|RETAIL FINANCIAL SERVICES – European parliament hearing on November 21st, ECRC partner Bob Schmitz will once again be taking part in discussions with MEPs, this time over the Green Paper on Retail Financial Services and the Sector Inquiry on Retail Banking.
|The ECON Committee is organising a joint public hearing on the Green Paper on Retail Financial Services and the Sector Inquiry on Retail Banking.
It will take place on Wednesday, 21 November, from 11h00 to 12h30 in the European Parliament premises in Brussels. Bob Schmitz from ULC (Luxemburg) will make an introduction and participate in debates, along with
other panel participants, namely:
• Xavier DURIEU, Secretary General of EuroCommerce, the European retail association
• Michaela KOLLER, Director General of CEA (the European Insurance and Reinsurance Association)
• Andreas PANGL, Member of the Executive Committee of the European Association of Cooperative Banks and of various boards of Raiffeisen Banking Group
• Giuseppe ZADRA, Chairman of the Executive Committee of the EBF (European Banking Federation) and General Manager of the Italian Banking Association
To see the Green Paper on Retail Financial Services, and the Sector Inquiry, please see the links below:
Also as links below are comments sent to the Commission by ECRC partners independently during the consultation period which accompanied the publication of the Green Paper on Retail Financial Services in May 2007. The ECRC would welcome any other views which partners may have on the content of the Green Paper shaping priorities for retail financial services in the EU.
Note that IN NOVEMBER 2008, DG Internal Market will publish a review of the single market, and retail financial services will be an important element of that review. As background information, the Financial Services Consumer Group (FSCG), a sub-group of the European Consumer Consultative Group (ECCG) set up by the Commission to bring together representatives of consumer organisations from each of the Member States and those active at EU level to discuss financial services policies and proposals of particular relevance to consumers, discussed the Green Paper in July 2007. The next meeting of the group will take place on December 3rd. Here are some comments from the last meeting (some of the comments deal with issues which the ECRC has also attempted to discuss at its conference in Sept 2007):
- On 3rd of July the FCSG had its 4th meeting to consider the recently closed consultation on the Green Paper on Retail Financial Services leading to the Commission hearing held on Sept 19th 2007, and the publication of the final report of the single market review due in November. A White paper may not necessarily follow.
- Empowering consumers as a key objective will have implications on how financial education programmes will develop and how high-quality advice can be provided (is empowerment restricted to mere clear, appropriate, and timely information provision?)
- Is the general philosophy of the Commission (based on 'caveat emptor' - buyer beware) too simplistic, because tackling problems with information and education are not enough because problems keep arising at the point of execution of a contract, and particularly on legal issues.
- “Scoring”: there exists opaqueness in the measuring of creditworthiness in Member States. The Single Market Review will comment on Data which is either not accessible or not accepted in Member States.
- “Credit databases”: Both lenders and consumer sides have problems with these. The asymmetry of information exists for both sides, but whereas the growth of credit databases is helping providers to overcome their information deficit, consumers are not receiving help with dealing with their necessary information.
- “Simple bank account”: Is lack of profitability of these products meaning that optimal solution not likely to work? Which of the 2 concepts is better: a) “optional simplified and standardised product” from the Green paper on retail financial services) or b) “universal service obligation” from the Expert Group on Customer Mobility in relation to bank accounts
- “Cross Border sales”: What is the role of intermediaries? Why are they not used to carry financial services across borders? What interest does the industry actually have in cross border market? Are financial services like goods? Can we expect integration to take place through a process where supply triggers demand?
- “Financial education”: tackling low financial capability is a win-win solution for all stakeholders. Are banks reluctant to take responsibility? Are intermediaries needed? Should financial education be implemented through the education system (following the example of the UK?);The study on financial education schemes in the EU by the Commission should be presented soon (details on funding etc..). It will help develop principles to help financial education providers (depending on different targets, delivery methods, sectors of the population…); Data deficiencies exist and there re problems with measuring influences on consumer behaviour. Should programs try and reach all consumer groups or should they focus only on special groups where there is a definite need. What is the Commission’s potential role in “training the trainers” programmes?
- “Mortgage credit”: What is the role of non-banks in the forthcoming white paper?
- Do we need to make a clear distinction between key (targeted full harmonisation via EU legislation) and non-key requirements (which contains the threat of mutual recognition)?
- What views exist on the “28th regime” (optional pan-European regime), as an optional and additional regime coexisting with national and EU law, is it a route to be considered for the CCD?
- Standardisation of information (Infobox PEIB concept or Standard European Credit Info – SECI)? How easy is comparison at a glance? Should SECI be reduced to essential information only? “What-if” scenarios in pre-contractual information are important! ANEC says there is not enough support for more understandable standardised forms.
- “FIN-NET” (conflict resolution system): What is the role of advice (e.g. Spain is looking at regulations)? Low number of cases might be explained by a lack of awareness that such a system exists. FIN-NET is also very reactive and more pro-active measures should be sought e.g. a European ombudsman. Biggest issues in retail markets may be on insurance and pensions.
- “FIN-USE” renewed membership, what is this group going to look at?
- “Advice”: Implementation of the requirement under the Insurance Mediation
Directive for "best advice" is patchy for brokers (e.g. in Luxembourg it is not effective).
- “Insurance”: The Netherlands is looking at the upfront costs of insurance (what intermediaries receive in terms of remuneration). Cross-border not sought because making a claim easier with local person. Should a difference be made for generic advice (short-term aspect of financial capability)
- “Fees”: Aggressive banking practices exist in Czech Rep, where banks establish new fees without giving clear reasons for them.
- “Tying”: If bank mobility and competition is so important, why does the Commission not try and prevent unwanted tying (cross-selling) of financial products sold as part of another product (exclusive), as this narrows consumer options (i.e less mobility).
BELOW ARE COMMENTS ON RETAIL FINANCIAL SERVICES MADE BY COMMISSIONER MCCREEVY IN A SPEECH HE GAVE ON “CURRENT ISSUES IN THE EU BANKING SECTOR” IN SEPT 2007. DO EUROPEAN CONSUMERS REALLY WANT BANK MOBILITY AT ALL COST AS HE SEEMS TO SUGGEST? MAYBE THEY WOULD PREFER RESPONSIBLE FINANCIAL SERVICES TO HAVING MERELY STRONGER COMPETITION:
“ Before concluding, let me refer again to the crisis in the US mortgage market. It has shown how much caution is necessary to properly regulate and supervise the provision of housing loans to retail customers. Lending should take place in a responsible way and consumers should be placed in a position to make well informed decisions. These issues arise, among many others, from the consultation launched with the publication of our Green Paper on Retail Financial Services in May. We received almost 190 responses from 25 Member States and the public hearing, held on 19 September, was attended by well over 300 participants. This overwhelming interest, combined with the widespread support for the Green Paper, illustrates the importance of retail financial services to European citizens and the economy alike. A key message received in the consultation has been that retail financial services will continue to remain predominantly local for the foreseeable future. This confirms our own views stated in the Green Paper. But while recognising consumer's preference for local distribution channels, we believe that this does not preclude either the need to facilitate cross-border activity by retail financial services providers, or the need to make life easier for the European consumers who want to exercise their right to be mobile. The majority of contributions appear to agree with this conclusion. I am now reflecting on the actions that may be necessary in the light of the contributions received. My own view is that any actions we take on retail financial services should have as their primary goal to stimulate competition. In this regard, I am attracted to facilitating customer mobility and making it easier for people to switch banks. I know this would not be popular with all around this table, but given the divergences that exist, action by the EU may be necessary. On the other hand, I am aware that in a number of Member States, including the one I know best – and the UK - the banking industry has already introduced Customer Mobility Codes which, in general, are now working well. I would strongly urge those of you who have not taken such a step to take the initiative as soon as possible – to learn from the experience of Ireland and the UK and the other Member States that have already done it - rather than waiting to be forced into a straightjacket imposed by regulatory intervention. “
AND COMMENTS MADE BY THE DIRECTOR GENERAL OF DG INTERNAL MARKET, JÖRGEN HOLMQUIST, ALSO IN SEPT 2007, AT AN IRISH BANKING FEDERATION CONFERENCE. FIRST STRESSING THE INTERCONNECTEDNESS OF GLOBAL SYSTEMS, THE COMMISSION APPEARS TO HAVE REALISED THAT RESPONSIBLE LENDING AND ETHICAL BEHAVIOUR MAY IN FACT BE SOMETHING WORTH TALKING ABOUT WITH MARKET PARTICIPANTS. WE WELCOME ANY EFFORTS THE COMMISSION IS WILLING TO UNDERTAKE IN DISCUSSING FINANCIAL SERVICES ISSUES WITH THE STAKEHOLDERS. BELOW IS A REPRODUCTION OF WHAT HE HAD TO SAY ON "THE VIEW FROM BRUSSELS" ON WHAT THE LANDSCAPE FOR RETAIL FINANCIAL SERVICES WILL LOOK LIKE IN 2012, AND THE GENERAL DIRECTION POLICIES ARE TAKING.
“The events of this summer have shown us just what was always the case - the vital role banking plays in the wider financial system and in the economy. Poor and negligent standards of lending practices to retail clients and high default rates on these loans have, indirectly, been at the source of major turbulence on world markets. This should remind us of the essential need for scrupulous ethical behaviour, due diligence by market participants and well calibrated and well enforced regulations.
SINGLE MARKET REVIEW AND RETAIL FINANCIAL SERVICES
Commission is preparing a review of how the single market
works, which will be brought out this autumn. It will focus on
what can be done better to ensure that Europe's citizens
really benefit from the single market.
Retail financial services form an essential component of that
work. It is our responsibility to ensure that the benefits of both
the single currency and integrated financial markets are
passed on to the end-customer: the consumer and retail
GREEN PAPER ON RETAIL FINANCIAL SERVICES
Our studies have shown that in some markets within the EU,
competition is not efficient, particularly in areas like payments
and retail banking. And consumers do not feel confident to
look beyond national borders when looking for a financial
product or service. While 26% of consumers currently buy
financial services in their home countries over the phone or
internet, only 1% of EU consumers do so cross-border. End
users of retail financial services may not be benefiting from
the highest quality, or cheapest services on offer. If we do not
take steps to tackle the obstacles to the single market in retail
financial services, this fragmentation is likely to remain.
In view of this, in early May this year, the Commission
brought out a consultative document on Retail Financial
Services. The objectives of this "Green Paper" were twofold.
Firstly, to highlight ongoing and planned EU-level initiatives
to improve the working of the single market for retail financial
And secondly, through the consultation, to deepen the
Commission's understanding of the problems faced by
consumers and industry in the field. We presented the policy
initiatives under our three main aims for this market:
1. to boost competition and choice,
2. to enhance consumer confidence and
3. to empower consumers.
RESPONSES TO CONSULTATION ON THE GREEN PAPER
We have received over 180 responses to the Green Paper,
and the general reaction has been positive. Contributors
across the board appreciate the Commission's "better
regulation" approach to policy development. They are very
supportive of our wide consultation, appreciate our rigorous
impact assessments and welcome our ex-post evaluations of
In their responses to the consultation, many industry
representatives express the opinion that the only way to
really create a single market in retail financial services is to
ensure maximum harmonisation of key provisions of
legislation. It is understandable that this would make life
easier for an Irish bank wishing to establish operations in,
say, Hungary. Or why not Sweden? However, maximum
harmonisation can have the effect of undoing effective
existing national rules that work well for the vast majority of
consumers and businesses in the different Member States.
As a result, maximum harmonization is often not possible,
nor desirable, to achieve.
Some of the contributors accuse the Commission of "using a
sledgehammer to crack a nut". They say that the market for
retail clients who are willing to go cross-border to purchase
financial services is so small, the benefits of adapting to new
regulatory regimes would be far outweighed by the costs. But
let me be clear.
We are not looking for a one-size-fits-all solution. We do not
want to create artificially unified markets, or insist that firms
have to offer cross-border business. National customs,
practices and languages can happily co-exist. We
acknowledge that many retail clients will continue to shop
locally, and deal with providers that they are familiar with.
What we do want is to create opportunities. Give financial
services providers the freedom to offer their services in other
Member States if they can see a market there. Give
consumers the possibility to access a wider selection of
products and services. In short, create a level playing field.
Many respondents focus on the fact that consumers in one
Member State are unlikely to feel confidence in dealing with a
provider in another Member State if they don't know who to
turn to if things go wrong. We received many calls for an
enhanced cross-border dispute resolution system.
A system, Fin-Net, is already in place. It consists of a network
of contacts between national financial ombudsmen or other
dispute resolution bureaux. Clearly much remains to be done
before consumers will feel confident in using its services.
Gaps in the Fin-Net network need to be filled, and there
needs to be far greater awareness of the existence of the
system among both consumers and providers. These are
areas that will need attention in the near future.
Another issue that comes up time and again in the
submissions to the consultation is the way in which
consumers are presented with financial offers. Consumers
need clear, appropriate and timely information and highquality
advice. And we need to ensure that EU legislation
provides for a level playing field in the marketing and
distribution of different types of retail investment products, so
that consumers can be confident that they are offered an
equivalent level of protection, no matter how their investment
These will be areas where we will be devoting considerable
attention in the future. We are commissioning a study of
information requirements in EU legislation to be carried out
next year. We are also looking at options on how to address
the problems that consumers are faced with when presented
with comparable products at times packaged very differently.
We are still analysing the many contributions to the Green
Paper, and will be drawing together the results of the
consultation at a public hearing on September 19th. But fear
not! The Green Paper will not result in a barrage of legislative
The Commission is firmly committed to better regulation. We
will consider the full range of policy tools, including nonlegislative
ones, and take action only where it is appropriate.
So, we will only take an initiative where there is evidence of
clear and concrete benefits for citizens and a strong
Of course, "retail financial services" covers a broad spectrum
of activities, and a number of our major ongoing initiatives will
have a direct impact on Europe's citizens. The development
of the Single Euro Payments Area, SEPA, is key among
SEPA is the logical next step to the introduction of euro notes
and coins, and will mark a real advance for the single market
in the next few years. We look forward to seeing attractive
SEPA products developed by the industry in the next couple
of years. For our part, the Commission will be doing all we
can to support SEPA:
We will be doing our utmost to ensure rapid, complete and
consistent implementation by Member States of the
Payments Services Directive, which will provide the legal
foundation for SEPA. We are working closely with the
European Central Bank and the European Payments Council
(EPC) to coordinate communication on SEPA, so that a clear
and consistent message is provided and so that users are
made aware of the benefits that SEPA will bring.
We will continue to focus on the important role that public
authorities can play in kick-starting migration to SEPA. And
we are closely monitoring market developments. We are
currently preparing a SEPA Communication which will
examine potential problems with SEPA and suggest policy
measures that could be proposed for their remedy. This
Communication will be published by the end of the year.
Another major area is that of mortgage credit. For EU
citizens, their home is their largest lifetime purchase, and
outstanding mortgage balances come to almost 50% of EU
It is vital therefore that the framework in place for mortgage
credit can truly benefit consumers. Proper lending is crucial.
We must get this right in the EU. There is no room for the
sort of irresponsible lending practices, for sub-prime
mortgages as in the US that have been at the root of the
current market turbulence. Not only for financial stability
reasons – also in the interest of the borrowers. Firms must
be responsible at all times, properly managed and regulated,
and able to deliver to consumers the right product at fair and
competitive prices. The events of the past summer have
provided a salutary lesson.
We will publish a White Paper towards the end of this year
containing our policy orientations in the field of mortgage
credit. With these policies, we would like to see an
- improvement in product diversity;
- more efficient cross-border activity for mortgage lenders;
- enhanced consumer confidence and mobility.
As with all of our proposals, the White Paper will be
accompanied by an impact assessment.
A further important issue is that of consumer empowerment.
Consumers need to be able to deal with financial services
confidently, and make the right decisions for their personal
circumstances. One element in achieving this is by giving far
greater attention to financial education.
We will be coming forward with a Communication on
Financial Education in November, in which we will set out the
Commission’s views on this subject. We will also take some
initiatives to support and promote the provision of financial
education by the Member States and by financial institutions
such as yourselves.
And on this note, I would like to commend the work done by
the Irish Banking Federation to support financial education,
particularly the initiatives for school children such as Money-
Go-Round and the Student Achievement Awards. We see a
glaring need for financial issues to be included in the school
education curriculum. I believe that those Member States that
do so will carve out an economic advantage in the future.
So to sum up how we see the future for retail financial
services in Europe :
I see a landscape in which market participants who wish to
exploit opportunities in other Member States experience no
major obstacles in doing so. One in which Europe’s citizens,
whether they be mobile or based at home, can shop around
for the most suitable product or service for them, regardless
of where the provider is from. A market in which industry
innovation and development are encouraged, while a high
level of protection for consumers is maintained.
This may be a utopian vision, but one that we should work
towards. The consumer and investor is the driver of your
businesses and our policies. We would do well to remember
that. But this will not happen without well calibrated, well
applied and well enforced regulations. And tough sanctions
for miscreants. Otherwise confidence will be lost - possibly
for a long time.
Professionals – yourselves - have a major role to act
responsibly and ethically, or you will lose the markets you
seek. Nor should you simply rely on the advice of others. Due
diligence, common sense is vital. In many market segments it
seems to have been in short supply. No one wants more
regulation, including the Commission.. But the market has to
act in a way to ensure that it does not deserve it.”
HERE IS AN EXAMPLE OF A CONTRIBUTION BY A MEMBER OF THE EUROPEAN PARLIAMENT FROM THE PUBLIC HEARING RETAIL FINANCIAL SERVICES, 19 SEPTEMBER 2007
Summary of contribution by Ieke van den Burg, MEP PES/NL, Coordinator PES ECON Committee, Rapporteur White Paper Financial Services Policy 2005-2010 (July 2007)
Cross-border integration in EU retail financial markets is less developed than in the
wholesale area. Consumers PREFER PHYSICALLY PRESENT INSTITUTIONS over virtual ones, USE
MAINLY DOMESTIC PRODUCTS and RELY ON NATIONAL CONSUMER PROTECTION TRADITIONS (EP Van den Burg report, July 2007). The July report warns against simply overhauling national
consumer protection traditions and legal systems by one-size-fits-all-harmonisation.
The Commission consultation shows similar observations: RETAIL FINANCE REMAINS
PREDOMINANTLY LOCAL, there is a preference for local providers (for reasons of language,
culture and familiarity), CROSS-BORDER SHOPPING IS NOT A GOAL IN ITSELF and there is already a
high level of competition present. IT RECOMMENDS A BETTER IMPACT ASSESSMENT focussing on
the real needs and problems, risks in real developments and in regulation and a cost-benefit
Ms Van den Burg identifies six areas that deserve our attention.
1. the DE FACTO BARRIERS FOR EXISTING USERS OF CROSS-BORDER SERVICES
(the "mobile consumers") should be targeted. A 28th regime, pan-European products and a simplified
regulatory framework could help. In her EP report, Van den Burg calls on the industry to
"develop pilot pan-European financial products such as pensions, mortgages, insurance
products or consumer credit" and invites the Commission to prepare an appropriate
framework for regulation and supervision for such products to make them portable and
recognised within the whole EU.
2. ACCESS TO BASIC SERVICES SHOULD BE GUARANTEED FOR EVERYONE,
not only from a social
perspective but also to prevent financial services of going "underground". The Commission
should study the accessibility of services such as bank accounts, cash machines, payment
cards an low cost loans, and promote best practices and experiences. Positive new
developments are micro credit provision and niche markets for migrants, such as Islamic
3. Recent competition cases and the sector enquiry into retail banking and payment cards
have shown that EUROPEAN LEGISLATORS AND SUPERVISORS NEED TO REMAIN VIGILANT ABOUT
COMPETITION PROBLEMS. Existing fragmentation should not be replaced by such levels of
consolidation that new imperfections and price constraints originate. Developments such as
SEPA, PSD and the role of international organisations such as SWIFT need to be matched
with better supervision.
4. In a free and competitive cross-border financial services market, CONSUMER CHOICE HAS TO
GO HAND IN HAND WITH CONSUMER EDUCATION. Financial capability becomes an essential skill
for individuals in their lives as more and more services are taken to the free market. Industry
has a responsibility in producing comprehensible and usable products, and consumer-friendly
information. Member States should make it an integral part of basic school education. (Van
den Burg report).
5. A BASIC FRAMEWORK OF CONSUMER PROTECTION IS NEEDED, BUT CANNOT BE FULL
HARMONISATION. Although sometimes national traditions and competences may discourage
the development of pan-European minimum consumer protection standards, experience with
MiFID shows that a principles based approach (know your customer, best execution, rules on
transparency and conflicts of interest) improves the relationship between the industry and
6. Finally, CONSUMER INPUT IN POLICY MAKING SHOULD BE IMPROVED. Initiatives such as the
Financial Services Consumer Group are good, but do not create the legitimacy needed.
Consumer organisations lack resources and manpower to have the same technical expertise as
industry and lawmakers. The July report contains a PROPOSAL FOR A EUROPEAN BUDGET LINE TO
FINANCE EXPERTISE WITH CONSUMER AND SME ORGANISATIONS .
To reach these objectives, THE CURRENT AMBITIONS SHOULD BE REDUCED AND REFOCUSED.
Maximum harmonisation is not desirable, neither mutual recognition only on the basis of
country of origin. CONSUMERS NEED A FOCUSED, TARGETED APPROACH combining a basic set of
minimum standards for consumer protection rules and an optional 28th regime for specific
simplified pan-european products.
The Commission must continue to stimulate education and literacy programs, and use user
expertise with consumer organisations in the policy making process. Finally, the COMPETITION
AUTHORITY POWERS SHOULD BE USED TO FIGHT ABUSE OF DOMINANT POSITIONS, and lack of access
and choice for consumers.
Brussels, 30.4.2007, COM(2007) 226 final
GREEN PAPER on Retail Financial Services in the Single Market
(presented by the Commission)
The Commission is currently reviewing the single market to ensure its policies are fit for the 21st century. The interim report to the Spring European Council outlines the new approach to using single market instruments, and focuses on enhancing consumer welfare. The Commission will present its final report in autumn 2007, which will include concrete measures to benefit citizens. Retail financial services represent an important part of this review.
Retail financial services are an essential part of the everyday lives of EU citizens. Despite significant progress in delivering a single market for financial services in recent years, studies show that retail financial services integration appears not to have yet reached its potential and that competition seems insufficient in some areas.
Building on the Commission's White Paper on Financial Services 2005–2010, the results of the Commission's sector inquiry into retail banking and the interim report on business insurance, the Green Paper seeks to strengthen and deepen our understanding of the problems faced by consumers and industry in the field of retail financial services and to establish the scope for and impediments to further initiatives in this area. The specific results of this consultation, including possible measures to improve the functioning of retail financial services markets, will be incorporated into the final report of the Single Market Review, to be published in the autumn.
The Green Paper sets out the overarching objectives of the Commission’s policy in the area of retail financial services, presents in more detail the actions necessary to bring the benefits of integrated EU financial market to users, and requests feedback from stakeholders on the direction being taken.
The Commission believes that integration in EU retail financial services markets can be further developed by:
- bringing about concrete benefits for consumers by ensuring that properly regulated open markets and strong competition deliver products that meet consumers' needs, offering choice, value and quality;
- enhancing consumer confidence by ensuring that consumers are properly protected where appropriate, and that providers are financially sound and trustworthy;
- empowering consumers to make the right decisions for their financial circumstances. This is based on several elements, including financial literacy; clear, appropriate and timely information provision; high-quality advice; and a level playing field between products perceived as having similar characteristics. Empowered consumers may be more confident in seeking out the best deals to meet their needs, regardless of the location of the financial services provider.
While initiatives at the EU level are underway or imminent in some areas such as investment funds, payments, insurance, mortgage credit, bank accounts and credit intermediaries, in other areas, such as retirement savings and financial literacy, work is at a more preliminary stage.
The Commission considers that constant attention is needed to ensure that citizens reap the benefits of a single market. In pursuing its strategy, the Commission will adopt an open and inclusive approach to identify and address problems, consider the full range of policy tools and, where appropriate, will take targeted action.
The Commission welcomes general comments and feedback from stakeholders on the contents of this paper and answers to the questions therein. Responses should be sent by 16 July 2007 to email@example.com. Responses will be placed on the Commission's website unless explicitly indicated otherwise.
1. The Commission is currently reviewing the single market to ensure its policies are fit for the 21st century. The interim report to the Spring European Council outlines the new approach to using single market instruments, and focuses on enhancing consumer welfare. The Commission will present its final report in autumn 2007, which will include concrete measures to benefit citizens. Retail financial services represent an important part of this review.
2. Building on the Commission's White Paper on Financial Services 2005–2010, the results of the Commission's sector inquiry into retail banking and the interim report on business insurance, the Green Paper seeks to strengthen and deepen our understanding of the problems faced by consumers and industry in the field of retail financial services and to establish the scope for and impediments to further initiatives in this area. The results of this consultation will be incorporated into the Single Market Review, to be published in the autumn.
3. The Green Paper sets out the overarching objectives of the Commission’s policy in the area of retail financial services, presents in more detail the actions necessary to bring the benefits of integrated EU financial market to users, and requests feedback from stakeholders on the direction being taken.
4. IN THIS PAPER, RETAIL FINANCIAL SERVICES ARE UNDERSTOOD AS SERVICES SUCH AS CURRENT ACCOUNTS, PAYMENTS, PERSONAL LOANS, MORTGAGES, SAVINGS, PENSIONS, INVESTMENTS AND INSURANCE PRODUCTS, WHEN THEY ARE PROVIDED TO INDIVIDUAL CUSTOMERS, INCLUDING RETAIL INVESTORS. THEY ARE ESSENTIAL FOR THE EVERYDAY LIVES OF EU CITIZENS BY FACILITATING THEIR FULL PARTICIPATION IN THE ECONOMY, ENABLING THEM TO PLAN FOR THE LONG term and protecting them in unforeseen circumstances. They involve major financial commitments. Home loans are the largest lifetime financial exposure for most EU citizens, with outstanding mortgage balances reaching almost 50% of EU GDP. Investment funds in the different Member States account for between 4% and 23% of EU household financial assets.
5. Retail financial services are important in macro-economic terms. Retail banking (over half of total banking activity) generates 2% of EU GDP annually in gross income. An ageing population puts added pressure on public finances, increasing the potential need for more private and work-based retirement provisioning and health cover. This helps explain the growing economic importance of the pension, insurance and investment fund sectors. At the end of 2004, investments by primary insurers reached EUR 6 trillion and EU private pension funds managed EUR 2.5 trillion in assets. UCITS funds are capitalised at over EUR 5.7 trillion, over 50% of EU GDP. Life insurance premiums alone represent 5% of EU GDP.
6. Significant progress has been made in delivering a single market for retail financial services. A framework is in place to ensure the financial soundness and integrity of Europe's retail financial services providers in the areas of banking, insurance and securities. This framework is designed to achieve multiple policy goals, including prudential stability, competition and a high level of consumer and investor protection. In some areas, such as investment services and life assurance, comprehensive rules have been put in place to protect the interests of retail customers and investors. Furthermore, the introduction of the euro, combined with the effects of the Financial Services Action Plan, has spurred greater competition in Europe's financial services markets, particularly wholesale markets.
7. Retail financial services integration appears not to have yet reached its potential and competition in some markets seems insufficient, particularly in areas like payments and retail banking, which may leave EU consumers unable to take full advantage of the benefits of the single market. The following indicators illustrate this:
8. Modest cross-border activity . With the exception of UCITS, cross-border trade is limited and activity through cross-border establishment or mergers is lower than in most other sectors. Commission surveys suggest that only 1% of EU consumers currently buy financial services cross-border at a distance, while 26% of consumers do so domestically, for instance over the phone or internet. In insurance, consolidation of the industry has taken place through mergers and establishment rather than by opening branches and providing cross-border services. The volume of cross-border business is extremely small, with domestic insurance companies accounting for more than 90% of total premium income in most markets. 50% of business is accounted for by the 20 largest European insurance groups, which in many cases have a wide European and even global presence.
9. Wide variations in prices . Although interest rate levels have converged to some extent in areas such as home loans, due largely to general macroeconomic convergence and the introduction of the euro, substantial differences remain for payment services and products such as consumer credit and current accounts. For example, euro credit transfers are free in some Member States and cost more than EUR 10 in others. In other sectors, such as motor or home insurance, comparisons of the base price of an insurance product are more difficult as coverage and local risk conditions vary widely. In 2008, the Commission will study the price variations in key retail financial services.
10. Restricted product diversity and choice . In certain Member States long-term fixed rate mortgage products and some newer products, such as equity release mortgages, may be difficult to obtain, which may limit consumer demand and market growth. In four Member States, more than a quarter of all savings accounts have tax incentives, while such products are rare elsewhere in the EU. Problems with tax deductibility have proved an obstacle to the cross-border sale of some life insurance and pension products.
11. Large variations in market performance . The profitability of retail financial providers varies widely. For example, retail banking profitability in the Nordic countries, Spain and Ireland appears consistently above the EU average and much lower in Germany, Austria, the Netherlands and Belgium.
12. Without further efforts, European retail financial markets are likely to remain fragmented. Differing regulatory and consumer protection frameworks, taxation policies and fragmented infrastructures create legal and economic barriers to market entry. Legal barriers may prevent or complicate the offering of certain products or accessibility to market infrastructures, thus limiting competition and stifling innovation. Economic barriers such as the need to adapt products, business models and pricing strategies raise the costs of doing business in another Member State. These barriers deter market entrants, restrict consumer choice and push up prices for consumers. High switching costs can reduce consumers' potential to change providers for products such as bank accounts and investment funds. The inability to access information, or incomplete information, may mean that consumers are unable to choose the best deal.
13. Consumer behaviour and preferences may also limit market integration. Despite the increased mobility of the population and the growth of cross-border retail financial service provision (including through direct channels such as the Internet), most consumers still opt for products distributed locally through branches, subsidiaries, and intermediaries.
14. Notwithstanding that most customers of retail financial services are likely to remain domestically focused and that consumers must remain free to choose a local product or service if that is their preference, the Commission considers that further reforms may be needed to make markets work better for consumers.
3. BETTER REGULATION AND RETAIL FINANCIAL SERVICES
15. Improving the operation of Europe's retail financial services markets may require targeted and considered action, building on what has been achieved. Some of the stakeholders consulted in recent years have indicated that more regulation in this area is unlikely to bring significant benefits for consumers. However, according to other sources, a regulatory approach may be needed in some cases. Building a shared understanding of the policy challenges is indispensable in order to design policies that produce concrete benefits for consumers.
16. Initiatives should only be pursued where there is evidence of clear and concrete benefits for citizens and a strong economic rationale. Policies must be based on solid economic evidence and be subjected to thorough impact assessments. The assessment of appropriate solutions must be made on a case-by-case basis, depending on the specifics of the market and problems identified. The Commission will only undertake new regulatory initiatives in retail financial services if the economic case is made and if factors such as consumer confidence and cross-border activity can be improved. Once policies have had sufficient time to prove their efficiency, the Commission will evaluate their impact, in particular whether they deliver genuine and concrete benefits for consumers. Where measures are not working, the Commission will not hesitate to propose their withdrawal.
17. In pursuing its strategy on retail financial services, the Commission will adopt an open and inclusive approach to identify and address problems, consider the full range of policy tools, binding or not, promoting where appropriate market-led initiatives or optional EU legal frameworks such as the so-called "28th regimes". Targeted actions will be undertaken where necessary.
4. OBJECTIVES AND ACTIONS
18. This section outlines the Commission's objectives in the field of retail financial services: bringing concrete benefits for consumers notably in terms of prices and choice; enhancing consumer confidence; and empowering consumers, and sets out how the Commission intends to achieve them.
4.1. LOWER PRICES AND MORE CHOICE FOR CONSUMERS
19. The Commission is committed to removing barriers for retail financial services where this will lead to concrete benefits for consumers in the form of a wider choice of products which correspond to their needs and at more competitive prices.
BRINGING DOWN PRICES THROUGH INCREASED COMPETITION
20. The EU regulatory framework aims to create the conditions under which competition can thrive and market forces can push prices down while maintaining the quality of products provided. The Commission will take appropriate action, be it through enforcement of competition law or robust infringement policies, where there appears to be a practice of not applying or respecting Community legislation. It may also take other initiatives (including legislative ones, as justified following a full impact analysis) in order to ensure that markets are fair and give consumers better deals. Obstacles to the basic freedoms provided by the EC Treaty will be addressed to ensure that markets are open and competitive. The Commission's sector inquiry into retail banking suggests that better market access for financial institutions established in other Member States reduces prices for consumers.
21. It is important that consumers wishing to change providers are not dissuaded or prevented in any manner from doing so. A market with well-informed and mobile consumers forces financial institutions to compete to attract and retain them.
22. Barriers to customer mobility, such as fees for terminating an account or policy, poor or complex information, product tying and the high administrative burden of changing providers, need to be addressed.
23. Lenders who are unable to access accurate credit information may charge higher prices or even refuse to provide credit to consumers. This makes it difficult for consumers to shop around for better offers, both nationally and on a cross-border basis.
ONGOING AND PLANNED INITIATIVES
The Commission will tackle the barriers to competition identified by the sector inquiry into retail banking  . In relation to payment cards, the Commission will apply EC competition law where schemes artificially raise costs for consumers. An ongoing area of work refers to multilateral interchange fees, typically paid by the bank of the merchant to the bank of the cardholder. Practices that weaken inter-network competition are likely to be subject to competition scrutiny. Besides payment cards, the Commission's action will aim at ensuring that access to credit registers and to payment clearing and settlement systems is not unduly withheld.
The Commission will work together with the national competition authorities in the framework of the European Competition Network in deciding how to best deal with practices that restrict competition and reduce consumer welfare.
An expert group on customer mobility in relation to bank accounts was set up by the Commission in 2006. It will publish its recommendations in May 2007. Among the options considered by the group is the development of arrangements for switching bank accounts (at national or EU level) and of various measures aimed at increasing information transparency and comparability. These options will be carefully considered by the Commission, which will weigh their impact before making final decisions.
In recognition of the increasing possibilities of employees to work in other EU Member States, and the importance of preparing adequately for retirement, for example through work based pension schemes, the Commission has recently proposed a Directive to improve the portability of supplementary pension rights  .
The forthcoming White Paper on Mortgage Credit will outline initiatives to facilitate the transferability of consumers' credit histories and improve lenders' access to credit information . The Commission believes that, since this issue goes beyond mortgage credit, horizontal initiatives could be envisaged to improve access and transferability of credit data.
INCREASING CHOICE, QUALITY AND INNOVATION
24. Innovation creates new challenges such as ensuring that regulation of new products, providers or financial advisors is appropriate, that consumers are able to understand and compare new products, and that a level playing field between products is guaranteed. The Commission wishes to enhance consumer choice, provided that this benefits the consumer. Indeed, consumers often express the concern that a too wide choice of products may distract or confuse them, complicating their selection of the product best suited to their needs.
25. The Commission is determined to ensure that the removal of barriers to a single market in retail financial services improves or at least maintains the quality of products provided, and that consumers are in a position to make an informed choice. For example, the Payments Services Directive seeks to improve the quality of service provision to consumers by increasing the speed at which payments are made and by facilitating the cross-border availability and use of certain payments products, such as direct debits. Another way to ensure the high-quality of the service provided to consumers might be accredited certification through international standards. Indeed, accredited certification could provide a sound and transparent assessment of different aspects of performance, and serve as a quality indicator to consumers, especially in cases of cross-border activity.
26. A wide range of banking, insurance and savings products are available in the EU. However, a product offered to consumers in one market cannot, in many cases, be offered in another market without costly adaptation to local requirements. For example, certain products, such as the ability to execute direct debits on a cross-border basis, may not be available because of diverging legal regimes. These requirements may reflect local consumer customs and needs and be found in consumer protection rules, contract law, differing taxation and legal systems. Choice may also be unnecessarily limited by restrictions on the providers and channels through which consumers access retail financial services. Such restrictions should only be maintained if objectively justified.
27. The insurance Directives allow insurers to advertise and sell their full range of insurance products throughout the EU, and have abolished the prior approval of tariffs and policy conditions. Insurance products are, however, required to respect national rules justified by the need to protect the 'general good'. This may limit the choice of products available to consumers and impose further costs on insurers. The insurance industry has expressed the view that retail business is local and requires a strong local presence. The Commission believes that action should concentrate on the elimination of market protectionism and on the reduction of unnecessary regulatory costs by, for example, removing unjustified general good rules and bureaucratic obstacles such as excessive reporting requirements. With the right regulatory regime, which provides a high standard of consumer protection, opportunities for direct cross-border trade will be exploited naturally, where and when this makes sense for companies and consumers.
ONGOING AND PLANNED INITIATIVES
In insurance , the Commission will in 2007, together with the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS), – examine the national 'general good' rules taking into account the relevant case law principles.
The payments industry, on a self-regulatory basis, is drawing up the required technical and business rules to make the Single Euro Payments Area (SEPA) a reality by 2010 at the latest. The Commission is closely monitoring this process. In a Communication to be published before the end of 2007, the Commission will assess progress and consider further measures to guarantee the success of SEPA for the benefit of consumers.
The Commission will later this year publish a White Paper on Mortgage Credit , containing proposals to facilitate the creation of an integrated market for mortgage credit. Issues addressed will include early repayment, information requirements, annual percentage rate of charge, advice, property valuation, land registration and foreclosure procedures. In 2008, the Commission will review national regulatory frameworks under which equity release products are marketed, and the role of non-banks in mortgage markets, in order to assess whether appropriate EU intervention is needed.
In order to develop the appropriate knowledge base for future policy initiatives, the Commission will examine why consumers generally do not purchase financial services across borders and how they could be encouraged to seek the best deals to meet their needs regardless of the location of the financial services provider.
Ageing populations and increasing pressure on public finances present clear challenges for consumers and investors, and are a new market for the financial industry. The EU framework needs to lay strong foundations for enabling a competitive, open and effective market for long-term savings, retirement and pension solutions that meet consumers' needs. The Commission has commissioned external research that will report at the end of 2007 on the current state and development of the market for retail long-term savings vehicles to help identify the range of products currently available, the main distribution channels and the influences on consumer choices. Building on this, the Commission will examine developments affecting the marketing of savings and retirement products together with arrangements governing their sale and recommendation. Due to the nature of long-term savings and pension plans, particular care is needed to ensure that consumers are being offered products that are really adapted to their needs and marketed appropriately. These are major, once in a lifetime, financial decisions for consumers. Therefore, consumers must be in a position to make their choices in full knowledge of the product, correctly assessing their circumstances and needs.
The Commission considers that there could be benefits for both consumers and financial services providers, if optional simplified, standardised financial services, such as basic bank accounts could be offered. These would be less complex than other products and would meet a European standard of consumer protection, for instance in respect of information requirements. They could therefore be offered cross-border without the need to be modified to meet local regulations. Banks would not be obliged to offer them, and would only do so where there was a business case. Consumers would have a wider choice of easier to understand products. Further work could be undertaken to assess the need for, feasibility and usefulness of such optional standardised products.
4.2. ENHANCING CONSUMER CONFIDENCE
28. European consumers need confidence to make the right choices. However, surveys show that European consumers remain concerned about the risks of cross-border activity and lack confidence in the available legal protection. Further efforts may therefore be required to ensure that consumers are confident that they will enjoy the same rights, regardless of the location of the financial institution and of the selling mode chosen. Four main issues arise in this respect: protecting consumers' interests, providing legal certainty, ensuring access to adequate redress and promoting sound and safe retail financial institutions.
PROTECTING CONSUMERS' INTERESTS
29. An equivalent level of protection throughout the EU gives consumers the confidence to choose from a range of providers wherever they are in Europe. This protection ensures a level playing field for both consumers and service providers.
30. Traditionally, EU legislation in the field of retail financial services has sought to establish minimum rules for protecting consumers in all Member States. For example, the Life Assurance Directive requires a minimum cooling-off period of 14 days. This approach is not without difficulties: in many cases, Member States have gone beyond the minimum requirements, thereby limiting the extent of the level playing field and creating diverging levels of protection amongst European consumers.
31. The modified proposal for a revised Consumer Credit Directive, whose scope is narrower than in the original 2002 proposal, seeks to promote the emergence of a genuine single market in consumer credit while ensuring a high level of consumer protection. Consumers should be able to have access to a wider range of consumer credit products at more competitive prices. Providers should be in the position to market their consumer credit products in all Member States without having to adapt the essential features to different national legislations. So far, it has proven very difficult to find a consensus between Member States on the content and the level of harmonisation.
32. Financial services are increasingly sold or marketed over the internet or by telephone. The Directive on the distance marketing of financial services was adopted in 2002 in order to boost consumer confidence in using these technologies in the area of financial services cross-border and to ensure a smooth functioning of the single market. Key elements of the Directive are pre-contractual information requirements and the right of withdrawal.
33. The Markets in Financial Instruments Directive (MiFID) introduces a harmonised comprehensive set of operating conditions applicable to both investment firms and credit institutions that regulates the relationship between them and their clients when they offer investment services. This framework consists in a set of conduct of business, best execution and client order handling rules as well as inducements and conflicts of interest provisions. Specific attention is granted to retail clients for which a specific regime has been established, which entails reinforced fiduciary duties upon the firm. The purpose of this approach is to protect consumers by enhancing responsible behaviour by firms.
34. Consumers are also indirectly protected through professional indemnity insurance that ensures that, in the event of financial loss owing to negligent advice or other professional misconduct by insurance and investment intermediaries, damages or settlements may be claimed. A recent report concluded that the requirements to have professional indemnity insurance remain valid but that further monitoring will be required as the legislation is not yet fully implemented in Member States.
PROVIDING LEGAL CERTAINTY FOR CONSUMERS
35. The law applicable to contractual obligations is currently regulated by the Rome Convention of 1980. On the basis of this Convention, a consumer who concludes a contract for the supply of goods or services is faced with a complex situation: the law applicable to the contract is, in principle, the one chosen by the parties, which often means in practice the law chosen by the provider in the standard terms and conditions. However, a consumer will, under certain conditions, benefit from the protection given by the mandatory provisions of the law of the country where he resides. The proposal for a Regulation on the law applicable to contractual obligations will modify somewhat the rules on the law applicable to contractual obligations in contracts with consumers. One of the most important changes is the establishment of the principle that the law of the country where the consumer resides habitually will apply to the contract if the provider pursues his commercial activities in the country where the consumer has his habitual residence. This will provide more legal certainty – and thus, confidence – for the consumer who will know that the rules he knows best will apply to the contract. The proposal for a Regulation is currently discussed in the Council and the European Parliament with a view, in particular, to finding an adequate balance between consumer and industry legitimate interests.
ENSURING ACCESS TO ADEQUATE REDRESS
36. To have confidence in buying financial services cross-border, consumers need to know that they would have easy access to redress in the event of a dispute. Consumers have two main options: bringing their dispute to court, or to an out-of-court alternative dispute resolution (ADR) scheme, such as ombudsman or consumer complaints board. ADRs do not replace the possibility of court action, but offer an easier, cheaper and quicker alternative. ADR schemes may be either public or private initiatives. Partly because of this diversity, the status of the ADR decisions may vary.
37. Normally, an ADR scheme in the country of a financial services provider is competent to deal with consumers' complaints. This may prove complicated for consumers involved in cross-border disputes, since they need to be aware of the existence and details of foreign ADR schemes. In 2001, the Commission launched a network of EU ADR schemes, FIN-NET, in which members cooperate under common rules, thereby facilitating the out-of-court resolution of cross-border consumer disputes in financial services. Cooperation between FIN-NET members means that consumers shall only contact ADR schemes in their own country. Member schemes assist consumers in transferring complaints to the competent ADR scheme in the country of the financial services provider.
38. Despite these efforts, the handling of consumer complaints may still be particularly problematic in a cross-border context.
PROMOTING SOUND AND SAFE RETAIL FINANCIAL INSTITUTIONS
39. A robust prudential framework is of paramount importance. Indeed, consumers need to be confident in the soundness of financial institutions, wherever they are located in the Union. The current EU prudential framework should be kept under constant review and adapted to market and financial developments. The next step in this respect will be the modernisation of the insurance prudential framework, with the forthcoming "Solvency 2" proposal.
40. Specific Directives in the field of investment services and banking ensure that consumers throughout the EU enjoy a high standard of protection, should the establishment with which they have deposited or invested fail. Following a review of the framework for deposit guarantee schemes, the Commission will seek to ensure that consumers are well informed about the coverage of their deposits; that all deposits are covered even for newer financial products and that the length of time that it takes for consumer to be reimbursed is limited.
ONGOING AND PLANNED INITIATIVES
Negotiations in the Council on the modified proposal for a new Consumer Credit Directive are being pursued with the aim of a rapid adoption.
The objective of increasing consumers' cross-border activities in financial services at a distance has not yet been achieved. The Commission has begun a review of the Directive on the distance marketing of financial services  and launched two studies in order to assess the legal and economic impact of the Directive. A Commission report is scheduled for 2008. It will examine if the Directive has achieved its goals and, if not, why it has not. If necessary, the Commission will propose amendments to the Directive.
The Commission will follow closely the work announced by CEIOPS for 2007 to examine co-operation between supervisors on issues directly influencing insurance policyholder protection such as the treatment of cross-border complaints.
The Commission will monitor existing recommendations which establish a number of minimum guarantees for ADR schemes . The proposal for a directive on certain aspects of mediation in civil and commercial matters, when adopted, will complete the recommendations by ensuring a sound relationship between the mediation process and judicial proceedings.
The Commission is aware that not all national ADR schemes are members of FIN-NET and that not all EU Member States have ADR schemes for financial services. The Commission will contact competent national authorities later this year to collect information on the existing national ADR schemes that are not members of FIN-NET and identify gaps. It will then assess how the gaps in FIN-NET membership and at national level could be filled.
4.3. EMPOWERING CONSUMERS
41. Consumers are able to make the most of the single market if they have the financial literacy to make decisions for themselves, are well-informed, receive independent high-quality advice and can move freely between providers. By empowering consumers in this way, they may be more confident in seeking out the best deals to meet their needs regardless of the location of the financial services provider. This in turn can stimulate competition and make financial services markets work better.
DEVELOPING CONSUMERS' FINANCIAL LITERACY
42. Developing consumers' literacy in financial matters is becoming increasingly important, particularly as individuals take an increasing role in making decisions affecting their financial security and as capital markets become more accessible to consumers. Numerous international surveys have demonstrated a low level of understanding of financial matters on the part of consumers. There is also a strong correlation between low levels of functional literacy and the ability to make appropriate financial decisions. Consumers with poor financial literacy find it hard to understand and make use of the information they receive when they purchase financial services, since information is generally prepared having average consumers in mind rather than those with lower levels of financial literacy.
ONGOING AND PLANNED INITIATIVES
While financial education is primarily a matter for Member States, the Commission has already funded some financial literacy initiatives, in the context of its work on consumer protection and on combating social exclusion, and believes that more could be done to encourage the provision of high-quality financial education. The role of the Commission could be, for instance, in developing guidelines, collecting and promoting best practices, or indicating new innovative approaches. In developing its policies towards financial literacy, the Commission will draw on the feedback from participants to its Conference on financial capability held on 28 March 2007 and on the findings of a study on financial literacy schemes in the EU which it has commissioned and which will be available at the end of 2007.
PROVIDING THE RIGHT INFORMATION AT THE RIGHT TIME
43. Selecting an inappropriate product can have adverse consequences for retail consumers and investors and the best safeguard against this is good disclosure and sound information. Good information helps consumers to understand the key features of a financial product, including the risks, potential returns and costs. However, evidence suggests that the information provided is often inadequate or too complex, making it difficult to compare prices, products and providers and to take an informed financial decision. Financial products are subject to different information requirements and therefore offer different degrees of protection. The Commission believes that information needs to be complete, correct, clear, proportionate, understandable and presented in a timely manner. Information requirements also need to be consistent.
ONGOING AND PLANNED INITIATIVES
The Commission has ongoing initiatives to improve the quality of information provided to consumers in areas such as consumer credit, mortgage credit, investment funds (UCITS) and payment services.
Consumer testing will be undertaken to evaluate the relevance and usefulness of pre-contractual information in certain areas,
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