Market monitoring is a key component of financial conduct supervision, and can be especially useful in the digital credit context. It used for identifying, understanding, and tracking industry developments, market-level consumer risks, and consumer behavior. It enables supervisors to gather deep insights into consumer experiences with FSPs, along with the risks and consequences, and to prioritize supervisory efforts. It is a core component of regulatory approaches focused on customer outcomes.
Supervision typically includes periodic collection and analysis of financial, business, and other FSP-reported data. A range of enforcement powers and tools can be used preemptively (before risks materialize) and reactively (after consumer harm has occurred) with individual FSPs. Market monitoring gives supervisors access to a range of quantitative (e.g., analysis of regulatory reports, phone surveys) and qualitative (e.g., mystery shopping, industry engagement) tools and techniques. Market monitoring can, in addition, generate feedback to improve regulations. It requires supervisors to be forward-looking and to take a comprehensive view of what’s happening with consumers in an entire market or sector. Consumer and research organizations may also pilot and implement market monitoring tools, directly or in partnership with authorities. Detailed market monitoring techniques can be accessed here.
Recommendation: Market monitoring can provide critical input to supervisory outreach, especially for FSPs that do not receive regular attention through inspections or other activities. An FSP’s awareness that it is systematically monitored by a supervisor from a consumer protection standpoint may improve its conduct toward customers and compliance with consumer protection regulation. On the other hand, market monitoring is often quite costly and time-consuming, and does not yield the quality of data that regulators consider most rigorous.
As an example of market monitoring, the European Banking Authority organized a mystery shopping exercise with five authorities and 37 FSPs to better understand the consumer experiences and risks of using a digital channel (or visiting a branch) to obtain a small personal loan.1The exercise revealed several shortcomings in disclosure related to fees and conditions, which were exacerbated when conveyed over digital channels. Supervisors were advised to do further investigations and issue guidelines.
