India, July 10 -- It has taken more than 20 years of bank branches mis-selling financial products to depositors for the central bank to give some teeth (though clearly not enough) to the regulations to counter this. Meanwhile, several thousand crores of rupees have been lost to mis-selling, unsuitable sales, and open cheating. This has destroyed lives, retirement corpuses, and families. The Reserve Bank of India (All India Financial Institutions - Responsible Business Conduct) Second Amendment Directions, 2026 - released on June 15 and set to be implemented from January 1, 2027 - are aimed in the right direction but may prove far from effective on the ground. Bank-branches have tasted blood, and the amended rules - clearly another candidate for classification as tick-box regulations - will do nothing to keep them off depositors. When mis-selling practices reach vulnerable, first-time financialised Indians in the villages, a return to land and gold as investment options is inevitable. Briefly, the June 15 regulations direct banks to ensure three things to curb mis-selling. One, dark patterns are not to be used in the interface with consumers. Two, sales of the branch's own products (credit cards, home loans) and third-party products such as mutual funds and insurance must pass the "suitability" test. Selling life insurance to an 80-year-old or a small cap mutual fund to a first-time, risk-averse investor are both instances of unsuitable sales. Three, consumers should not be mis-sold products. Sales that are based on incomplete or misleading information and/or compulsory bundling are defined as "mis-selling". What deterrents do the rules have for the bank-branches? Not many. The regulations mandate a return of the amount invested if mis-selling is established. There is no provision for even a multiple of the amount invested, which would have been punitive in effect; just the refund. The complaint-process remains clunky and difficult. While more than 50% of sales see complaints made at the point-of-sale, a John Goodman paper says that less than 5% of the people affected will escalate it to a local manager or the corporate headquarter. They absorb the loss and move on. Unless there is an app-based, easy-to-use mechanism to flag mis-selling, unsuitable sales, and poor disclosure, the efficacy of the amended regulation will be cosmetic. In the absence of a large punitive cost to the bank and a threat to senior management and the board, these regulations will remain on paper. A regulatory tick-box will make these regulations ineffective as banks' large legal teams find workarounds. What do we need to end mis-selling? Meaningful disclosures would be great first step. Regulators need to specify the disclosure format for product features, including costs of entry, risk, lock-in duration, cost of early exit and expected actual returns in a manner that is digestible for the consumer. Forexample, indicating return in relation to an amount different from the sum invested is an insurance industrypractice that involves both dark pattern and mis-selling wires on which customers could trip. Elementary finance makes return a function of investment. But the Indian life insurance industry illustrates returns as the sum assured (the guaranteed payback in case of death or at maturity) rather than that of the amount invested. If the intent is really to inform consumers - further to the disclosures that a simple AI tool can already make - here are three concrete steps that might improve outcomes. One, introduce commission caps. The Securities and Exchange Board of India has already done this for mutual funds. The Insurance Regulatory and Development Authority of India needs to do this for insurance - both life and health - where sales commissions remain high. Finance 101 promotes use of incentives to drive behavioural changes. Using trail commissions rather than a large upfront prize has shown impressive results in the mutual fund industry, in terms of growth and consumer adoption. Why this cannot be done for the insurance industry remains a mystery. Very high upfront incentives in life insurance has contaminated markets, ethics, and behaviour. Two, introduce mystery shopping. The UAE government uses mystery shopping - undercover agents posing as consumers - to evaluate government services. For the financial sector, third-party firms conduct checks to catch mis-selling and financial misconduct. Mystery shopping exercises can be set up using finance labs run bybusiness schools or even the IITs. Economist Renuka Sane and I ran such an exercise that showed shocking levels of misinformation given out by 200 bank-branches in Delhi. This is documented in the 2017 peer-reviewed paper titled "Misled and mis-sold: financialmisbehaviour in retail banks?". We found that 100% of all disclosures made about costs were incorrect in life insurance; this was 85% for the mutual-funds space. Ninety-nine percent of the return indicators were incorrect in life insurance and 86% in mutual funds. An update exercise would go far in nailing the extent of problem today. Three, we need real penalties that hurt rather than the mere return of money lost by the consumer who fell prey to mis-selling. Just refunds, and that too only to those who can prove mis-selling, offers no incentive to the banks to clean up their sales processes. The UAE uses a mix of well-articulated rules, steep fines and suspension of licences for violations of rules on mis-selling. HDFC Bank was held liable for mis-selling AT1 Bonds to its clients by Dubai International Financial Centre and the bank's DIFC branch was banned from onboarding new clients or starting new businesses in 2025. The fallout was felt here in India where an internal probe resulted in the termination of three senior executives and disciplinary penalties for 12 others. When was the last time we heard of such action being taken in India, for similar mis-selling of AT1 bonds (and other products)? What happens now? RBI has lobbed the ball to Sebi and IRDAI for suitability rules on the products they regulate. This is an opportunity for the two regulators to act together in the interest of the consumer and put in place deeply prescriptive micro regulations on suitable sales. But a compliance-audit regulatory structure that the RBI suggests, which allows each bank to form its ownversion of suitability and disclosurewith no penalties listed in the newregulation, has banks smirking inprivate. Banks already refund noisycustomers or those who are well-connected. Acknowledging that merely getting a customer to sign a formdoes not constitute explicit consent is a step forward by RBI. But unless theregulations get more teeth, January 1, 2027, will not usher in any big changein consumer protection. We shouldbe ready for gold and real estate featuring in greater numbers in the portfolios in the coming years....