Banking services: Time for consumers to benefit?
Consumers take centre stage in the Commission's Green Paper on Retail Financial Services, which lays down options on how to make retail banking and insurance services better and cheaper for EU citizens. However, the Commission, Parliament and industry are at odds over how to improve consumer protection and choice in retail financial services.
In a Green Paper adopted on 30 April 2007, the Commission outlined the over-arching objectives of the EU's upcoming proposals on retail financial services. The paper launched a debate on how financial products purchased by individual consumers during their everyday lives, such as bank accounts, loans, mortgages, investments and insurance could be improved and harmonised across the EU.
For example, suggestions include making it easier for consumers to switch from one bank to another or benefit from the whole range of offers across Europe when considering taking credit. The Commission consultation is based on the findings of the inquiry into the retail banking sector.
The Commission seeks to improve the choice and quality of products made available to consumers by opening up the markets to increased competition. The paper states that despite the significant progress made in recent years, markets are not yet fully integrated and lack sufficient competition in certain areas, which prevents consumers from reaping the benefits of lower prices.
But despite the increasing mobility of consumers and recent growth, cross-border retail financial services represent only 1% of the sector and customers are likely to remain focused on local services.
The Commission is especially considering opening up markets, which are up until now predominantly national. It is discussing the introduction of an optional, EU-wide legal framework, the so-called "28th regime", for long-term savings, retirement and pension schemes, operating in parallel to the national schemes.
However, most EU countries are critical of introducing such a regime at the EU level, which would run alongside the 27 different national regimes already in use in the member states. User groups are especially concerned about the confusion that may be caused by offering different regimes in parallel.
Moreover, many stakeholders are also critical of the initiative, as the Commission currently does not have responsibility for pensions and retirement planning. In addition, differing national tax regimes and social welfare systems are a major obstacle to such unified products.
Likewise, varying consumer protection and information rules represent another stumbling block.
Another issue under discussion is the introduction of an optional, simplified, standardised product, such as a basic bank account, which would facilitate access to retail financial services for poorer consumers. This idea, however, has encountered huge resistance from the industry, which argues that it would hamper innovation and competition.
- Consumer protection
In order to boost consumer confidence, the Commission is looking into ways of protecting consumers and ensuring the financial soundness of providers of retail financial services. It argues that differing consumer protection rules in each member state are a significant obstacle to the market for retail financial services, and therefore advocates the adoption of harmonised consumer protection rules.
Consumer groups, however, oppose maximum harmonisation of consumer protection rules and argue that local regulators are best suited to doing this job.
- Consumer information
The consultation found that consumer education and financial literacy programmes are seen as ways of empowering consumers. The Commission wants to equip consumers with increased financial literacy and improve the transparency of information made available to them. This could be achieved through school curricula and education, for instance.
However, consumer groups warn that this could come at the cost of consumer protection rules and quality information. The industry warns of an information overload for consumers, while user groups call for a higher quality and consistency of information to be provided in clear language and a simple format.
One question raised with regard to this issue is whether those who provide retail financial services should also be obliged to advise consumers, as this would then create a conflict of interest.
Internal Market Commissioner Charlie McCreevy, in charge of the proposal, said: "We want to create a real single market for retail financial services and bring a range of tangible benefits to European consumers."
Socialist MEP and rapporteur for the Parliament's response to the Financial Services Action Plan (FSAP), Ieke van den Burg, said that Parliament was "more sceptical about opening up the market in retail financial services". She warned that the Commission "should not simply overhaul national consumer protection traditions with a 'one size fits all' approach", arguing that "cross-border access is not a goal in itself". Van den Burg advocated a more "focused and targeted approach" instead of "maximum harmonisation".
Matthias Bauer of Raiffeisen Capital Management (RCM) and president of the European Fund and Asset Management Association (EFAMA), argued that in order to better protect consumers, information should be high-level and formulated in an understandable language.
Consumer association representative Guillaume Prache (FAIDER) said that in order to allow consumers to compare offers across the EU, information had to come in the same format. He also stressed that there were "obvious conflicting interests" when providers of retail financial services are also expected to act as advisers to consumers.
Andrew Smart, Chief Risk Officer at Zurich Financial Services and a member of the Association of British Insurers (ABI), warned that too much detailed information could act as a "barrier to access" for retail financial consumers, arguing that "less can be more".
Andreas Zehnder, managing director of the European Federation of Building Societies (EFBS) said: "We are pleased with the Commission's findings that a functioning internal market will not be achieved by minimum harmonisation of the consumer protection rules."
Secretary General of the European Banking Federation (EBF) Guido Ravoet said: "We firmly believe that any future European policy in the field of consumer protection should be based on uniform guiding principles, referring to actual as opposed to perceived needs of consumers, in order to overcome diverging national rules."
- 31 Jan. 2007: The European Commission presented the results of the sector inquiry on retail banking (EurActiv 31/01/07)
- 30 Apr. 2007: The European Commission launched the Green Paper on Retail Financial Services
- 5 June 2008: The European Parliament endorsed an own-initiative report on retail banking (EurActiv 05/06/08)
Autumn 2008: The European Commission is expected to present a white paper on retail banking