RBI Introduces Comprehensive Framework for Ethical Marketing and Sales Practices by All India Financial Institutions

The Reserve Bank of India has released the Draft Reserve Bank of India (All India Financial Institutions – Responsible Business Conduct) Amendment Directions, 2026, exercising powers under Section 45L of the RBI Act, 1934. These directions are scheduled to become operational from July 1, 2026, and establish an extensive regulatory structure governing how All India Financial Institutions (AIFIs) conduct their advertising, marketing, and distribution activities for financial products.

Overview of the Regulatory Framework

The amended directions represent a significant step toward customer protection and transparency in financial services distribution. The regulatory framework addresses growing concerns about unethical sales practices, deceptive marketing tactics, and inadequate customer safeguards in the financial sector. By establishing clear guidelines, the Reserve Bank aims to ensure that AIFIs maintain high standards of conduct when offering both proprietary and third-party financial products to their customers.

The directions were issued vide Reference No. DOR.MCS.REC.No./01-01-040/2025-26 dated February 11, 2026, and form part of the Reserve Bank's broader initiative to promote responsible business conduct among regulated entities.

Essential Definitions and Terminology

Understanding Compulsory Bundling

The regulatory framework defines compulsory bundling as any practice where an AIFI conditions the provision of one product or service upon the customer's purchase of another offering, whether proprietary or from a third party. However, the regulations carve out important exceptions. Package offerings based on the customer's voluntary agreement or complimentary services provided without additional direct or indirect costs do not fall within this restrictive definition.

Interpretation of Mis-selling

The directions provide a comprehensive definition of mis-selling, identifying it as the sale of financial offerings, whether proprietary or third-party, in several specific circumstances. These include situations where products are unsuitable or inappropriate given the customer's profile, even with explicit consent; instances involving incomplete, incorrect, or misleading information; sales conducted without obtaining explicit customer consent; forced bundling of unwanted products with requested services; and any other practices that the relevant financial sector regulator characterizes as mis-selling.

Explicit consent is characterized as a specific, informed, and unambiguous indication of an individual's choice or preference. Such consent must be provided through a clear statement or affirmative action that demonstrates agreement to a particular action or arrangement with an AIFI. The institution bears responsibility for properly recording and documenting such consent.

Dark Pattern Explained

Dark patterns are defined as deceptive design practices utilizing user interface or user experience elements on any platform. These practices are engineered to mislead or manipulate users into actions they did not originally intend or desire, thereby undermining consumer autonomy, decision-making capacity, or choice. Such practices may constitute misleading advertising, unfair trade practices, or violations of consumer rights.

Direct Selling Agents and Direct Marketing Agents

DSAs and DMAs refer to agents or agencies that AIFIs engage for selling or marketing either their own products or third-party offerings. These intermediaries play a crucial role in product distribution but require proper oversight and regulation.

Third-Party Financial Products and Services

These are products or services that an AIFI offers to customers on behalf of another entity following the establishment of agency business, referral arrangements, or similar contractual relationships with the third party.

Policy Requirements for AIFIs

Comprehensive Policy Framework

Every AIFI must establish a detailed policy covering the advertising, marketing, and sales of both proprietary and third-party financial products. This policy framework must address multiple critical aspects, including the criteria for determining product suitability and appropriateness for different customer segments, mechanisms for collecting customer feedback, procedures for compensating customers in situations where mis-selling has occurred, and other relevant matters.

Special Requirements for Institutions Using DSAs/DMAs

Financial institutions that utilize the services of DSAs or DMAs must incorporate additional elements into their policy frameworks. These include eligibility criteria for agent selection, due diligence procedures for both pre-engagement and post-engagement phases, comprehensive training programs, clear delineation of permissible functions and activities, performance evaluation standards, inspection and audit protocols, control mechanisms ensuring statutory compliance, and procedures for addressing non-compliance along with applicable penal measures.

Regulatory Framework for Agent Engagement

Maintenance of Agent Registers

AIFIs employing DSAs or DMAs must maintain current registers listing all empaneled or engaged agents. These registers should include agent names, relevant details, engagement periods, and other pertinent information. Furthermore, an updated roster of such agents must be prominently displayed on the institution's website for public reference and transparency.

Qualification and Certification Requirements

Financial institutions must verify that their employees and engaged agents involved in selling proprietary or third-party products possess all necessary qualifications or certifications mandated by respective sectoral regulators. This requirement ensures that only competent individuals participate in product distribution activities.

Identification Requirements Within Premises

For customer protection, any agent of the AIFI or representative of a third party present within the institution's premises for selling products or services must be clearly distinguishable from regular employees. This includes mandatory 'on-person' identification that customers can easily recognize.

Code of Conduct Implementation

Based on the directions, each AIFI must formulate a Code of Conduct governing the marketing and sales of financial products. This code applies equally to the institution's own employees and to DSAs/DMAs. Before assigning any marketing or sales responsibilities, the AIFI must obtain written undertakings from agents confirming their agreement to abide by the Code of Conduct. The contractual agreement between the institution and agents must specify penal and disciplinary actions applicable in cases of code violations.

AIFIs must ensure that all products and services, whether proprietary or third-party, are offered or sold exclusively with explicit customer consent. Critically, when obtaining consent, the institution cannot club together consents for multiple products, services, or purposes. Each consent must be obtained individually and separately.

The process flow for obtaining consent through any digital user interface must be designed such that users cannot grant consent without reviewing applicable terms and conditions. This design requirement prevents inadvertent or uninformed consent.

Suitability and Appropriateness Assessment

Before marketing or selling any financial product to a specific customer, the AIFI must conduct a suitability and appropriateness assessment. This evaluation must analyze the product's features, risk-return characteristics, time horizon, complexity, and fee structure against the customer's age, income level, financial literacy, risk tolerance, and other relevant factors.