Last Updated on Thursday, 15 February, 2024 at 9:12 am by Andre Camilleri
Christopher P. Buttigieg & Sarah Pulis
One of the core functions of the MFSA is to ensure that licence holders act in a manner that ensures positive outcomes for their clients. In this context, MFSA considers that it is of utmost importance that licence holders provide correct and complete information about products and services to their clients before these actually purchase the financial product or service. Such timely disclosure of information would ensure that clients are in a good position to be able to decide which products or services to purchase.
The MFSA has chosen to participate in a mystery shopping exercise conducted by the European Banking Authority (EBA) and carried out during the first half of 2023, with a view to assess the practices of five local banks in their interaction with clients when these first approach the bank with an enquiry relating to personal loans and payment account products.
Mystery shopping is considered to be an effective supervisory tool as it enables financial supervisors like the MFSA to test what is actually happening on the ground when licence holders interact with their clients. This tool is often used by EU financial regulators across the EU as well as European Supervisory Authorities. The EBA, which is the European Authority responsible for the supervision of banks across the EU, has published the findings of this mystery shopping exercise in a report which can be accessed through their website.
The scope of this exercise was to determine the extent to which individuals are being provided with a good level of service when it comes to the presentation of the product portfolio on offer, their respective features, relative costs and any specific requirements which the client must satisfy, prior to applying for such banking products. In total a hundred interactions were conducted among five local banks, 80 of which were held through branch visits. The remaining were carried out through off-site engagements, namely the banks’ call centre agents, chat box and email correspondence.
The findings have revealed that, in general, banks are providing the necessary information to the clients at enquiry stage but not in a complete manner. The results suggest that the level of information and service provided differed from one branch to another, even within the same bank. It also transpired that, generally, client-facing staff were highlighting the salient features of their bank’s products without trying to cross-sell or bundle other products. This is a major positive finding which suggests that banks are avoiding practices that could lead to financial product mis-selling.
Nonetheless, there were instances when certain pre-contractual information, such as that relating to costs, was not provided immediately at enquiry stage but rather, later, when the client exhibited an increased interest in a particular product or when such client had already decided to proceed with the purchase of that product. In order to better safeguard clients’ interests, banks are expected to enhance their procedures to ensure more timely disclosure of information to clients.
Other processes, which require some fine-tuning, relate to the sharing of information about conditions which need to be satisfied by the client in order to be in a position to obtain a personal loan from a particular bank. Most banks would require clients to receive their salary within an account which they hold with the bank in order to be granted a personal loan. Accordingly, this requirement should be made clear to clients who are enquiring about the possibility of obtaining a loan from the bank in question so that the client may easily evaluate whether they are in a position to meet that condition by possibly making the necessary changes to their salary arrangements.
Moreover, it is not enough to merely indicate to the potential client the applicable rate of interest, term of loan and monthly repayment. All relevant pre-contractual information related to personal loans, including any applicable costs, is to be provided at early enquiry stage and in the required standardised format.
Another positive finding worth mentioning is the fact that the Fee Information Document (FID) provided to the mystery shoppers incorporated all the fees attached to a payment account. This is a document which banks are required to prepare in accordance with a standardised format and which highlights the fees to which the client would be subject to when opening and maintaining a payment account. These documents are also accessible through the banks’ websites for ease of reference. In 2022, the MFSA had carried out a Thematic Review on the completeness of the FID and had communicated its expectations to banks, who had consequently committed to effect the necessary amendments to their documents. It is encouraging to see that these efforts have contributed to this positive finding.
When selling payment accounts, banks are encouraged to present the array of payments accounts available, highlighting the different features and fees as stated in the FID, rather than making assumptions on the type of payment account which would suit the client. It is only when the client’s needs are identified that the type of payment account, matching the client’s requirements, is to be recommended.
Additionally, optional services linked to payment accounts are not always being highlighted to the clients at enquiry stage. This might hinder clients from being aware of the potential services they can use with the payment accounts under consideration.
The MFSA has carried out supervisory meetings with the banks which were subject to the mystery shopping exercise to highlight the results and further explain the authority’s expectations. A Dear CEO letter addressed to all banks providing services to retail clients was also circulated and published, highlighting the findings and the areas of improvement, a copy of which is also available on the MFSA’s website. The authority notes with satisfaction the level of commitment shown by the banks to come in line with its expectations, with the aim of enhancing the level of service to their clients.
In the coming months, the MFSA will be following up on the findings of this mystery shopping exercise to make sure that the recommendations and expectations highlighted are adopted by all banks offering payment accounts and personal loans. These steps are considered crucial in ensuring a greater level of consumer protection in the financial services sector, leading to greater confidence in the local financial market.
Christopher P. Buttigieg, is chief officer – Supervision and Sarah Pulis is head – Conduct Supervision Malta Financial Services Authority
