Hearing on Retail Financial Services, 19 September 2007

							Public Hearing Retail Financial Services, 19 September 2007

Summary of contribution
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
analysis.

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
banking.

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
retail customers.

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.