When the German Financial Market Stabilisation Act (Finanzmarktstabilisierungsgesetz – FISG) entered into force about six months ago (see expert article on the BaFin website dated 4 August 2021), what many consumer advocates had been calling for became a reality: BaFin is authorised to conduct mystery shopping in order to monitor – unnoticed and at close range – how companies in the financial sector deal with their customers. Mystery shopping involves sending out trained incognito shoppers posing as customers to approach banks, insurers and other financial services providers.

Directly after the FISG’s entry into force, BaFin signed contracts with four mystery shopping agencies for a first pilot project. The agencies sent their testers to bank branches, instructing them to ask for investment advice. BaFin’s primary objective was to quickly gain experience with the new supervisory tool. At a total of 36 test purchases, the sample was not sufficient to enable the authority to draw representative supervisory conclusions. But the pilot project did provide an initial glimpse, direct and authentic, of market realities – unlike consumers’ complaints, inspection reports or on-site visits where the supervisors identify themselves.

First impression: a problematic error rate

The results of this first analysis were sobering (see Figure 1: Mystery shopping findings). “We could see straight away that the error rate was problematic: in 12 of the 36 total tests, i.e. one in three, the customer was not given important disclosure documents”, says Christian Bock, BaFin’s Director-General for Consumer Protection and Consumer Protection Officer, summarising the findings. In five cases, there was no suitability report; in four instances, no cost information was provided. In three other test purchases, neither document was provided – despite the fact that both are required by law (see info box).

Figure 1: Mystery shopping findings

© BaFin

Shortcomings were found in the dealings of almost all the banks tested and all the client profiles specified (see info box “Structure of the sample”) – particularly where the test client profile “senior citizens” was concerned (see Figure 2: Findings according to age group). In this age group, the results showed shortcomings in half of all cases; with the two profiles “young adults” and “persons of working age”, however, shortcomings were detected in only one quarter of the instances of investment advice. “We see a number of individual risks converging with increasing age, and this makes older people a particularly vulnerable customer group. It was thus to be feared that this group would show a high incidence of irregularities – and this is what the data confirm”, Bock explains.

Figure 2: Findings according to age group

© BaFin

Other shortcomings were found as well – for example, client information was not always accurately recorded, possibly in order to enable certain recommendations which might not otherwise have been possible with the respective institutions’ advisory software.

BaFin sees need for action

Even if the data samples gathered with the mystery shopping pilot were not representative, BaFin takes the findings very seriously. “Though the data do not enable us to draw any conclusions about the market as a whole”, Bock acknowledges, “for me they are a clear sign that we need to have a closer look at how investment advice is being provided”. In the coming months and years, he says, it will thus be important for BaFin to verify its first impression by conducting additional mystery shopping activities. BaFin will directly address those institutions with shortcomings identified by the pilot project and confront them with the findings.

From 2022: mystery shopping in all areas

In addition to the findings from its first mystery shopping activities, BaFin has also been able to gain insight into the market for mystery shopping services and gather initial experience in conceptualising and implementing mystery shopping activities. It will be incorporating the findings into its search for a partner agency that will support its efforts in the years ahead. The invitation to tender is set to be issued at the beginning of 2022.

Though the emphasis of the pilot was on inspecting how the institutions provide investment advice, BaFin will be significantly broadening its focus in the future. Christian Bock has his eye on the most important consumer markets. “We plan to conduct several hundred mystery shops per year, in all supervisory areas. From insurance policies and banking products such as accounts and loans, all the way to securities and certificates, there are many open questions, and we intend to use mystery shopping, among other things, to pursue the answers”, he says. One of these questions involves payment protection insurance, which will be addressed with mystery shopping in 2022. BaFin’s market investigations so far suggest that customers have not always been aware that while they can take out this type of insurance on being granted a loan, they are not obliged to do so. The supervisors plan to tackle other issues with mystery shopping as well, such as digitalisation and sustainability.