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Member of the European Commission responsible for Internal Market and Services
Making financial regulation serve society through civil society and consumer participation
Finance and Society Conference 2012 (Finance Watch)
Brussels, 27 March 2012
Ladies and gentlemen,
Many thanks for inviting me to this first conference organised by Finance Watch.
When I returned to Brussels as Commissioner in February 2010, Finance Watch did not exist.
My objective was clear: I wanted to make sure that the EU could honestly say that we had learned all the lessons from the financial crisis.
This meant that we had to move forward with many technical legislative proposals in a short period of time.
And yet nearly all the lobbyists for financial services came from the financial industry. Not from consumers' organisations. Not from NGOs. Not from civil society.
So let me thank Finance Watch, its Secretary General Thierry PHILIPPONNAT and all those who supported the idea of creating a non-industry based expertise centre for financial services. My special recognition goes to the European Parliament who realised earlier than most of us that we need to ensure an appropriate balance of interests when consulting stakeholders.
You understood at an early stage that lobbying must be balanced to lead to a democratic outcome.
And you now play a key role in making finance serve the real economy and society at large. I see it every day.
Making the financial industry serve society and the real economy is the aim of our financial regulation.
First, we need to make sure that regulation does not prevent growth. This issue has been discussed at length here today.
And I can assure you that the Commission is fully aware of the issues and shares this objective.
But there are two additional steps to take in order to ensure that financial regulation serves society:
First, we need to ensure a much better involvement of non-financial stakeholders.
Second, we need to ensure a higher level of consumer protection.
I will come back to these two points.
I – Involving civil society more in the new financial regulation
In reality, all our efforts to regulate are based on creating a balance: protecting taxpayers, consumers and small businesses while at the same time ensuring that banks, insurance companies, pension funds and other financial actors are not overburdened. These actors play a fundamental and positive role in long-term growth provided that they serve the real economy.
In order to create this balance, it is essential to listen to all points of view. Often it is by confronting special interests that we come closer to attaining what is in the general public interest.
The Commission uses a wide range of instruments aimed at promoting stakeholder participation. I am referring in particular to the many Internet consultations and conferences we have organised (such as the conference to be held on 27 April 2012 on shadow banking), as well as the bilateral meetings and the opportunity to participate in our evaluations and impact assessments.
Furthermore, the European authorities in charge of supervising banks, the financial markets and insurance – which have been operating for over a year – will help improve the involvement of non-industry stakeholders, in particular through stakeholder groups set up by each authority.
However, today I would like to come back to the issue of the expert groups set up by the Commission to help us improve the quality of our legislative proposals.
These expert groups are nothing new, neither to DG Internal Market nor in the field of financial services.
Having said that, it was easier for “strong” stakeholders, such as representatives of the financial services industry, to have their opinions taken into account through these groups.
This is even more problematic given that the financial crisis has strongly affected the confidence of consumers of financial products in respect of the rules which were meant to protect them.
In the first month of my mandate, I requested an in-depth study on the reasons for and structure of each expert group run by my departments. On the basis of this, we started streamlining the existing framework and rebalancing the groups in order to give consumers and other stakeholders who are currently under-represented more room.
This work has led to five practical improvements:
1. Firstly, we have reduced the number of groups. There are currently seven groups, two of which are exclusively made up of representatives of the least powerful stakeholders:
- the financial services user group for consumers;
- and the financial services employees' group (Uni-Europa) for trade unions.
2. As regards composition, industry experts now only account for 35% of the total number of group members compared with consumer representatives, trade unions, SMEs and academia which account for 43%.
3. In addition to this reform, we have also started discussions regarding the adoption of a charter of principles which should govern the composition of all future expert groups, including in non-financial fields. This charter will be published in the coming weeks.
4. In order to increase transparency, a webpage has been especially designed for DG Internal Market's website to centralise all the information on the groups, including their mandates and composition.
5. Lastly, the Council and the European Parliament have given us a budget of €1.25 million to launch the pilot project for the funding of a European financial expertise centre which would directly benefit consumers and non-industry stakeholders.
These funds will be allocated to beneficiaries selected by DG Internal Market using a call for proposals. They will make it possible to tackle the problem of lack of analytical capacity and skilled human resources faced by representatives of consumers, small investors and other non-industry stakeholders. We want to help these players recruit experts and spend the time needed to get their message across to European co-legislators and the general public.
The applications received, including from Finance Watch, are being examined. I hope this pilot project will be launched in the near future.
II – Consumers of financial services: the priority in our regulatory activities in 2012
Ladies and Gentlemen,
This mechanism aimed at promoting the participation of all stakeholders will soon be given the opportunity to prove its effectiveness, since 2012 will be full of initiatives that will have a strong impact on consumers of financial services.
I am referring to three initiatives in particular which we will be presenting in a few weeks:
1. Firstly, we want to improve the level of consumer protection for packaged retail investment products (PRIPS).
In Europe, the investment fund market, structured investment products and certain life insurance products represent around € 11 000 billion.
Millions of small investors find it difficult to understand and compare these products which are often complex and opaque. Furthermore, the financial intermediaries who sell these products do not always have their clients' best interest at heart.
The result is that, all too often, European consumers buy financial products which are not in their best interest.
The rules which already exist at European level offer uneven protection and are often developed in a piecemeal fashion. Our proposal will focus on bridging those gaps by providing investors with better information (for example, a standard fact sheet for all the different types of PRIPS) and stricter rules for those selling financial products.
2. The second initiative concerns UCITS (undertakings for collective investment in transferable securities)
Regarding this aspect of retail investment funds, the Madoff case in the United States, in which Europeans lost money, showed the shortcomings of regulation.
We would like to rectify this, in particular by introducing stricter liability for the loss of financial instruments which are kept in depository banks.
The aim is that every “lost” asset is in some way or other returned in kind or in any other form to the equivalent value. We will thus achieve a very high level of investor protection.
3. The third initiative for consumers is the Insurance Mediation Directive.
Despite the system of a single passport for insurers and intermediaries, we face the challenge of a highly fragmented European insurance market.
Our aim is first of all to create a level playing field between the different players selling insurance products, such as insurance companies, banks, brokers, car hire companies and travel agencies. The Directive will also regulate certain customer support services such as claims assessments.
Our proposal will also significantly improve standards of consumer protection, in particular those regarding the sale of life insurance products in the form of retail investment products.
Ladies and Gentlemen,
Alongside these three new initiatives, we will continue to move ahead with the reforms already underway for the benefit of consumers:
- First and foremost, this brings to mind the proposal for a directive on mortgage credit which we submitted just under a year ago (31 March 2011).
We hope to receive the Parliament’s and Council’s approval this year to improve consumer protection (for example, through standardised pre-contractual information) and to create the right conditions for an integrated single market.
This initiative is crucial if we bear in mind that taking out a loan to buy a house is generally the biggest financial transaction in a consumer's life.
- We will also make sure we follow up on our recommendation on universal access to basic banking services [18 July 2011].
Allow me to remind you that 30 million consumers in the European Union do not have a bank account. It is estimated that between 6 and 7 million of those consumers were refused a bank account. However, nowadays being able to use payment services is an essential requirement for participation in economic and social life.
We are paying very close attention to the measures taken by Member States to improve access to basic payment services.
The own initiative report which the European Parliament will present before the summer will also contribute to the debate.
If, despite the recommendation to Member States, the situation for consumers does not improve, we will address the issue through legislation.
- Lastly, we wish to make bank charges easier to understand for consumers. The aim is not to have administered prices but to produce transparency and competition between banks to benefit consumers.
On this subject, I must say that I regret the lack of goodwill in the banking sector and that charges continue to be unclear for consumers. We will draw conclusions from this by proposing legislation before the end of the year. A public consultation on the matter is underway.
Beyond transparency and the possibility of comparing bank charges, real competition means that consumers are able to change banks easily.
Despite the commitments made by European banks a couple of years ago to make moving banks easier, a recent Commission study showed that 8 out of 10 consumers found it difficult to change banks. This is not acceptable and we will take steps regarding the matter in the near future.
Ladies and gentlemen,
On all these issues – PRIPS, UCITS, the Insurance mediation directive, mortgages, bank fees, access to bank accounts and account mobility – we need the input from all stakeholders. Especially from consumer organisations.
But the participation of civil society should not be limited to consumer issues.
I already mentioned our consultation on shadow banking. We will also shortly propose an EU framework for bank recovery and resolution. The aim of this proposal is to prevent tax payers' money from being used again to rescue ailing banks.
It is obvious that civil society must have its say on these issues.
This is essential if we want financial regulation and financial industry to serve society and the real economy.
Thank you for your attention and keep up the good work.