Circulars/Notifications - Banking Conduct & Consumer Protection Department  
  BC&CPD Circular No. 08 of 2021 August 25, 2021

The President / Chief Executive
All Banks/ MFBs/ DFIs

Dear Sir/ Madam,

Master Circular on Sale of Third Party Products

  1. Scope

    1. The provisions of this circular are applicable on bancassurance/ bancatakaful and other investment related third party products offered by banks/ MFBs/ DFIs hereinafter referred to as ‘banks’.

  2. Governance

    1. Banks should have a policy duly approved by their Board of Directors on the sale of third party products. The policy should cover various aspects including but not limited to the due diligence of the third party, the model for selling the third party products e.g. direct sale or referral sale model, the incentive structure for bank’s employees, risk mitigants, etc. Further, it should be ensured that the relevant policy on related party transactions and risk management framework covers the sale of third party products by the bank.

    2. The Islamic banks and conventional banks offering Islamic products are required to ensure that the sale of third party products is covered in the Shariah Governance Framework in line with the instructions issued by SBP and all agreements with the takaful company/ third party are vetted by the Shariah Board/ Shariah Advisor of the respective bank.

    3. The audit and compliance functions of the banks should ensure that the business of third party products is being conducted in accordance with the applicable SBP’s regulations and the Fair Treatment of Consumer (FTC) objectives of the bank.

    4. Banks offering third party products should establish a centralized and independent control function entrusted with the responsibility to verify the information filled in a sales proposal/ application forwarded by the sales staff. The control function should not have any incentive linked with the sales of these products.

    5. Banks should ensure that employees' code of conduct for the sale of third party products is in place. Appropriate disciplinary action should be taken in case of non-compliance with the code of conduct.

    6. The bank’s performance related to the sale of third party products especially bancassurance/ bancatakaful and investment products should be reviewed quarterly by a senior level management committee of the bank. The MIS presented to this committee must at least contain indicators of persistency, numbers of cancellations, alleged and proven mis-selling complaints, adverse internal audit observations and breaches from service level agreements. Besides, banks should conduct customer surveys and mystery shopping at least on an annual basis and include the same in reports submitted to the above committee.

  3. Suitability

    1. Banks are advised to conduct suitability analysis of the prospective customers before selling bancassurance/ bancatakaful and third party products. For the purpose, banks will develop suitability criteria approved by the competent authority, that should include at least the following parameters:

      a.  Age f.  Previous exposure to similar products
      b.  Gender g.  Net worth 
      c.  Education h.  Regular Financial Commitments
      d.  Marital Status i.  Purpose of Investment
      e.  Profession j.  State of health/Physical disability

      Before selling a product to any customer, the banks should determine the customerís capacity to take the risk based on the above factors and such other factors as the banks may like to add at their own discretion. The banks should ensure that the high-risk products or products offering return only in long run are not sold to customers who do not have the capacity to take this risk.

    2. Besides, banks should also ensure the followings:

      1. Keep the record of the suitability assessments conducted till one year after the maturity of the product.

      2. Requests for any change in product feature, premium amount, Ad hoc premium, accelerated payments, etc. will be approved at one level up from the initial approving authority ensuring that it commensurate with the suitability assessment of the customer.

      3. Requests for investments in third party products by senior citizens, widows, illiterate persons, special/ differently-abled persons and pensioners will be approved at least at the level of Regional Head ensuring the suitability of the product. The concerned Branch Manager will sign an undertaking that the products’ features and terms & conditions have been appropriately explained to such customer.

      4. Banks are encouraged to adopt an automated system for suitability assessments.

      5. Prudence should be observed in collecting and sharing customer information in order to ensure confidentiality.

  4. Disclosure

    1. While selling third party products, the banks should ensure that the customers are aware and have understood the associated risks. For Products linked with exposure to the equity market, an additional undertaking from the customer should be obtained regarding understanding risks for investment linked products in line with the Bancassurance Regulations issued by SECP.

    2. In addition to the requirements prescribed by SECP, the banks will continue using basic fact sheet elaborating at least the following facts:

      1. Two-liner definition of the product.
      2. Disclaimer of the bank stating that it is only working in the capacity of a distributor.
      3. Expected return mechanism in terms of investment and premium schedule in terms of bancassurance/ bancatakaful.
      4. Free look period in case of bancassurance/ bancatakaful.
      5. Premature encashment procedure and its repercussions like penalties, deductions, etc.
      6. Claim lodgment avenue, mode and mechanism.
      7. Redressal Mechanism in case of any grievance.
      8. Checklist of all the other documents signed or attached.

    3. The basic fact sheet should be a distinct-looking document including an undertaking by the customer that he/she understands all the stated terms and conditions of the product. This document, along with all the other documents, shall be given to the customer either in Urdu or English, as opted /selected by the customer. For products with no investment feature and an annual premium of up to Rs. 50,000 sold through alternate delivery channels, the basic fact sheet shall be shared electronically through the customer’s registered email and/or SMS. The consent thereon, in such instances, will be taken electronically.

  5. Call Back Confirmation

    1. Banks should institute a Call Back Confirmation (CBC) mechanism whereby the customer is contacted using a pre-defined script to confirm the information provided by the customer for suitability assessment and his/her understanding of the product. Banks will retain the record of such calls for at least 7 years or maturity of the product whichever is later. For products with no investment feature and annual premium up to Rs. 50,000, being sold through digital channels, the CBC may be conducted on at least a representative sample of 25%. If substantial issues of mis-selling are identified during CBC, the banks should consider enhancing the size of the sample. The CBC in all cases has to be conducted at least three days before the onset of the free look period by function/ staff not involved in sales of these products or not receiving any incentive from sales of third party products.

    2. Banks should suitably verify the identity of the customer during CBC to ensure that the call is received by the actual customer. The banks’ representative making the CBC must have adequate knowledge enabling him to respond to the possible queries of the customer. Banks must ensure that the negative CBCs or requests for cancellations received during CBC are properly marked in an integrated system enabling hassle-free exits for customers without any charges.

  6. Direct Debit

    1. The option of premium deduction through direct debit shall only be allowed on the written consent of the customer and the banks and/ or insurers shall send free SMS and/ or email alert to the customer regarding direct debit before 3 working days at the time of each periodic premium deduction. In the case of distribution through alternate delivery channels, the consent for deduction through direct debit shall be obtained electronically i.e. interactive SMS, option in internet banking, mobile application, etc. The customer giving electronic consent shall also be sent free SMS and/or email alert regarding each direct debit before 3 working days of the premium deduction.

  7. Incentives

    1. It should be ensured that persistency related incentive structures are in place promoting responsible sales or referrals from banks’ end. For this purpose, banks should use parameters like volumes sold, cancellations, persistency and proven complaints, etc. to assess the performance of related staff. The parameters on quantity and quality of sales should at least be equally weighted.

    2. No bank employee should be allowed to receive incentives directly from the third party/ seller of these products. Further, compliance with the instructions contained in BPRD Circular Letter No. 09 of 2017 regarding foreign travel policy should be complied in letter and spirit.

  8. Training

    1. In addition to the training requirements prescribed by SECP, the banks should train their relevant staff for their role and responsibilities with regard to the selling of third party products. The training module, inter alia, should also cover the employees’ code of conduct and possible disciplinary actions in case of mis-selling, fraud, etc.

  9. Claim handling

    1. The agreements between banks and insurance/ Takaful/ investment companies must explicitly cover the maximum Turn Around Times (TATs), preferably stringent from the regulatory requirements prescribed by SECP vide Corporate Insurance Agent Regulations, to dispose of the claim in a timely manner. Banks, in addition to assist their customer, in lodging claims, will also monitor and record breaches from agreed TATs in the processing of claims at the product provider’s end. Similarly, the banks should have the right to seek evidence based on the reason on which any claim is rejected.

  10. Complaint handling

    1. Banks must resolve complaints against these products expeditiously in line with regulatory requirements given under BC&CPD Circular No. 01 of 2016. Banks should take necessary steps to ensure ease in the lodgment of such complaints.

    2. All complaints relating to third party products lodged either with the bank or the product provider should be consolidated and reported to SBP in quarterly return on complaints required under BC&CPD Circular No. 01 of 2016. Besides, the banks should ensure that the frauds related to third party products are reported to SBP in the regulatory returns required under BPRD Circular Letter No.4 of 2020.

    3. Quarterly reviews/ root cause analysis of third party products in light of complaints lodged shall be carried out by the relevant function. Results of such analysis shall be incorporated in the MIS required to be shared with the senior management level committee as referred at paragraph 2.f above.

  11. Customer experience and feedback

    1. Banks should deploy specific tools like mystery shopping, customer surveys, customer testing and feedback from cancellation calls to capture customer experience and feedback. Such data shall be shared through pre-defined MIS as stipulated in paragraph 2.f above.

  12. Prohibitions

    1. Banks are prohibited from marketing and selling third party products with their name without mentioning explicitly that the product is being sold as an agent or distributor of a third party.

    2. Banks are prohibited from marketing and closing the sale of third party products on a single/ same call.

  13. Enforceability

    1. The instructions will be applicable from November 01, 2021 and will supersede previous instructions issued vide CPD Circular No.2 of 2012.

Yours truly,


(Asif Mahmood)

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