Hearing on Retail Financial Services, 19 September 2007
Shared by: EuropeanUnion
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.