Behavioral supervision of the Bank of Russia over the activities of microfinance organizations providing loans

Agafonov Matvei Nikolaevich Postgraduate student of the Department of Financial, Banking and Customs Law named after Professor Nina Ivanovna Khimicheva, Saratov State Law Academy 410056, Russia, Saratov region, Saratov, Chernyshevsky str., 104 agaphonow@vk.com

In 2023, ten years have passed since the consolidation of supervisory powers in the financial market and their transfer to the Bank of Russia. After this moment, the Bank of Russia regulates the activities of microfinance organizations (hereinafter referred to as MFOs), as well as supervises compliance by such organizations with the requirements of current legislation, which is enshrined in paragraph 2 of Article 14 of Federal Law No. 151–FZ dated 07/02/2010 "On Microfinance Activities and Microfinance Organizations" (hereinafter referred to as Law No. 151-FZ).

The positive effect of this step, which, according to some scientists, manifested itself in streamlining the activities of MFOs ^{[1, p. 102]} and reducing the number of unscrupulous participants in the market ^{[2, p. 58]}, can be attributed, among other things, to the introduction by the Bank of Russia of a new type of supervision in the financial market – behavioral supervision. As the mega-regulator himself points out, this type of supervision refers to "the activities of the Bank of Russia aimed at preventing, detecting and suppressing violations of the rights of consumers of financial services" ^[3]. Its appearance was due to the need to ensure consumer protection, including the services of MFIs, which is one of the goals of regulation, control and supervision of non-credit financial organizations in accordance with Article 76.1 of Federal Law No. 86-FZ dated 07/10/2002 "On the Central Bank of the Russian Federation (Bank of Russia)" (hereinafter referred to as Law No. 86-FZ).

An analysis of the Bank of Russia's program acts, such as the "Main directions for the development of the financial market of the Russian Federation" for the relevant periods, shows that the mega-regulator consistently develops the position that for the development of the financial sector it is important not only for supervised organizations to comply with the standards and requirements provided for their sustainable functioning, but also proper interaction of such companies with customers as one of the aspects of consumer protection of financial services.

A. V. Chirkov identifies the relevant norms aimed at regulating the protection of the rights of consumers of financial services in a separate group within the framework of non-prudential regulation, which, in turn, aims to manage individual (as opposed to systemic) risks in a particular organization ^{[4, p. 73]}. According to the author, these include norms that regulate public relations between an MFO and a consumer of its financial services in order to protect the rights and legitimate interests of the latter.

Compliance by a financial institution with the legal norms of behavioral regulation as a subject of supervisory activity allows us to identify a separate type of supervision – behavioral supervision ^{[4, pp. 68-69]}. In addition, as I. V. Mikheeva and E. A. Dolkova point out, behavioral supervision makes it possible to identify the use of inappropriate practices in the activities of financial market participants and their elimination ^{[5, p. 320]}. The Bank of Russia, as a rule, uses the term "unfair behavior" in this regard as a generalization of various unfair practices ^[6]. The megaregulator's official website regularly publishes information about practices that it considers unfair and infringing on the rights and legitimate interests of the consumer ^[7].

The idea of behavioral supervision of the Bank of Russia as a subject of scientific research is already being formed in science, which is reflected in the works of E. A. Dolkova, Yu. A. Kuznetsova, A. S. Litovko, V. Yu. Mironov, I. V. Mikheeva, L. V. Sannikova, A. A. Sitnik, V. V. Chistyukhin ^{[5, 8-14]}. At the same time, it should be noted that due to the construction of a system of terms and definitions related to legal regulation in the financial market, simultaneously with the emergence and development of new financial institutions, the legislator does not always timely introduce concepts and definitions that are uniform for all participants in the relevant legal relations at the level of legal acts. In particular, the appearance in the supervisory activities of the Bank of Russia of aspects related to the interaction between financial institutions and consumers of financial services, as well as taking into account behavioral risks, and the subsequent formation of an essentially separate type of this activity of the mega-regulator was carried out without fixing the concept of "behavioral supervision" at the level of law or other regulatory legal acts. Therefore, we can say that the legal concept of behavioral supervision is still missing. At the same time, the notion of behavioral supervision emerging in the scientific literature as a separate type of supervision actualizes the question of its definition and distinctive properties.

The lack of a legal definition creates obstacles to the formation of a unified approach to the study of behavioral supervision in science. In particular, examining it from the standpoint of financial and administrative law, the authors propose formulations that reflect only part of the properties of this type of supervision. One cannot disagree with A. S. Litovko, who defines as the goal of behavioral supervision "the prevention of the implementation of unfair behavioral practices by market participants" ^[10]. At the same time, it should be noted that compliance with the requirements of a number of regulations governing the relationship of financial institutions with the consumer of their services is also included in the perimeter of this type of supervision. This is an essential characteristic of behavioral supervision and should be reflected in its definition.

Taking into account the above and taking into account the above-mentioned subject of behavioral supervision, as well as the composition of participants in the relevant relations (the Bank of Russia and the MFOs supervised by it), in this paper, behavioral supervision of the activities of MFOs will be understood as the type of control and supervisory activity of a mega-regulator in the financial market aimed at preventing, identifying and suppressing violations of the law and unfair practices in the interaction of MFIs with consumers of their financial services.

Since no consistent and detailed study of behavioral supervision of MFIs is currently presented in scientific papers, it seems relevant to highlight issues related to its perimeter, features and results of application. An analysis of the annual reports of the Bank of Russia over the past five years demonstrates that behavioral supervision in the microfinance sector is implemented primarily in relation to the activities of MFOs in providing loans. Considering behavioral supervision as one of the types of control and supervisory activities of a mega-regulator, it should be noted that its relevant powers are provided for in Part 2 of Article 14 of Law No. 151-FZ, according to which the Bank of Russia oversees the compliance of MFOs with the requirements of this law, other federal laws and other regulatory legal acts, regulatory acts of the Bank of Russia. Since this norm does not contain a specific list of regulatory acts, the observance of which is supervised, it is necessary to elaborate in more detail on the subject of behavioral supervision of the activities of MFIs for the provision of loans.

Among the federal laws that this supervision is carried out, in addition to Law No. 151-FZ, it is necessary to highlight Federal Law No. 353-FZ dated 12/21/2013 "On Consumer Credit (Loan)" (hereinafter referred to as Law No. 353-FZ). In particular, the subject of behavioral supervision is compliance with the requirements of this law to inform the consumer about the terms of the loan agreement, including the amount of the interest rate under the agreement (Article 5), mandatory registration of the borrower's consent to provide him with paid additional services (Article 7). At the same time, behavioral supervision is aimed at identifying unfair practices that MFOs implement with formal compliance with Law No. 353-FZ.

The Bank of Russia provides the following example of this practice on its official website: "At one of the stages of registration of an online loan, an individual borrower is invited to express consent or refusal of an additional paid service by clicking the "Sign contract" / " buttonsTo refuse the application.” Such formulations may give the borrower the false impression that at this stage he is making a decision regarding the loan agreement, and not an additional service" ^[15]. At the same time, in accordance with the requirements of Law No. 353-FZ, the borrower's consent to receive a paid additional service is available, but it was obtained as a result of unfair information, which the Bank of Russia defines as "distortion and/or presentation of incomplete information about a financial product (service) to the client" ^[6]. In such situations, the regulator recommends posting the necessary information in an appropriate form at the stage of concluding a loan agreement, at which the consumer can actually independently determine his consent or disagreement with the additional service ^[16].

It should be noted that in addition to measures of reactive behavioral supervision applied following the consideration of a complaint against a specific organization, the Bank of Russia can identify unfair practices based on the analysis of information and from other sources in order to prevent possible violations of consumer rights ^[17]. In the first case, the mega-regulator applies individual measures, and in the second it implements systemic measures, which include sending recommendations related to the identified problems to all participants in the financial market segment in the form of an information letter.

As an example, recommendations can be given based on the results of identifying the practice of "including in the terms of consumer credit (loan) agreements provisions restricting the borrower's right to freely choose an insurer when insuring the life, health or other insurance interest of the borrower in order to ensure the fulfillment of obligations under the consumer credit (loan) agreement" ^[18]. Information letters may also contain the position of the regulator regarding the legality of certain actions of supervised organizations. Thus, in an Information Letter dated 08/21/2020 No. IN-015-59/123, which was sent, among other things, to MFOs, the Bank of Russia drew attention to the fact that such cases are unlawful when borrowers, contrary to the provisions of Law No. 353-FZ, have no choice or cannot influence the condition of the contract, which allows prohibiting the assignment of rights (requirements) to third parties ^[19].

In addition, if unfair practices are detected in the course of behavioral supervision in the activities of supervised organizations, including microfinance, the Bank of Russia sends appropriate letters to self–regulatory organizations (hereinafter referred to as SROs), whose members are these MFIs. An example is letter No. 59-3-2/42061 dated 09/27/2022 "On pre–established consents and unfair marketing practices", which was sent to be taken into account in the activities and in order to bring the regulator's position to the attention of MFOs - members of the SRO, as well as to form a uniform practice in the financial market ^[20].

The results of behavioral supervision are reflected annually in the annual reports of the Bank of Russia. These include the following: changes in internal procedures/documents of the organization; refunds to consumers; adjustment of credit history; adjustment of the full cost of the loan and other terms of the agreement; targeted recommendations; changes in software and hardware and correction of MFIs sites ^[17]. As the most stringent measure, in some cases, an appropriate decision may be made to exclude the company from the state register in accordance with paragraph 1 of Part 1.1. of Article 7 of Law No. 151-FZ.

Characterizing the development of behavioral supervision over the activities of MFIs, the following should be noted. One of the vectors of development of reactive supervision, identified by the mega–regulator in the Report for Public Consultations in 2018, was associated with the solution of the task formulated in this report - "improving the legislation of the Russian Federation in terms of defining supervisory powers in relation to small market participants from the SRO with the development of a regulatory framework allowing the SRO to fully exercise the powers to control such participants the market with the possibility of applying appropriate liability measures" ^[21]. The relevant criteria for delineating supervisory powers in the microfinance market were established by the Bank of Russia in 2021 ^[22].

At the same time, the priority in the development of behavioral supervision is given by the megaregulator to preventive supervision, taking into account the trend towards the development of remote communication channels and tools that allow identifying and assessing consumer risks in the provision of financial services by supervised organizations, as well as the use of a systematic approach involving the integration of supervisory activities with advisory ^{[23, p. 36]}. In this context, the statement of N. V. Neverova seems important.: "The cooperation of the Bank of Russia with financial market participants, the information openness of the Bank of Russia as a regulator, serves to achieve the goals of financial market development, making the most effective and verified decisions by the Bank of Russia" ^{[24, p. 161]}.

Summing up some results of the megaregulator's application of a new type of supervision, one should agree with E. Y. Knyazeva ^{[25, p. 192]}, who notes the effectiveness of behavioral supervision in countering misseling, imposing unnecessary additional services on the consumer at the time of obtaining a loan, deliberately misleading the consumer of financial services, etc. This assessment is also applicable to the results of behavioral supervision of the activities of MFIs.

In particular, at the beginning of 2019, the Bank of Russia for the first time excluded two companies from the state register of MFIs for violations identified within the framework of behavioral supervision ^{[26, 27]}. Subsequently, as a result of this type of supervision, informal groups of interconnected financial organizations were discovered, whose activities were characterized by a succession of violations and unfair practices of companies that had already been excluded from the state register of MFIs for such acts. This fact caused the mega-regulator to notify such companies of its intention to take appropriate measures to eliminate such practices, up to withdrawal from the market ^[28].

The problem of legal regulation of behavioral supervision deserves special attention. Thus, the existence of the general supervisory powers of the mega-regulator is enshrined in a number of normative legal acts mentioned earlier. However, behavioral supervision of the activities of supervised organizations, including microfinance organizations, as a separate type of supervision is characterized by the above-mentioned features, which have not yet been directly reflected at the level of laws. Disclosure of the term "behavioral supervision", as well as general provisions related to its implementation, currently takes place only at the level of acts of the Bank of Russia, for example, such program acts as "Main directions of development of the financial market of the Russian Federation", published by the mega-regulator.

If such an approach is justified when consolidating the methodology of behavioral supervision by the Bank of Russia, then in the case of resolving the issue of a single definition of behavioral supervision for all subjects, its subjects and the list of procedures used, the possibility of application in specific sectors of the financial market, including in relation to the activities of MFOs in providing loans, it seems more rational to implement this on the basis of at the level of federal legislation, namely by amending the provisions of Chapter X.1. Law No. 86-FZ "Regulation, Control and Supervision in the field of financial markets", since at the moment the supervision of the Bank of Russia for MFIs is regulated, among other things, in accordance with this chapter.

Summing up the above, it can be concluded that the behavioral supervision of the mega-regulator over the activities of MFIs has become an effective tool for achieving the legally established purpose of supervision, namely the protection of the rights of consumers of financial services. At the same time, the relevant legal regulation of this activity of the Bank of Russia needs further development and improvement.

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