The AFM to use mystery shopping for more effective supervision

The Netherlands Authority for the Financial Markets (AFM) intends to use 'mystery shoppers' during supervisory investigations. A pilot with this manner of investigation has demonstrated that employing this method can be effective. Subject to the right conditions, mystery shopping is covered by the current powers of the AFM.

The AFM uses mystery shopping to investigate the provision of financial services in practice, without the investigated party being aware that it is dealing with the regulator. By assuming the role of a consumer, it is possible to better investigate the manner in which financial undertakings perform their activities. As a result of the use of mystery shopping, the AFM expects to be able to perform more effective investigations and identify abuse more quickly that harm the interests of the consumer.

In the past, the AFM exercised a great deal of restraint when using this method of investigation. Partly on the basis of the recommendation of the Scheltema committee, the AFM has performed further legal analysis. Moreover, consultation was conducted with other supervisors and the Ministry of Finance. This leads to the conclusion that the AFM, subject to conditions, can employ test clients to check whether financial undertakings are complying with the Financial Supervision Act (Wft).

Generally speaking, the AFM will use this method if other possibilities (consumer surveys, requests for information, on site investigations) do not result in an answer to the research question. This method can also work more efficiently and faster in combating abuses. Investigations can be initiated into the provision of information via folders and websites to advisory meetings. These meetings may be announced in advance to the relevant branch or industry. The AFM will ensure that the use of mystery shopping will not be contrary to general standards of care and proportionality; nor will it involve entrapment.

The AFM performed a pilot investigation with mystery shoppers at the end of 2010. During this pilot, the mandatory provision of the Financial Services Document (DVD) by advisers and intermediaries was investigated. The DVD provides important information about the services and costs of an adviser.
During a previous regular investigation conducted in May 2010, 97% of the investigated advisers and intermediaries indicated that they provided the DVD in a timely manner. The AFM now wants to investigate to what extent this is in line with practice.

A random sample of 58 financial service providers was selected for the investigation, including 23 franchise organisations and 35 independents. 43 meetings conducted by the mystery shoppers also actually involved advice. The provision of the DVD was mandatory at that time. The DVD was provided in a timely fashion in 86% of the advisory meetings. Most advisers provided the consumer with an opportunity to peruse the DVD and nearly half of them explained the document during the meeting. The use of mystery shoppers provided the AFM with sound insight into the manner in which the DVD was explained in daily practice.

It is remarkable that franchise organisations seem to have embedded the provision of the DVD better and more consistently in the organisation than independent advisers. The findings of the investigation have been reported to all financial service providers involved. The findings of this pilot will not be used as the basis for possible sanctions.

The AFM promotes fairness and transparency within financial markets. We are the independent supervisory authority for the savings, lending, investment and insurance markets. The AFM promotes the conscientious provision of financial services to consumers and supervises the honest and efficient operation of the capital markets. Our aim is to improve consumers’ and the business sector’s confidence in the financial markets, both in the Netherlands and abroad. In performing this task the AFM contributes to the prosperity and economic reputation of the Netherlands.

The AFM is committed to promoting fair and transparent financial markets.

As an independent market conduct authority, we contribute to a sustainable financial system and prosperity in the Netherlands.

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