In a statement that many imagines was unnecessary, the Bank of Portugal, The Stock Market and Securities Commission (CMVM) and the Insurance and Pension Funds Supervisory Authority have proposed measures to tackle the problem of the mis-selling of financial products.
The Bank of Portugal and CMVM have had several public disagreements, most notably over the mis-selling of shares in Grupo Espírito Santo subsidiaries in BES branches just before the bank went bust, but have managed to agree that the sale of financial products without complying with best practice is not a good thing.
The National Council of Financial Supervisors (CNSF), which includes the Bank of Portugal, CMVM and the Supervisory Authority of Insurance and Pension Funds (ASF), has created a working group to assess the issue of 'mis-selling', an issue that the public had assumed had already been addressed and that rigorous rules and stiff fines already were in place.
The working group has, somewhat belatedly, looked at financial products that are sold without the provision of adequate information to the client, the pressure exerted on bank counter staff to meet aggressive sales targets and the mismatch of pressure selling to the bank’s benefit when at odds with the duty of care owed to customers.
This is what went wrong at BES when branch staff were under pressure from management to switch those customers with healthy deposit accounts, covered by the Bank of Portugal’s deposit guarantee scheme, to investments in shares (commercial paper) in Grupo Espírito Santo subsidiaries which proved worthless and not covered by any guarantee at all.
BES customers lost €550 million when these subsidiaries collapsed alongside BES in August 2014.
This group of regulators now has completed its exhausting work and suggests a number of changes, most of which do not require changes in the law, but changes in working practices at the institutions that sell financial products to the public.
The group emphasised the ‘problem of financial illiteracy as a catalyst in situations of mis-selling, which, when mixed with the complete lack of ethics and information from some sellers creates problems, such as those seen in recent years with the sale of (Grupo Espírito Santo) commercial paper with no indication of the risk or as if the commercial paper was the same as a deposit.’
This means there is a problem when staff on commission sell financial products to people who do not know what they are buying.
The rest of the notice to the press was the normal financial jargon, including, "The prevention and risk mitigation of 'mis-selling' practices necessarily involves a holistic approach, ensuring the involvement and accountability of the administrative and compliance functions and internal audit, as well as the strengthening control and guidance of the entities in a culture of ethical and socially responsible information, also ensuring alignment of incentives with the best interests of customers."
The group "noted also the importance of using the remuneration policies appropriately in promoting a higher quality of service delivery to customers, the rise of behavioral patterns and cultural change within organisations," read the statement which the group may, or may not hope will be understood by the public.
To the dull sound of a stable door closing, this group of regulators has produced a report to which many should ask, “what have you been doing all these years?”
