Reply to the consultation on the Green Paper on Retail Financial

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					    BBA response to the European Commission Green Paper on Retail
         Financial Services in the Single Market COM (2007) 226

Executive Summary

The BBA is the leading UK banking and financial services trade association and acts on behalf of its
members on domestic and international issues. Our 253 members and associate members are from
60 different countries and collectively provide the full range of banking and financial services. They
operate some 130 million personal accounts, contribute £50bn to the economy, and together make
up the world’s largest international banking centre

We are pleased to respond to the European Commission’s Green Paper on Retail Financial
Services. Our response is summarised below.
   • We believe that the Single Market for financial services should benefit both the industry that
       provides it and the consumers that use them. Therefore the outcome of the Green Paper
       consultation should be a few clear proposals that obviously benefit consumers and markets.
   •   The European Commission should conduct consumer research to discover their
       requirements for financial services. Furthermore, such consumer research should look into a)
       the increasing number of mobile workers and b) those who predominantly remain resident
       within one Member State.
   •   Consumers and industry would benefit from greater transparency in the Single Market. This
       could take place in the form of aggregator services such as price comparison websites. More
       information will enhance competition in the market place, giving consumers lower prices and
       better deals.
   •   Market-led solutions, such as voluntary codes of conduct, to enhance shopping around for
       banking products should be promoted.
   •   Work should also be undertaken to iron out the complexities for individuals from anti money-
       laundering and counter terrorist financing rules.
   •   The Commission should research the differing credit data collection models in the various
       Member States and evaluate how to improve comparability between jurisdictions to allow
       consumers to move their credit histories with them and for lenders to make credit available to
       more consumers.
   •   Consumers are unlikely to use non-domestic financial services products unless they can feel
       more confident in both judicial and non-judicial redress mechanisms. Given the large
       differences between Member States, more work should be undertaken into ensuring greater
       cooperation between Member States’ authorities and strengthening “single contact desk”
       solutions like FIN-NET.
   •   Finally, we believe supply-side research should look into inherent product risks in cross-
       border transactions, such as fraud, money-laundering or residual risks, as well as what are
       the common “routes to market” by providers in the EU.




                                                                  ::ODMA\PCDOCS\BBA01\291662\2 18 September 2007
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                “Mobile Consumers” and the shape of 21st Century
                            Retail Banking in the EU
Introduction

There are signs that the “cross-border”1 retail market is growing in the EU. The Commission’s
Communication on Consumer Policy states that, “In 2006, 26% of consumers made at least one
cross-border purchase in the previous twelve months, compared to 12% in 2003. E-commerce is
becoming a more popular sales channel: in 2006, 27% of all consumers made a purchase through e-
commerce2 but only 6% did so across borders. 50% of consumers with an internet connection at
home made e-commerce purchases but only 12% of these across borders3. This is welcome
progress to a single market that also recognises that many customers of retail financial services may
remain domestically focused and should remain free to choose a local product or service if that is
their preference.

The BBA welcomes the Commission’s focus on the retail financial services agenda and the issues
that it will address to open up the single market. The BBA believes that the Single Market is good for
banks and for financial services generally and indeed good for European citizens. We are in favour
of a Commission approach that continues to support the current supply-side initiatives and service
innovations being brought to market commercially, yet equally one that also starts to provide
stimulus to the demand-side of the Single Market. We see the green paper as a natural extension of
the Commission’s drive towards a “Single Market for Citizens’, which promotes localised activity
wherever possible, given that that “the EU institutions cannot deliver an effective Single Market on its
own.”4
We see three steps to the creation of a true cross-border retail financial services market within the
EU. First should be the creation of consumer choice, effective competition and a level playing field
in each member state market - shopping around (transparency), account opening, switching codes,
data sharing and confident redress all cover this area in the main, although there is a direct
correlation between the effectiveness of these measures and the consistency of their application.
Second, barriers to entry should be reduced, in turn increasing consumer choice and competition in
each market. Third, consideration could usefully be given to better alignment of key terms and
conditions, whilst not stifling innovation, and acknowledging that there are clearly areas such as tax
where the early prospects of harmonisation are limited, but this should not be the case in all areas.

Background
Greater numbers of people are on the move than ever before. Across the EU, the mobile working
population appears to be rising, large numbers of people are retiring abroad, and increasingly,
people are leading busier and more technologically driven lives. The picture of the mobile working
population is a complex and varied one with the various mobility indicators differing within and
between EU Member States, particularly between the EU15 and the new Member States.
Substantial variations also exist within these States. The actual number of people within the new
Member States who intend to move to another EU country is, in absolute terms, quite significant.

1
  By cross border we mean that national A buys a product or service cross-border from a provider established
in country B
2
  The figures for cross border financial services appear to be low: 26% of consumers have brought a financial
service at a distance from a seller provider based in their home country, but only 1% have done so cross
border”, in domestic markets, the figures for online banking are rising. In the UK, for example, online bank
account access has increased from 8.7 million in 2001 to 28.2 million in 2006 with the number of balance
account queries online having increased from 93 million in 2001 to 1.2 billion in 2006.
3
  Commission Communication EU Consumer Policy Strategy 2007-1013 “Empowering consumers, enhancing
their welfare, effectively protecting the consumer” COM (2007) 99 Final
4
  Communication from the Commission, “A single Market for Citizens”, COM (2007) 60 final
                                                                                                  18 September 2007
                                                   3

This is clearly reflected in the case of Poland: about 7% of that country’s population expects to move
to another EU country in the next five years. With a population of some 40 million people, this would
imply a considerable number of migrants.5
In technological terms, analysts further predict that there will be increased use of the internet driven
by mobile phones with internet capability. Mobile phone usage is also increasingly prevalent among
younger generations. In the UK alone, a million youngsters between the ages of five and nine own a
mobile phone (double the number of two years ago). The average age at which a child gets their first
mobile phone is eight.6
Overall, these “Mobile-phone consumers” are calling for different ways in which they can manage
their money, access financial services, and generally interact with their banks through search
engines and comparison websites, blogs, and social interactive forums – this is where virtual verbal
exchanges take place. One of the ideas behind Internet 2.0 is that technology, and the internet in
particular, is viewed as placing power in the hands of communities which in turn affects their financial
behaviour and brand loyalty. Whilst these consumers will still need traditional banking services, the
difference in the way in which they use and will want to use technology to interact with their banks.
Banks must therefore be easy to interact with and provide services that increasingly offer superior
technological capabilities if they are to satisfy changing demands. These demands also open up
new opportunities. Retail banks are listening to their customers.

The culmination of all these drivers, quite literally, will change the face of retail banking in the EU,
and all with significant benefits for customers. By reformulating, retail distribution strategies, the
primary focus of banks is to strengthen and enhance the connections they already have with their
customers as well as to compete and differentiate their brands, in the provision of value added
services.

Essentially there are two ways in which providers can sell and consumers can gain access financial
products and services across borders: Provider firm in Country A sells into or establishes itself in
Consumer Country B or Consumer in Country B travels to and/or makes purchase from provider in,
Country A. It is the latter of these scenarios we are referring to when referring to the “mobile
consumer” and the demand-side drivers in the market.


The BBA feels that the Commission should first research the requirements of consumers to provide
context for an examination of supply side barriers.

The requirements of the increasingly market mobile population of Europe should be studied - many
of the mobile population are young working people and are receptive to economic and social
change. The huge numbers who now use the internet should also be closely considered.

This aligns with the Commissions’ own policy statement to “develop a richer understanding of
consumer behaviour”, in particular to understand how rational consumers are in practice and how
new technologies and marketing practices affect.7

Shopping Around

We believe that future competition in retail banking requires consumers to be able to shop around
and choose for themselves the best deals. Therefore, a number of persisting inhibitors also need to
be tackled by the Commission so that consumers have the right “tools” if the Single Market is to
operate effectively. We have set out these tools below.

(i)    Transparent Information for Shopping Around

5
  Supra, p29
6
  According to research undertaken by the National Consumer Council in April 2005
7
  Infra, Commission Communication on a EU Consumer Policy Strategy 2007 – 2013, p8
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                                                  4


For consumers to be confident in their product choices they need transparent, comparable and
easily understood information on financial products with which they can shop around. The multitude
of financial products and services available in the Single Market makes decision making on a Pan-
European basis overly complex, and more can be done to improve the current information on offer
either through commercial operators, by the industry or both. The Banking community is well placed
to carry out voluntary initiatives to this end determining what might be disclosed, to whom it ought to
be disclosed, how information can be made more transparent and ultimately better communicated to
consumers.

Defining personal account services and achieving a common understanding on “product tying”, for
example, requires further scrutiny (see also below).

Given that retail banks are often major financial groups that operate across Europe and indeed
globally, the BBA is currently discussing with our members whether, and if, so how best to
implement these recommendations in practical terms.

The UK banking industry would be happy to work with the Commission on a voluntary basis to
further consider the presentation of information to be disclosed to consumers, in particular,
transparent charging information.

(ii)    Improved Information on Account Opening

Consumers often experience difficulty in opening a bank account owing to the Identification and
Verification (ID and V) requirements that all banks must follow in fulfilling their money laundering
obligations, and which we believe, can act as a deterrent to consumers who wish to open an account
with a bank across borders.

However, it is not known to what extent ID and V practices differ across the European Union, so, in
the first instance, the European Banking Federation has started gathering information from its
members about the procedures used by banks on account opening and banks will be doing further
work in compiling information over the next months. Once this exercise has been completed, we
would be happy to discuss with the Commission how best this information can be made available to
consumers, including publication to web sites. Consumer facing information about bank opening
procedures will again provide consumers with the information they need to operate effectively in the
Single Market.

At the same time as taking forward this information initiative, we recognise the that Anti-Money
Laundering and Counter Terrorist Financing rules will - by the very nature of their being imposed
under Community law - make banking more inconvenient to individual low-risk customers. However,
we believe that cross-border retail banking can be made more convenient to the individual customer
by minimising the complexity inherent in some of the rules.

To this end, we believe that more work should be done to ensure uniform implementation of EU-level
legislation. For example, full use should be encouraged of the ability under the Third Money
Laundering Directive for bank X in one Member State being able to ask bank Y in another Member
States for assurances of their due diligence on money-laundering rules compliance, and to rely on
that assurance.

We believe that improved information to consumers about money laundering requirements is a good
way to ensure that consumers have all the information they need to be able to open an account
offered by a bank from anywhere in the EU.

(iii)   Consumer Switching Codes

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                                                      5

We believe there is more potential in facilitating voluntary industry switching codes of conduct
between banks at national level. The Codes should set out the time frame and procedures to be
used by banks to help the customer move to another bank should they choose to do so. Switching
Codes are of value to consumers as they provide confidence that standing orders and direct debits
with existing providers will be swiftly moved without their incurring loss or delay in payments.

The UK Banking Code, for example, provides for the following:

    Moving your account

    7.2   If you decide to move your current account to another financial institution, we will give them
          information on your standing orders and direct debits within three working days of receiving
          their request to do this. Also, we will close or move your current account, without charge,
          when you ask us to do so.

    7.3   If you want to transfer your current account to us, we will tell you:

          How the process for transferring your account will work and who is responsible for each step
          in the process;
          What information your old financial institution will pass to us;
          What features you will be offered with the new account so that you can compare your new
          account with features on your old account; and
          How long the transfer is likely to take.

          We will give you what you need to operate the account within 10 working days of approving
          your application.

An added protection in the UK Banking Code is that customers will be refunded any fees or charges
that accrue due to any bank failures during the switching process.

An April 2007 survey found that the rates of switching are increasing in the UK, with 453,100 more
people moving their current account in the six months to the end of March compared with the second
half of 2006. 8 This demonstrates that the Switching Codes are effective at creating impetus for
consumers to shape markets.

Switching Codes have proven effective in encouraging demand-led competition in current account
markets. We therefore believe that the Commission should rely on self regulatory or co-regulatory
initiatives at local level, but with EBF and Commission engagement with the banking industry to take
forward ‘standardisation’ discussions on a pan-European basis.

(iv)      Data sharing

We believe improved credit data sharing is an important part of promoting retail financial services in
the internal market, while respecting data protection and fraud considerations. Credit data sharing
will enable consumers to gain access to services from providers across the EU, as well as for
providers to gain access to the data needed to make available credit services across borders.

As a first step to improve sharing of data it is necessary to develop criteria to make the existing data
comparable between jurisdictions. A common position should be developed on what is required for
data to be comparable. In the long-term, common standards for collecting the data should be
developed.


8
    A survey from Moneyexpert.com, issued on 25 April 2007

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                                                   6

Underlying any data sharing, however, should be the principle that it is shared on a reciprocal basis
and strictly controlled so that consumers’ data are only used for the purposes that have been
consented to. In addition, we believe that consumers should be encouraged to take an interest in
their credit records, this, along with the growth in data volumes in countries should aid mobility.

(v)    Confident Redress

Consumers have to feel more confident that redress mechanisms are compatible between
jurisdictions. If consumers are to have confidence in the products and services they buy, including
from across borders, then they must be able to claim redress in circumstances when things go
wrong. Underlying this basic principle, where complaints do originate cross borders, consumers must
also be confident that they can receive assistance in their own country. This point was recently
raised in the case of “Equitable Life”, the life insurer.

ADR schemes already exist in many Member States. Whilst these have been established on both
voluntary and statutory lines, ADR provides a quick and inexpensive way for consumers to resolve
their disputes.

The Commission should encourage the development of Alternative Dispute Resolution schemes
across Europe and for these to form a part of the FIN-Net. Given the different merits of each
complaint, redress should be provided on a complaint by complaint basis.


RESPONSES TO SPECIFIC QUESTIONS:

1.     Do you agree with the objectives and priorities set out in this paper?

The BBA agrees with the Commission’s objectives as set out in the paper. The outcome should
rightly be greater choice and lower prices for consumers.

The BBA also welcomes the Commission’s adherence to better regulation principles and supports
the setting of policy based on solid economic evidence, including the use of thorough impact
assessments.

The Commission makes a number of observations of the current state of the Single Market, including
modest cross border activity; wider variations in prices; restricted product diversity and choice; and
large variations in market performance.

It is important to recognise the context in which they are made as we believe that whilst consumers
might be increasingly willing to transact cross-border, the Single Market is still very much a collection
of 27 separate markets, each with its own unique characteristics. So, for example, whilst some
markets may be characterised by restricted product diversity and choice, in others a wealth of
competitive product and service offerings will exist depending on the maturity in the market.

To an extent, variations in price are a result of different banking models and different types of
banking services that exist across the EU; being able to make meaningful comparisons is not a
straightforward exercise, as acknowledged by the Commission in its Report on the Retail Banking
Sector Inquiry.

2.     Are there issues that are not covered in this Green Paper, which are important for the
integration of retail financial services markets and to which the Commission’s attention
should be drawn? For example, are consumers in their everyday life confronted with
requirements in limitations from either financial services providers or other stakeholders
(employers, social security, administrations, businesses, etc) which restrict their ability to

                                                                                              18 September 2007
                                                   7

use cross border financial services (such as an obligation to have a bank account or
insurance policy in one specific country, etc).

We do not think that further legislative initiatives are the best solution to complete the Single Market
for retail financial services. Often non-legislative measures such as Codes of Conduct for self–
regulation are more effective and flexible, with legislation only used as a last resort. These are
measures that should be considered in the retail financial services area to bring benefits to EU
citizens.

Before reaching for the legislative option, the Commission should establish that legislative proposals
would be positive for consumers. We welcome the re-statement in the Green Paper of the
Commission’s commitment to the principles of Better Regulation and we would be happy to
contribute to the Commission’s examination as to why consumers generally do not purchase
financial services across borders.

We believe that there are a number of barriers for firms seeking to offer their goods or services in
other Member States in the EU. This includes both providing services direct to consumers in other
member states (cross-border services) and acquiring local operators in other Member States in the
EU (scale entry). These barriers include for example:

   •   Different stages of development in local markets
   •   Differences in language and cultures, including differences in structures of consumer demand
   •   Difficulties in penetrating local markets
   •   Differences in taxation, legal basis, employment laws and access to payment systems.

The Commission will also be aware that the BBA has real concerns over Article 5 of the
Commission's text for the Rome 1 Regulation - in particular the proposal that for consumer contracts
the consumer's member state contract law would be applicable (rather than just the mandatory
consumer protection rules as in the Convention). This would be a material deterrent to the cross
border sales of financial services (and other goods and services) and result in a significant reduction
of consumer choice.

3.      The Commission has undertaken several initiatives to improve consultation with
consumers and to secure their input into its policy making. Should further steps be taken and
if so, what steps?

We understand that as part of the open consultation process, the Commission regularly consults
with, and hears representation from, consumer organisations such as the European Consumers’
Organisation (BEUC), the European Economic and Social Committee (EESC), Financial
Ombudsmen (FIN-NET) as well as its own FIN-USE forum of consumer experts. This provides
consumer organisations with opportunity to make representation and provide important input to the
Commission policy process.

Under the UCITS work stream, the Commission has further committed to consumer testing any new
information requirements for UCITS which should also ensure that consumer interests are being
taken into consideration. We support this initiative and would further urge that the Commission
undertake consumer surveys to complement the EU policy making process.

4.     Is consumer choice unnecessarily limited by restrictions on the providers and
channels through which they access retail financial services? What are, in your experience,
these restrictions?

Financial products and services are essentially contracts and as such must operate within the legal
framework of the country into which they are sold. Initiatives to harmonise these frameworks through
the Distance Marketing of Financial Services Directive and other contractual requirements are
                                                                                              18 September 2007
                                                       8

already underway. This is one component of a complex overlay of tax, cultural inhibitors and other
commercial risks for providers with will remain particularly for non-deposit savings and investment
products and the risk of non payment for credit products.

5.    Despite efforts, in particular the creation of FIN-NET, the handling of cross border
consumer complaints in the field of financial services still remains problematic. The
Commission would welcome input as to the ways to improve the current situation, for
example, should Member States be obliged to ensure that Alternative Dispute Resolution
(ADR) schemes are in place? Should providers be obliged to adhere to an ADR scheme?
Should they be contractually obliged to offer ADR mechanisms to their clients?

We understand that there are gaps in the coverage of the FIN-NET, as well as differences in the
ways that FIN-NET members handle cases. Undertaking a gap analysis and working with FIN-NET
to this end would be a sensible starting point.

If consumers are to have confidence in the products and services they buy, including from across
borders, then they must be able to claim redress in circumstances when things go wrong. The UK,
as do the Nordic Member States, has a long tradition of ADR for financial services to provide redress
outside the formal court process.

The UK Financial Ombudsman Service is independent and brings quick resolution to consumer
disputes. By extension, where complaints originate cross borders, consumers must also be confident
that they can receive assistance in their own country.

FIN-NET is a network of those ADR schemes that already exist in Member States and which are
also required apparatus, for example, under Article 14 of the Distance Marketing of Consumer
Financial Services9. We believe the Commission should look for ways to develop FIN-NET to ensure
that ADR is speedy, cheap and does not preclude redress to the courts.

We are further aware that the EU Cross Border Small Claims Scheme has also recently been agreed
on the basis of mutual recognition, which further reinforces the principle that consumers should have
access to redress through institutions based in their own countries.

6.    The creation of the Single European Payments Area (SEPA) offers challenges and
opportunities for businesses and consumers alike. (a) What do stakeholders think of SEPA’s
impact on consumers? (b) Should consumers be more involved in the governance and
preparation of SEPA?

(a) To ease the processing of cross border payment, the payments industry has developed new
payment instruments, based on SEPA schemes, that will enable faster, standardized and cheaper
payments based on the IBAN/BIC standards. The new instruments will be available in 2008 or by
2010 at the latest. The standards were taken forward on a voluntary, industry basis, underpinned by
the Payment Services Directive that provides legal certainty around the time in which payments are
executed10 and establishes legal liability in the event that a payment is not made.




9
  Directive 2002/65/EC of the European Parliament and of the Council of 23 September 2002 concerning the
distance marketing of consumer financial services and amending Council Directive 90/619/EEC and Directives
97/7/EC and 98/27/EC
10
   Under the Payment Services Directive, direct debits, credit transfers and card payments will initially have to
be processed within a maximum timeframe of D+3, falling to D+1 by 2012 (although for some other payments
D+4 will remain permissible)


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For consumers within the Eurozone, the SEPA will mean that the differences between national and
cross-border payments will disappear. As SEPA also allows a larger number of standardized
payments, prices should fall due to economies of scale.

At the heart of SEPA is the drive to move away from handling cash and paper toward
electronification or more efficient front and back office processing that better supports the customer
demand for multi-channel delivery and integrated customer interfaces. Already new forms of
cashless payments are being introduced that will enable customers to send money online to
countries both within and outside of the EU, such as re-loadable debit cards with PIN protection.
(Each new transaction is instantly loaded to the debit card and funds can be accessed anytime at
ATMs or POS terminals in countries worldwide).

In the UK, a new electronic wallet for low value card transactions is soon to be rolled out nationally
that will enable card payments for transactions of £10 or less without the need for CHIP or PIN,
using the same “wave and pay” technology as currently employed by the London Underground.
Retailer acceptance will be available from 2008.

For illustrative purposes, below are two case studies of how we think consumers will benefit from the
new SEPA landscape.

The International Worker
For those making payments in the Single European Payments Area, it will be possible to transmit a
Euro payment in a single transaction to any bank account on a similar basis to a domestic one when
the SEPA standards come into effect. New Pan-European Automated Clearing Houses (PE-ACHs)
have recently announced new services to provide payment processing services to banks in line with
the new SEPA standards. In turn, consumers, banks and companies will be able to make non-cash
payments across borders as cheaply as a domestic Euro transfer using a single bank account.

Alternative services have also been developed where a migrant worker in the UK for example,
wishes to send money abroad. It is now possible to provide an account with two cards so that money
can be deposited in the UK but withdrawn from the same account using a second card in the home
country.

The International Business Entrepreneur
For those who work across jurisdictions, or who trade with firms in other jurisdictions, an account that
is capable of efficient processing of a range of payments (both direct credits and direct debits)
including payments made in Sterling or US dollars would be beneficial.

Once implemented, the new SEPA standards will harmonise the payment standards (time of
execution and liability agreements) for Euro payments across the SEPA. This will also trigger the
development of related electronic services for international businesses as banks compete with one
another to add value (and thus retain their customers and attract new ones) to their SEPA payments
capabilities. Enhanced business services in the form of Electronic Bill Payments, E-invoicing and E-
reconciliation are under development.

7.      With a view to the launch of its study on credit intermediaries, later this year, the
Commission would like to know whether stakeholders believe the current legislative
framework to be sufficient and if consumers face any particularly problems in dealing with
credit intermediaries, particularly on a cross border basis.

The BBA supports the Commission’s intention to undertake a study into the behaviours of
consumers and of credit intermediaries in the credit market.

In the UK, ultimate responsibility for credit provision through intermediaries rests with creditors
through licensing arrangements regulated by the Office of Fair Trading.
                                                                                              18 September 2007
                                                  10


In general terms, the presence of intermediaries can lead to increased competition among lenders
and a greater degree of product diversification and thus choice for consumers.

8.     The Commission believes that it has an important role to play in developing a
competitive, open and effective market for long term savings, retirement and pension
schemes that meet consumers’ needs. Do stakeholders agree and how could the
Commission contribute? Could an optional legal EU-wide regime (28th regime) for savings
and/or 3rd pillar pension products be envisaged?

A number of studies are being undertaken to gain a better understanding of the long term savings
market, and we would agree that a stable regulatory framework that encourages the growth of
savings across Europe are important aims. We are keen to understand how the Commission can
assist in developing policy beyond the ongoing UCITS and wider asset management work of DG
MARKT, and particularly given the intrinsic links that pensions saving have to tax and to state
pension systems.

The BBA also acknowledges the current debates regarding a 28th regime. It is clear that the term
the 28th regime means different things to different people. The theory is interesting but the concept
should remain optional. A great deal of research and analysis would be needed to determine if such
a regime would be successful and the difficulties that would have to be overcome in order to reach
agreement.

We see some merit in a feasibility study into the areas of simple (term-life) insurance and savings
products, but we do not consider that a 28th regime would work for more complicated products.
We are however convinced that retail financial services is an area where well targeted initiatives will
bring significant benefits to the European economy. We believe it is possible to drive commercially
the development of retail products and standard contracts, but what it is not yet clear is whether
acceptable regulatory infrastructure can be established for product approval (as opposed to product
prescription) and whether it is feasible to rely on enhanced regulatory co-operation.
9.     Do you think there could be benefits for both banks and consumers, if banks would
have the opportunity to offer an optional simplified standardised product, which would have
a good level of consumer protection, would be easy to understand, and could be offered
across borders without the need to be modified to fit local rules

We do not consider that there would be benefits to Commission product prescription. It is our long
held view that financial products and services are best brought to market through the innovation of
product providers in response to customer needs and competitive forces in the market place.

10.     The Commission believes that more could be done to improve consumers’ financial
literacy and capability. Possible measures include developing guidelines or promoting best
practices. The Commission would welcome input on how this policy should further be
developed at the European level.

Given the different educational traditions exist in different Member States, we believe financial
literacy and capability programmes is an issue for everyone but are best delivered at local levels. We
would be happy to work with the Commission and share best practice so that consumers are better
able to make their own financial decisions.

In our view, much good work has been done in this area and the strategy going forward should be to
build on this work, while recognising that it will take time to see the benefits of improved financial
capability. Our concerns arise from the continuing need to ensure this work is properly coordinated
at all levels so that effective use is made of available funds; from the development of strategy by
member state governments and regulators through to the delivery of material, often through
organisations outside financial services. To this extent, we consider that the Commission can best
                                                                                             18 September 2007
                                                 11

support this process through promotion of existing best practices, including an emphasis on
coordinated national approaches to financial capability.

The UK has a well developed financial capability agenda, largely through the Financial Services
Authority’s (FSA's) "National Strategy for Financial Capability", which is based on a seven-point
programme of developing financial skills in specific targeted areas, based on key life changes - e.g.
delivering basic financial knowledge to children at school, working with young people who are the
point of leaving home, financial education delivered to new parents and workplace initiatives. This
national strategy has recognised the benefit of delivering financial capability skills through
established channels and the FSA is therefore coordinating rather than delivering the programme,
with input from industry representatives, existing advice channels, consumer groups and others.
The National Audit Office has recently commended the FSA on progress made in this area.

In addition to the work undertaken by the FSA, the UK government is also taking an active interest in
this area and HM Treasury is expected to produce its own financial capability action plan by the end
of 2007. The main focus of this work at present is a review of generic advice (unregulated advice
which takes account of the specific circumstances of an individual, but does not result in a product
recommendation) and how such a service could best be delivered national basis.

There are many other areas in which UK banks are working directly to support improvements in
financial literacy and capability. This can be through the direct funding of financial capability
initiatives, through the provision of skills and funding resources and by working in partnership with
third party providers in order to reach target audiences.

11.    Do you think that, as they stand, the provisions on consumer information contained in
financial services directives are adequate and consistent with one another? Were it not the
case, how could the Commission ensure that the information requirements are set at the right
level, ensuring proper information but without creating any overload? Do you think that
informing consumers is sufficient or that advice should also be provided? If yes, should that
be compulsory or on request?

There are a number of consumer information provisions contained in both horizontal and sectoral
Directives that impact on financial services providers, including the E-Commerce Directive Insurance
Mediation Directive, the Distance Selling of Financial Services Directive, Undertakings in Collective
Investment Schemes Directives, the Consumer Credit Directives, the Prospectus Directive, et al.
These Directives usually adopt a minimum harmonisation approach and, in many instances, Member
States opt to go beyond the required minimum during implementation.

For providers wishing to undertake business across borders, in legal terms, the provider must ensure
that the information provided adheres to the rules of the country into which it wishes to sell. We
understand that the Commission intends to produce a Vade Mecum to clarify the inter-relationship
between the MIFID and the UCITS Directive particularly in respect of the retail distribution of
complex and non-complex products. By end 2007, CESR is to develop an ideal set of requirements,
carry out product testing and formal consultation in 2008 and make CESR final recommendations to
the Commission. We support this approach.

Further improvements can be made to the presentation of fund and product risk classifications.
Voluntary industry initiatives are already underway and we would welcome further discussion with
the Commission on this point at a later stage.

12.    Measures to improve lender’s access to credit data will be discussed in the context of
the forthcoming White Paper on Mortgage Credit. The Commission believes that more could
be done to promote the accessibility of credit data, in particular on a cross border basis. Who
should be able to access consumer credit data? How could the cross border transferability of
consumer credit data be improved, ensuring in particular that mobile credit data follows

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increasingly mobile consumers? Could a memorandum of understanding ensuring smooth
data circulation between credit bureaus, be a workable solution?

We support further activity to improve like-for-like data sharing between EU jurisdictions for those
consumers moving from one country to another, and for providers to access credit data from across
borders, while respecting data protection and fraud considerations.

The industry and the Commission should work together to look at ways in which commercial entities
can share data on an equal basis with one another and in accordance with Data Protection Law.

Currently not all Member States have arrangements in place to share data which can inhibit
consumers’ ability to buy financial products and services from providers across borders.

In the first instance, the level of Credit Data collection within countries needs to be promoted in order
to build up a volume of appropriate data. There seems to be a general acceptance that credit data
should be shared as a contributory factor to ensure responsible lending but great care needs to be
taken when considering issues relating to data sharing. Key to any data sharing should be the
principle that it is shared on a reciprocal basis and strictly controlled so that consumers’ data are
only used for the purposes that have been consented to. Consumers should be encouraged to take
an interest in their credit records.

As credit bureaux are only one part of the process involved in data circulation, any memorandum
needs to involve the data suppliers (lenders) and pay due regard to the privacy rights of individuals.

In the UK, data sharing is undertaken on a voluntary, industry basis under the auspice of the
Standing Committee of Reciprocity or SCOR. SCOR comprises trade associations represented by
their members and the Credit Reference Agencies.

13.   Fragmentation of retail insurance markets, for example, in the field of motor insurance,
does this allow consumers to reap full benefits of EU integration in this area. Do you think
that more should be done at EU level to address this fragmentation?11

We expect the retail insurance markets to remain mainly local in nature for the foreseeable future.
The reasons lie partly in consumer preference and cultural differences: policyholders prefer to do
business in their own language, with an institution with which they are familiar. There are also good
reasons from a producer standpoint, with huge differences in liability rules and in the nature of the
risks.

To the citizen moving from the UK to Belgium, a motor policy looks identical: it is a ticket that allows
him or her to drive. However, to the insurers they look very different, as they are assuming a
different-shaped bundle of risks and responsibilities. Differences in tax, social security and contract
law continue to frame national insurance product markets. In this context, regulatory initiatives are
unlikely to trigger significant increases in cross-border trade.

Any in cross-border trade, as citizens and providers find occasion to take advantage of the
opportunities offered by the single market should be market-driven. Whether it is better to offer
products cross-border or through a locally established subsidiary, is a commercial decision that is
best left to firms. The factors described above that keep markets largely local are difficult to address
through EU legislation.

The percentage of cross-border sales is not a good measure of competition in the EU insurance
markets. A better measure is the degree to which firms are competing on an EU-wide basis. The
British insurance market is both open and highly competitive. Foreign insurance companies compete

11
     Our response to Question 13 is courtesy of the Association of British Insurers (UK)
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                                                 13

directly with UK companies. The market share of foreign companies (as the proportion of net
premium income) has remained above 30% since 2002. The importance of foreign capital in the UK
insurance market has also been acknowledged by the Commission, which calculated that in 2004
the market share controlled by foreign companies in the British general insurance market, was the
highest among the major domestic European general insurance markets.

14.     Customer mobility and competition are closely associated. The Commission would
welcome input as to how customer mobility could be enhanced. In particular, in the field of
bank accounts, and as a follow up to the Expert Group’s work, would stakeholders see merits
in, for example, having EU wide account switching arrangements? Will SEPA have an impact
on customer mobility?

We believe that the Commission should primarily rely on voluntary initiatives at local levels.
Switching Codes have proven effective in encouraging demand-led competition in current account
markets.

Codes should set out the time frame and procedures to be used by banks to help customers to move
to another bank should they choose to do so. Switching Codes are valuable to consumers as they
provide confidence, for example, that their standing orders and direct debits with existing providers
will be moved without incurring loss or delay.

We agree with the Commission that customer mobility and competition are closely related.

We have welcomed the Commission’s establishing a Bank Account Expert Group on which these
issues have been considered further and we will be responding to the Expert Group Report in full in
due course.




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