The MFSA has conducted a thematic review on financial institutions’ compliance when offering payment accounts. The MFSA’s aim is to support clients and institutions in building long-term relationships, as well as promoting stability and resilience in the financial sector. This is accomplished when institutions provide clear and concise information to clients prior to drawing up a contract, allowing the clients to make an informed decision.
The purpose of a thematic review is to allow the MFSA to concentrate oversight efforts on specific areas of concern across multiple regulated entities. Compared to the individual assessment of a single authorised entity, this approach allows for the analysis of common issues, risks and industry practices. This promotes continuous improvements and coordination between regulated entities and regulators. Furthermore, stakeholders are better able to identify areas which require enhancement and implement necessary changes to improve overall outcomes.
The Payment Accounts Regulations (S.L. 371.81) (“the Regulations”) provide for the need of transparency and comparability of fees for payment accounts being charged to clients. Under these Regulations, financial institutions are required to provide a Fee Information Document (FID) to consumers prior to entering into a payment account agreement, as well as a Statement of Fees (SOF) at minimum once a year without any cost to the client whereby they detail all fees incurred in relation to account.
The Regulations are applicable to financial institutions which offer payment accounts which allow their customers to:
In conducting its review, the MFSA requested the chosen financial institutions to submit their FID and SOF, and the MFSA assessed the level of information being provided on the institutions’ websites.
One of the actions taken was to compare whether the data referred to on the ‘Payment Accounts Fees Comparison Tool’, which is required under Regulation 13 of the Regulations, accurately reflected the fees incurred by customers in relation to payment accounts. It was found that not all financial institutions updated their information in line with the requirements in the Regulations. It was noted that one financial institution had stopped providing a particular product but this was still included in the comparison tool.
The MFSA identified several areas of non-compliance and the financial institutions were instructed to update their FID and SOF to full alignment with the applicable regulations and technical standards.
It was generally observed that the FID complied with the requirements set out in the Commission Implementing Regulation (EU) 2018/34 on having a standardised presentation for the format for the document. It is important that the FID is provided in good time prior to entering into a contract for a payment account with a consumer.
Furthermore, when a brand name is used, the name of the service should be mentioned prior to the brand name so as to ensure clarity with the services offered in terms of Article 12 of the Commission Implementing Regulation (EU) 2018/34. Furthermore, there should be glossary terms which are provided in a separate document in both Maltese and English and any other language agreed by the financial institution and the consumer.
The SOF should also be in line with the Commission Implementing Regulation (EU) 2018/33. One institution was found to be non- compliant with these regulations. Furthermore, the SOF paid on account should be comprehensive and list all fees accurately as would be presented in the FID so as to ensure transparency and clarity.
It was also observed that financial institutions used certain misleading phases which could have led clients to believe that the financial institution is a credit institution or a bank. The phrases identified were "Bank," "Banking," “Mobile Banking” or "Bank Account". Using misleading language could result in confusion about the nature of the services provided.
Furthermore, financial institutions should avoid any type of statements on their website or advertisements which would indicate that customers can save money by utilising their payment accounts; this is an important consideration as the primary purpose of a payment account is to hold funds for future payment transactions rather than wealth accumulation since financial institutions cannot interests to their clients.
In its report, the MFSA also highlighted that it should be made clear that the financial institutions are obliged to safeguard those deposits in line with the applicable legislation. All of the above information is to be clearly specified in their website or advertisements.
As a way forward, the MFSA noted that financial institutions are expected to abide by the relevant legislation. To ensure compliance, financial institutions should conduct a gap analysis to identify any discrepancies between the current practices and regulatory requirements to perform adjustments to meet the established standards.
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Author: Dr Kimberley Blundell