
Nariman Alawadhi, chief manager at the Central Bank, said that 100 clients have had money returned to them by banks thanks to the institution's clampdown.
"We get a lot of complaints about investment products. The consumer is ignorant and does not know much; at the same time the bank is not clear and does not tell you if this product is good for you or not," she told delegates at a business platform on financial literacyamong the nation's youth, hosted by the Emirates Foundation.
Ms Alawadhi revealed that the Central Bank set up a separate consumer protection division four months ago to tackle complaints directly; previously, she said this was run on an ad hoc basis and was part of the banking supervision department.
"That’s a big signal to the banks that we are taking consumer protection seriously,” she said, adding that the new department is reviewing many financial products including credit cards.
Ms Alawadhi said financial institutions are now more responsive to consumer complaints than they have been in the past.
She cited one unnamed bank, which has asked the Central Bank not to stop forwarding complaints, instead allowing them two days to resolve them.
“So they are listening and now many CEOs are taking it seriously,” she added.
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In May, the Central Bank issued a circular advising banks and finance companies to resolve all outstanding mis-selling complaints “amicably” and within a deadline of just 90 days.
It issued the circular in response to “an increasing number of complaints in relation to the savings and investment insurance/takaful products”. The mis-selling complaints all have a common theme, with customers sold policies that are “complex in nature and are not well understood”, according to the circular.
The Central Bank’s focus on consumer protection harks back to 2011, when the institution experienced a high number of complaints as UAE residents struggled with overindebtedness.
“The complaints increased and many were in financial difficulties; it was not only complaints but requests for help. They were over burdened with debt - their installments were 100 per cent of their salaries,” she said.
"The common theme with everyone in financial difficulty is ignorance; we have doctors that come to us, engineers ... but when it comes to financial literacy they do not know how to handle a cheque book or what they were paying on credit cards.”
The Central Bank tackled this by introducing new regulations around lending in 2011.
Limits were applied to personal and car loans, with caps for the amount banks can lend to customers at 20 times their salary and the maximum period of loan repayment at 48 months. In addition, the rules restricted the service fees lenders can charge for personal accounts, cheques and debit cards.
The roll out of the Al Etihad Credit Bureau's services in 2014 helped to prevent indebtedness further, however, Ms Alawadhi said the awareness is still not there.
“The Credit Bureau is an independent body and they work closely with us, however, people still don’t know what the credit bureau is.”
She called for a national strategy on financial awareness to help residents make more informed decisions.
Clare Woodcraft Scott, the chief executive of the EF and the host of the business platform, said the independent philanthropic organisation, would support such an initiative.
However, she said EF’s Esref Sah Programme, which has been running for five years to increase awareness and access to effective financial education for the nation’s youth, has struggled to get banks to support their campaign.
“Until today only two banks have engaged with us on our financial literacy programme and even then somewhat reluctantly and not in any long term systemic fashion,” she said.
"We see the banks as our partners and we are here to improve the quality of their underlying assets and to improve the quality of their engagement with their clients. Once I was accused of putting all the blame on the banks – we are trying to make the general public realise that is their responsibility."
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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