Brussels, 5 February 1999
The Commission steps up ongoing action on bank charges after the introduction of the euro
The European Commission has announced further action to put pressure on banks to facilitate the use of the euro by reducing excessive bank charges. The Commission considers that a clear and detailed picture of level and structure of bank charges is essential to promote competition and thus reduce conversion and transfer fees. It will examine the first set of data it has received from the European banking federations, but sets a deadline of 31 March 1999 for banks to publish additional information giving a complete picture of bank charges before and after the introduction of the euro for exchange of euro zone banknotes, cross border cheques, transfers and card payments. The Commission has also put in place concrete arrangements for members of the public to report details and receive feedback from the Commission on suspected cases of non-compliance with the legal framework for the euro (for example if the official conversion rate is not correctly applied) or with the Recommendation on banking charges for conversion to the euro, notably concerning the transparency requirements. The Commission will use this information from banks and citizens to monitor the situation and will present a Communication on the future of payment systems in the Single Market to be published in the Spring.
These actions will be implemented by the Commissioners concerned: Mario Monti (responsible for the Single Market and financial services), Yves-Thibault de Silguy (responsible for economic, monetary and financial affairs) and Emma Bonino (consumer policy). The banking sector has a key role to play in helping the general public handle the introduction of the euro. In particular, it is vitally important to avoid undermining public confidence in the advantages of the euro by financial institutions failing to act, individually and collectively, to respond to all reasonable expectations of their customers and the general public.
A number of questions have recently been raised and reported by the press in relation to charges for exchanging euro area banknotes and some suspected cases of failure to respect the legal framework for the euro (for example if the official conversion rate is not correctly applied) or the Commission Recommendation on banking charges for conversion to the euro. On 12 January Commissioner Mario Monti wrote to the Presidents of the European Banking Federation, the European Savings Banks Group and the European Group of Co-operative Banks to ask for clarification. He received and published an initial response from the EU banking sector on 28 and 29 January.
It appears that some progress has already been achieved in some of Member States on the exchange of euro zone national banknotes and crossborder transfers. However, criticisms remain in many other Member States relating to banking charges for cross-border retail payments.
The Commission's priorities are clear:
- banks should increase transparency by continuing to make publicly available information showing changes (before and after the introduction of the euro) in the total level of charges for exchanging euro zone banknotes and cross border cheques, transfers and card payments. For example, this has already been done successfully in Ireland for euro zone banknotes exchange, through notices by banks in the national press. Banks in the euro zone are invited to report the state of play before the 31 March 1999 through their European associations. The Commission's expectation is that the overall level of these charges should fall, since the banks will no longer face the costs associated with exchange rate risk and competition between financial institutions will be intensified. The Commission hopes that the benefits will will be visible for travellers and tourists already in Summer 1999;
- users of financial services can report to the Commission any cases of banks' failure to respect the legal framework for the euro or the Commission Recommendation on transparency of bank charges using the Commission e-mail address and fax number stated below. This should be done by directly providing concrete details of any such cases. The Commission will examine the situation and use the information gathered to build up a complete picture of the state of compliance with the Regulations on the legal status of the euro and the Recommendations and in deciding on any further action which may be necessary, for example any additional legislation. The Commission's contact points are as follows: fax: 32-2-295.07.50; e-mail: firstname.lastname@example.org; fax: 32-2-296.56.08; e-mail: email@example.com;
- Member State should consider similarly establishing complaints facilities for members of the public and create or activate "local observatories of the euro change-over" in line with its Recommendation concerning dialogue, follow-up and information to facilitate the transition to the euro (98/288/EC);
- the banks should be encouraged to develop efficient cross-border payment systems in order to reduce costs for users and so contribute to developing the widespread use of the euro. The aim would be to develop efficient cross-border links between national retail payments systems as soon as possible. The Commission welcomes the initiative taken by the Euro Banking Association to examine the possibility of extending its clearing system to cross border retail payments;
- the Commission will issue a Communication in the Spring of 1999 on the future of payment systems in the single market, which will set out a framework for achieving the goal of a single payments area. The aim is to examine and reduce existing barriers in cross-border payments in the Single Market to make them as efficient as domestic payments , i.e. with the same level of speed and security as national operations and a comparable cost.
The Commission would welcome the rapid development of a European electronic wallet (i.e. electronic card which stores value and can be used to make low value retail purchases). The urgency for action in this area has been fully supported by the personal representatives of Ecofin ministers at the first meeting of the Financial Services Policy Group (chaired by Commissioner Monti) on 28 January 1999.
This Annex describes in greater detail the current situation and the Commission's response to it under the following four areas:
1. The Commission's Recommendation on banking charges for conversion to the euro
The Commission Recommendation of 23 April 1998 contains a standard of good practice on conversion without charge covering.
1) the conversion of incoming and outgoing payments denominated in the euro unit or in the national currency unit;
2) the conversion of accounts from the national currency unit to the euro unit both during and at the end of the transitional period.
Furthermore, the Recommendation confirms that banks cannot charge a different fee for services in the euro unit than that for otherwise identical services in the national currency unit.
The Recommendation also requires that full transparency is provided for all conversions and exchanges by showing clearly the application of the fixed conversion rates and identifying separately any charges of any kind which are applied. While the Recommendation clearly does not imply in any way that the exchange of euro area national banknotes during the transitional period be free of charge it does require that full transparency is provided for these exchanges.
The Commission has already stated, most recently in its initial report on implementation of 8 December 1998, that it will monitor implementation of the Recommendation. As a further step in this process and in order to speed up the receipt of information, the Commission invites all users of bank services to report to the Commission any cases of non-compliance by banks. This should be done by directly providing concrete details of any such cases to the e-mail address and fax numbers stated below. The Commission will use this information to build up a complete picture of the state of compliance and in deciding on any further action which may be necessary.
2. Exchange of euro area banknotes and coins during the transitional period
As stated above, the Recommendation does not mean that the exchange of euro area national banknotes during the transitional period should be free of charge. Part of the costs which banks must bear for holding and handling these other euro area banknotes continue to exist until euro banknotes and coin come into circulation. However, the Recommendation does require that full transparency is provided for all charges applied to these exchanges.
It is also reasonable to expect a decrease in the charges applied for these exchanges because one component of banks' costs, exchange rate risk has disappeared.
Claims have been made recently in the press that the costs of these exchanges, instead of decreasing, have actually increased. In order to establish if there is in fact substance to these claims, it should be recalled that charges for these exchanges have in the past been partly levied and expressed through commissions and partly hidden in the buying and selling rate "spread". The transparency requirements of the Recommendation mean that this method of applying exchange charges can no longer continue, and therefore charges can no longer be hidden in a "spread". This alteration in how banks must show their charges may partly explain the claims that charges have increased. However, the only way to establish in reality whether the total costs to customers have increased or decreased is for banks to make information publicly available showing the changes in the level of charges before and after the introduction of the euro.
3. Cross border card payments
Application of the legal framework on the introduction of the euro and the Recommendation on banking charges means that there should not be any charges for converting cross-border card payments. However, other fees for processing cross-border card payments may continue to exist, subject to competition. Two major card operators have already abolished the fees which in the past they charged to banks for cross-border payments. It is not yet clear whether banks have passed on this reduction to card users. A further effect of EMU on the fee arrangements for cross-border card payments is to make it no longer admissible for a "spread" to be used by banks as a way of making a charge for these payments. From 1 January 1999 the only way open to banks to charge for cross-border transactions between euro zone currencies is by means of an explicit fee. As in the case of banknote exchange, transparency in this field is essential to alleviate any consumer concerns that they appear to be paying a new or much increased fee for the same service which was apparently without cost prior to EMU. The only way to establish in reality whether the total costs to customers have increased or decreased is for banks and, where appropriate, card operators to make publicly available information showing the changes in the level of charges before and after the introduction of the euro.
With the exception of the Eurocheque system, cheques are essentially a domestic means of payment. From 1 January 1999, banks in many participating Member States offer clients the possibility to issue cheques denominated in euro.
However, this does not change their essentially domestic character because of the lack of cross-border linkages and common standards between domestic cheque clearing systems. This would also mean that their cross-border use would be subject to the same level of charges as that which would apply to cross-border use of cheques denominated in national currencies. Progress towards the creation of common standards for cheques throughout the euro area would be the only way of improving this situation.
5. Cross-border credit transfers
The creation of an efficient and competitive payment system for cross-border retail payments is an essential feature for the achievement of the single market. Since 1990 the Commission has advocated a number of possibilities for improving the payment arrangements for low value cross-border transfers.
The introduction of the euro represents a golden opportunity for adopting common standards in order to achieve a common payment area. While there are legitimate technical reasons (administrative reporting requirements and absence of linkages between Automated Clearing Houses) for cross border retail payments to cost more than domestic payments, there will be increasing pressure to remove these differences within a single currency area. This situation will be even more unacceptable once euro notes and coins are in circulation in the euro area.
The Cross-border credit Transfers Directive adopted in 1997, which is due to enter into force this summer, will ensure clarity, over questions of responsibility, timing and pricing of cross-border transfers. However, the Directive cannot by itself bring down the fees levied by any particular bank or banks. New technical developments are necessary to bring about linkage between national payment systems which would lead the cost for cross-border transfers to be substantially reduced and become comparable to the cost for domestic transfers.
The Commission intends to be the catalyst for the necessary technical developments in the field of cross-border payments and counts on the active support of banks to make rapid progress. In particular, the Commission intends to issue a Communication in the Spring of 1999 on making payment in EMU, which will set out a detailed framework towards achieving the goal of a single payments area.
The Commission invites all users of bank services to report to the Commission any cases of non-compliance by banks with the Recommendation on banking charges for conversion to euro. This should be done by directly providing concrete details of any such cases to the E-mail address and fax numbers stated below.
Directorate General XV: fax: 32-2-295.07.50; e-mail: firstname.lastname@example.org
- Directorate General XXIV: Fax: 32-2-296.56.08; e-mail: email@example.com