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Spain regulator to start sending “spies” to check up on banks

Source: El Pais - Thu 13th Mar 2014
Spain regulator to start sending “spies” to check up on banks

Stock market watchdog CNMV is planning to send undercover inspectors posing as customers to bank branches across Spain as part of a new effort to ensure that financial institutions are complying with regulations when they offer their products to customers.

CNMV chief Elvira Rodríguez explained that the plan, which she proposed at the end of 2013, will be put into action this year. She made the announcement on Wednesday at a presentation of the regulator's goals for the coming year.

The findings by these "spies" will serve as "evidence" to be used in disciplinary action against financial institutions caught violating regulations, she explained. However, it remains unclear how the system will actually be put into place given that changes to the Securities Exchange Law must be made to define the legality of the work conducted by these inspectors.

Because of the CNMV's lack of resources, Rodríguez said that the inspectors could be hired from outside the agency but under the supervision of her office.

This type of strategy is known as "mystery shopping," and is already widely used in France, Britain, Belgium and the Netherlands. The strategies behind and legality of these inspections vary from country to country.

In Britain, for example, mystery shopping at financial institutions has been in place since 2006, and FSA banking supervisor is allowed to record conversations between "customers" and bank employees. But this only happens in extreme cases, and the decision to open up an investigation is not solely based on the evidence gathered through this practice.

In France Autorité de Marchés Financiers holds about 110 inspections, done in 3 stages annually. The goal is not to issue sanctions but instead to learn how banks are selling their products.

Besides the inspections, the CNMV president said that the regulator is also working on a classification system designed to alert customers to the risks of certain financial products offered on the market, to help them make better decisions about their investments.

Between 2007 and 2011, thousands of Spaniards lost their savings after they invested in risky preferential shares sold by savings banks, such as Caja Madrid and Banco CAM, which were keen to raise capital during the financial crisis. Many customers who have filed criminal complaints and lawsuits said they were not told of the risks. But bank executives insist they were adequately informed about the liabilities involved.

Rodríguez also said that one of the goals of the CNMV was to lobby for changes to the existing law that would give the stock market watchdog more autonomy and supervisory capability.

She also announced that the CNMV has received petitions from five companies this year for listings on the Spanish stock market. One of these is a foreign company that will use the Spanish stock market for trading.