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European Commissioner for Internal Market and
Public Commission Hearing on Retail Financial Services
Good afternoon ladies and gentlemen.
It is a great pleasure for me to be here today to speak to you at the conclusion of this public hearing on the future of retail financial services across Europe. This hearing is a very important component of our consultation process and, together with the written contributions to our Green Paper, will inform and deepen our understanding of the issues that affect the single market for retail financial services.
We have made significant progress in recent years in delivering a single market in financial services but there is still considerable potential for further market integration. The purpose of this consultation is to ensure that we have a wide range of views and opinions on the best way of improving the functioning of retail markets.
Feedback from the consultation
Constructive dialogue and consultation with stakeholders is a key part of the Better Regulation agenda to which the Commission is committed. The interest in and level of engagement from all stakeholders with this consultation is very welcome. We received about 190 written responses to the Green paper and almost 300 people registered for today's hearing. These are impressive numbers and they encourage us. The submissions have come from across the full spectrum of stakeholders - governments, regulators, users, service providers, and other interested stakeholders.
This is very heartening. I am particularly delighted with the number of written submissions received from financial services users which
I understand represent over 18 per cent of the total. It means that we have at our disposal a wide and diverse series of views and valuable insights on the best way forward in these markets and the policy challenges that lie ahead.
This consultation addressed a wide-ranging and cross sectoral set of topics. It covered many different but interconnected sectors from payments to life and non-life insurance, long term savings, pension provision and credit intermediaries. It also sought views on the obstacles to further integration and the reasons why people may be reluctant to use cross border providers.
It is clear from the consultation process that almost all of you believe that retail markets will remain essentially local for the foreseeable future, due mainly to language, culture and familiarity of consumers with local providers and rules. You also think that the move to further integration will be a gradual process that will grow naturally and that there isn't a large number of users out there just waiting for an opportunity to access cross border services.
Broad objectives for the single market in retail financial services
The decision as to who they deal with and the location of that service is an individual decision for each consumer and that is their choice. We do not intend to force them to look further afield. We want, however, to give them as wide a choice as possible and to encourage them to seek out the best deals to meet their needs regardless of the location of the provider.
Knowledgeable and confident consumers have been identified as the key to further integration of the market in financial services. Consumers will only avail of products or services if they are comfortable with the choices they make. They want to be able to buy a suitable product or service from sound and reputable providers and be convinced that if things go wrong there are mechanisms in place to address the difficulty. This is also our target.
On the supply side we will ensure that there are no impediments to properly authorised financial services providers operating in any or all of the member States either through acquisition, establishment or passporting of services. With my colleague Neelie Kroes we will continue to ensure proper conditions for effective competition in the market place.
Steps towards integration already taken
While this consultation demonstrates that there still some work to do, we have already taken many steps to improving the integration of the single market. There has been an inquiry into the retail banking sector. The expert group on customer mobility on bank accounts recently published its recommendations, to which we will give the appropriate follow-up.
The Consumer Credit Directive has been agreed in the Council and we will soon publish a White Paper on Mortgage Credit. The Payment Services Directive was adopted earlier this year and we are closely monitoring the process of drawing up the business and technical rules that will make SEPA a reality by 2010. There will then be no distinction in Eurozone countries between payments made in one's home Member State or made into another Member State. Solvency II will, I believe, contribute significantly to enhancing consumer confidence in the soundness and stability of insurers and the market. MIFID will make buying and selling financial instruments cheaper. Our work on clearing and settlement will benefit consumers by introducing more competition. In relation to empowering consumers, we will publish a communication on consumer financial education later this year.
Competing investment products
One of the issues raised by many contributors to the consultation was that of coherent and consistent disclosure rules for competing investment products, and I know this is of interest to many of you here today.
Retail investors are shouldering more responsibility for their long-term personal finance. There is an increasing array of financial products and solutions available. However, some of these products are untested and many are complex. We have seen what can go wrong when there are no rules or poor rules as the sub-prime events show us. To help consumers find their way through this maze, retail investors need simple and reliable explanations of what they can reasonably expect from their investment, together with its costs and objectives; and professional assistance when they purchase a packaged investment through a financial intermediary.
In the EU, the quality of investor disclosures and of financial distribution has not kept pace with the complexity and range of retail investment products. It does not match the huge growth in investment by European households and investors in mainstream investment products: assets invested in funds, unit-linked life insurance and structured bonds amounted to a staggering 10 trillion€ at the end of 2006.
Today the EU legislative framework imposes different levels of product and fee disclosure, and different selling rules - depending on whether the investment is structured as a UCITS fund, a life insurance policy, or as a structured bond. These different regulatory treatments might have made sense in the past when these were distinct product segments.
Now, however, they are often interchangeable, substitutable investment products.
In May, I expressed concern that the regulatory patchwork may be distorting competition between types of investment product. That investment products may be being structured or sold under certain wrappers to avoid inconvenient regulatory requirements on product disclosure or distributor remuneration. If regulatory arbitrage or gaming are happening on a wide scale, this could be a huge disservice to retail investors.
These concerns have been echoed by Finance Ministers and financial supervisors. The European Parliament is currently considering the issue as part of its reflection on asset management and the EU financial markets framework. Several Member States have taken steps at national level to implement coherent rules on disclosure and intermediary regulation across the waterfront of investment products.
I believe that there is now a strong prima facie case to investigate these issues more thoroughly. To examine whether there is a need for intervention to raise the quality of product disclosures and financial intermediation across the board. To explore options for tackling problems if any are identified. We cannot afford to wait for product mis-selling scandals to introduce change.
However, I also do not believe that throwing European rules at the problem will make it go away. In fact, badly prepared European rules may make things worse. It could impose massive upheaval on established distribution networks. There is a risk that investors would end up footing the bill for expensive but ineffectual regulation. This is a major undertaking. So I want to set about tackling this issue in a responsible and prudent manner.
The first action is that I will publish a call for evidence in October. Given the importance of this issue, I hope for considered and evidence-based responses from across the entire spectrum of stakeholders – the different financial segments, investors and regulators. Following responses to the consultation, there will be further follow-up with all interested parties and opportunity for public debate. The Commission will then draw conclusions about the best way to set about tackling any confirmed problems. Rushing is not the right way forward. We must get it right – for the sake of all our citizens!
These initiatives are all taking place within the context of the Better Regulation agenda. An important part of that agenda is to ensure that existing rules and legislative provisions remain relevant for the 21st century marketplace and do not themselves create impediments to widening cross border access. We will keep the existing requirements under review. We have already begun a review of the Directive on the distance marketing of financial services to see if it has achieved its goals.
If necessary we will propose amendments to that Directive. We are also going to review the Insurance Mediation Directive and have asked CEIOPS to study the way in which it has been implemented.
This type of ex-post analysis of legislation is imperative if we are to have market rules that are relevant and workable for consumers and providers in fast moving and dynamic markets. We also need to ensure that directives are consistent with each other, are not contradictory and have a common goal of facilitating the development of the single market.
So you can see there is a considerable amount of work going on in retail financial services to try to improve integration of markets and consumer choice. Today's conference will be a key element for us in determining what further improvements might be necessary. Obviously, if some new legislative measure proves necessary, it will be underpinned by our Better Regulation approach and a robust impact assessment.
Single Market Review
In November we will publish a review of the single market. Retail financial services will be an important element of that review. The information gathered here today and that provided in your written submissions to the Green Paper will help us to formulate our input.
In conclusion, I want to thank for your attendance here today and for your contributions to the consultation. I also wish to congratulate you on the high quality of the content on such a wide range of issues.
They have given us a lot of food for thought and will inform our policy making into the future.
Thank you very much.