Banco de Portugal publishes the 2019 Banking Conduct Supervision Report

The Banco de Portugal publishes today the Banking Conduct Supervision Report for 2019. The report describes the work carried out by the Bank in its supervision of retail banking markets.

The report begins by presenting the main challenges of digital transformation when marketing banking products and services and by assessing the Bank’s work in this respect. The report then describes the supervision of institutions and credit intermediaries carried out in 2019, providing detailed information on the subjects analysed and the cases of non-compliance identified, as well as on financial information and training initiatives for bank customers.

Banking conduct supervision in 2019

The challenges brought about by technological innovation are many and varied. The Banco de Portugal is monitoring the rapid development of the financial sector, adapting its supervisory work to these new demands and promoting digital financial education, so that customers are equally protected, regardless of the channel used to offer banking products and services.

The Banco de Portugal has acted to ensure innovation takes place without jeopardising the rights of bank customers. Since 2016, the Bank has conducted surveys of financial institutions on developments in the supply and demand for digital financial products and services. In 2017 the Bank allowed deposit accounts to be opened totally remotely, and, in 2018, it started requesting that institutions report information on consumer credit products offered through digital channels. In 2019 it established best practices to be observed by institutions when providing the statement of fees through digital channels or email. More recently, already in 2020, it launched a public consultation on a draft Circular Letter to systematise best practices when offering banking products and services through digital channels. In parallel, the Bank has reflected on the development of technological tools to support its supervisory activity (SupTech).

At the same time, the Banco de Portugal has closely monitored the marketing of products and services through digital channels. In 2019 it assessed 30 online or mobile consumer credit products from 15 institutions and issued 80 specific orders and recommendations to 10 institutions to correct irregularities detected, mostly related to compliance with the obligations to provide assistance and pre-contractual and contractual information.

In addition, since 2018, the Banco de Portugal has conducted a digital financial education campaign called #TopTip to raise awareness among students from the 3rd stage of basic education and secondary education of the care to be taken when using digital channels to prevent fraud and over-indebtedness. In 2019 the Banco de Portugal organised training courses as part of this campaign involving over 2,200 students, and distributed approximately 18,000 #TopTip brochures among 700 schools and school libraries across the country.

In 2019 the Banco de Portugal paid particular attention to the supervision of basic bank accounts and the provision of the new statement of fees. The sale of consumer credit, in particular revolving credit, also remained a priority for the supervisor.

The Banco de Portugal carried out inspections of 107 institutions offering basic bank accounts. By the end of 2019, there were 103,628 basic bank accounts, an increase of 75.1% from the end of 2018. During the year, 47,587 accounts were opened; in 80.4% of cases, by switching from a current account.

As of 2019, institutions have been required to provide their customers with a statement of fees on an annual basis; this document is harmonised at European level, containing information on all fees charged for services linked to payment accounts during the preceding year. To assess compliance with this obligation, the Banco de Portugal conducted inspections of 119 institutions. This analysis concluded that 111 did not remit the statement of fees to all customers with a current account, specifically customers who are not consumers or where there have been no movements in the account. Situations where customers had been provided with a document that did not fully comply with the requirements set out in the European regulations were identified in 115 institutions.

The Bank also carried out inspections on the central services of institutions to assess compliance with the rules applicable to consumer credit (eight institutions) and home loans and mortgage credit (three institutions) and monitored the implementation of the general arrears regime. The Banco de Portugal also assessed compliance with maximum rates with regard to 1,598,744 reported consumer credit agreements (3.6% more than in 2018), having adopted appropriate measures on four agreements from three institutions.

The Banco de Portugal assessed 9,684 advertising materials, 96.3% of which did not show irregularities (97.7% in 2018), while the remaining were corrected following this inspection. The Bank also monitored the key information documents of the 75 structured deposits offered in 2019 and checked the remuneration rates on the 167 structured deposits that matured during the year.

The Banco de Portugal received 18,104 complaints from bank customers on matters under its supervision, 18.7% more than in 2018. This increase was the result of complaints lodged through the Electronic Complaints Book, available since July 2019.

Complaints increased from 94 to 100 for every 100,000 agreements in home loans and mortgage credit; from 32 to 36 for every 100,000 agreements in consumer credit; and from 26 to 32 for every 100,000 accounts in bank deposits.

No signs of breaches by institutions were detected in 61% of the complaints closed in 2019 (56% in 2018); in the other 39%, the situation was resolved by the credit institution on its own initiative or by intervention of the Banco de Portugal (44% in 2018).

In retail banking markets supervision, the Banco de Portugal issued 921 specific orders and recommendations to 142 institutions and financial corporations and initiated 27 administrative proceedings against nine institutions.

Most specific orders and recommendations were issued to resolve irregularities detected in the sale of bank deposits (334 specific orders and recommendations to 118 institutions), consumer credit (193 specific orders and recommendations to 17 institutions) and basic bank accounts (159 specific orders and recommendations to 101 institutions). The subjects mentioned the most in administrative proceedings were related to bank deposits (11 proceedings against six institutions), consumer credit (five proceedings against four institutions) and payment services (four proceedings against four institutions).

In 2019 the Banco de Portugal decided on 5,169 applications for authorisation to pursue the activity of credit intermediary, of which it approved 72.7%.

At the end of 2019, 4,681 credit intermediaries were registered by the Banco de Portugal. The majority were legal persons (86.4%) whose main activities were trade, maintenance and repair of motor vehicles (50.3%), real estate activities (21%) and retail trade (13.6%). Almost all (99.9%) carried out their activity on behalf and under the responsibility of credit institutions, with more than three quarters only operating in consumer credit.

In order to check compliance with the legal framework applicable to this activity, the Banco de Portugal monitored 57 advertising materials, conducted inspections of 45 entities and received 114 complaints by bank customers. Following this activity, the Bank issued 325 specific orders and recommendations.

In 2019 the Banco de Portugal received four requests for certification from entities wishing to provide training conferring the vocational certification required for the marketing of home loans and mortgage credit and credit intermediation. Three were granted and one was refused. At the end of the year, seven training entities had been certified.

The Banco de Portugal continued to focus on information and financial education for bank customers on an individual basis or in cooperation with the other supervisors and other partners of the National Plan for Financial Education.

The disclosure of information on basic bank accounts continued to be particularly important for the Banco de Portugal, which signed a protocol with the Ministry of Labour, Solidarity and Social Security in 2019 to conduct joint initiatives to promote these accounts. These initiatives take place through training sessions for employees of the Social Security Financial Management Institute, the Social Security Institute, the Institute for Employment and Vocational Training and the National Institute for Rehabilitation.

With the support of its regional network, the Banco de Portugal organised 581 training initiatives throughout the country (29% more than in 2018), with a total of 20,458 participants (42% more than in 2018).

The Banco de Portugal also participated in the work of the main banking conduct supervision fora. Particularly relevant is the fact that the Banco de Portugal has been chairing the International Financial Consumer Protection Organisation (FinCoNet) since November 2019.

FinCoNet gathers banking conduct supervisory authorities from around the world and aims to promote best practices related to market conduct and the protection of bank customers.