Primer on Suitability for Consumer Data Use and Product Design

Internationally, suitability or appropriateness in finance is conceptualized as "the degree to which the product or service offered by the intermediary matches the retail client's financial situation, investment objectives, level of risk tolerance, financial need, knowledge and experience" (Basel Committee on Banking Supervision, 2008). A suitability-based approach to financial services provision places obligations on providers to make assessments of whether a product is suitable prior to the sale to a consumer. The effort is to move away from the current approach that places the burden solely on consumers to make complex financial choices. In India, financial sector regulators have supported the need to emphasize on suitability to varying extents. The Reserve Bank of India, for instance, upholds the consumers' right to suitability in its Charter of Customer Rights. However, practitioners have often asserted that suitability is challenging to implement in practice because of the costs of granular suitability assessments and the absence of the detailed consumer information needed for them. With the growing use of personal information and analytics in provision of financial services, that challenge appears solvable — unlocking the potential for providers to undertake suitability assessments when selling or designing financial products. These new techniques however raise a new set of issues for consideration. First, the inappropriate use of personal information may itself create new harms for consumers. This raises questions about the boundaries of appropriate data use by all stakeholders in this new digital environment. Second, suitability frameworks may need to be updated for a new world where users can interact with integrated platforms as their “front-end” to finance. Such integrated front-ends allow various product features to be brought together by multiple providers. This begs the question of whether suitability frameworks evolved for a more analogue financial landscape need to be updated for digital financial services. These and related concerns re-open many questions on the need for new suitability frameworks for providers and regulators operating in the data-driven environment of modern digital finance