Jonathan Hill - Commissioner for Financial Stability, Financial Services and Capital Markets Union
Brussels, Economic and Social Committee, Conference on emerging challenges in retail finance and consumer policy
Good morning ladies and gentlemen. It is good to be here. A special thank you to Mr Siecker for hosting today's event at the Economic and Social Committee. I look forward to working with you and your colleagues in the Committee in the years ahead.
I am very pleased that we have here such a wide variety of people with real understanding of retail finance and consumer policy, from regulators national and European, from consumer groups and from business.
I was very keen to join you today to say a few words about a subject that I see as a priority for my term of office: how to make sure that financial markets bring real benefits to the general public.
In recent years, the Commission has had to focus on the financial system; on ending taxpayer bail outs, on overhauling financial supervision to reduce risk. On the back of the financial crisis, the priority was to tackle the big picture, systemic issues – and rightly so.
But now, with that big wave of crisis regulatory action behind us, and as the new Commission gets to work, I think it is a good time to turn the telescope round and look at financial services not from the top-down, but from the bottom–up. To ask, in other words, what can we do to enable more people to enjoy better quality services at lower prices?
This is not just an economic question, but a political one. If we can lower prices by opening up a single market, we can help people with the cost of living by making their money go further. And by delivering practical benefits, we can remind people of how the EU can help them.
The European Commission is not, of course, starting from a blank sheet of paper. It has tightened up consumer protection in many areas, ranging from improvements to the deposit guarantee system to greater investor protection under MiFID. It has introduced simple, comparable documentation that customers will be given when taking out a mortgage or buying an investment product. And it has given the millions of un-banked individuals in Europe a right to access the financial system through a basic payment account.
These were significant changes. And many of them were completed only recently. Implementation of those recently agreed rules is the next step and I want to work closely with Member States and with supervisory authorities to encourage good application of new rules.
But now I want us to look at new challenges.
Unlocking the potential of the Single Market
One of the first conversations I had when I arrived in Brussels was with someone complaining about the cost of insurance and the difference between pricing and service levels in different markets. That got me thinking. Some simple figures – after some quick googling – illustrate the point. In the UK, for the same level of coverage, you can get a quote for travel insurance for €55 that in France costs €120. A car insurance policy that costs €700 in Poland will cost you, same car, same policy, €1300 in Belgium.
These figures surely suggest that we do not have a fully functioning Single Market that is working properly in consumers' interests.
Meanwhile, financial services regularly come at the bottom of the customer satisfaction list in the EU Consumer Markets Scoreboard and national financial ombudsmen are seeing their workload grow each year as complaints roll in.
Every day, my department receives letters from people whose health insurance has not followed their move to a new country; from people whose credit history is suddenly blank when they move across borders so they can't get a credit card or a mortgage; from people living close to a border who find cheaper car insurance in the country next door but who aren't able to take advantage of it.
Of course, not all markets are the same, but it is surely instructive to look at other areas to see whether there are lessons we can learn. Think about telecommunication, where liberalisation has brought huge benefits, both for "domestic" and for "cross-border" customers and businesses.
And think about the low-cost air industry, which has followed the opening up of Europe's skies in 1992. People said it couldn't be done. That consumers would always want the certainty of their national flag carrier. That operators had to be regulated to require you to book through a travel agent, give you a seat number in advance, guarantee your onward flight connection and give you a full meal.
But thanks to European legislation that opened up the Single Market, pioneers like Ryanair and Easyjet have proved the doubters wrong. They set their own terms for pricing, services and the airports they fly to, while adhering to the stringent safety requirements that aviation supervisors impose. And customers have voted with their feet.
They may grumble about the lack of service or the luggage restrictions but choose to pay less and to accept the downsides. More people now fly with Ryanair than with any other airline in Europe. Opening up the single market for air travel has had a dramatic impact even down to the most local level. So for me, the starting question is: can we apply those lessons in the sphere of financial services? And if so, how?
I want to sketch out the kind of approach I plan to adopt, and the principles I bring to the job.
The first is a strong belief in competition. Competition gives consumers choice. It brings downward pressure to bear on prices and upward pressure on service-levels. It makes it easier for new entrants to come into the market offering new services and new ways of doing things. It forces established players never to take their customers for granted.
The second is a belief in the virtues of transparency. Consumers must be able to understand what they are buying, and why they are being sold a particular service: is it because it is the right service for them? Or because it is a product that earns the biggest commission? The availability of information to consumers is crucial: transparency is the foundation of consumer protection. If consumers don't have information, and information presented in a comprehensible way that can be compared to other products, they can neither properly choose what works best for them nor hold service providers to account. As knowledge is power, transparency is vital for an equitable balance of power between producer and consumer.
The recently adopted PRIIPs regulation is a good example: the so called 'Key Information Document' will provide retail investors with information on investment products in a standardised way on the product's main features, as well as the risks and costs associated with the investment in that product in as straight-forward and comparable way as possible.
The development of new technology and comparison websites is also a very powerful tool, allowing customers to find for themselves what products are on offer and which offer the best deals for them. These websites have exploded in popularity and are now a great force for competition and consumer choice in the marketplace.
Third, my approach to standards of behaviour and its relationship to regulation. The litany of recent scandals is deeply depressing. The promotion of NINJA - no income, no job, no assets – loans, the mis-selling of income protection insurance, the foreign exchange trading scandal that has been in the news in recent days – they all tell us that there is something wrong in the culture of these organisations. Putting that right is not simply a matter of putting in place more and more rules. It is not a question of ticking more boxes, but of management taking responsibility and remembering they are there to serve customers, not the other way round.
I do not want to micro-manage businesses, but I want managers to take responsibility. I am happy for them to benefit when things go well, but I think they should take the rap when things go wrong on their watch. People who de-fraud their customers by fiddling foreign exchange rates are just as guilty as someone who steals a wallet or hacks a bank account. I am in favour of strong sanctions in both cases.
The backdrop to all this is a new phase of technological development which is changing the way markets work. More and more products and services are bought and sold online, and growth in mobile devices is accelerating this trend.
We should not underestimate how online consumption is transforming the retail financial service market. Take online banking: people who take up online banking are likely to stay on it, so the online banking model we see emerging in the countries with the highest internet usage in the world – in the Netherlands, Sweden, Finland and Denmark – not only represent the future European practice of retail banking but the future global practice. Customers will increasingly judge banks on their digital service delivery.
Digital and electronic means of payment are also developing fast. The same is true of peer-to-peer payments systems and crowdfunding. These new trends could be very beneficial to consumers as they are cheap and easy to use, but people need to be able to understand what the services are that they are using and what the risks might be.
The same goes for virtual currencies. Such currencies, such as Bitcoin, have seen dramatic growth over the last couple of years. But virtual currencies are not without their risks. So we will need to look at the safety and appropriateness of these virtual currencies.
More widely, when considering electronic financial services, we need to strike the appropriate balance between guarding against fraud, hackers and money laundering and maintaining ease of use for customers. Security is paramount; it is an essential element of any financial services policy, but it should accompany, not prevent innovation and development.
How will I approach the task?
Ladies and gentlemen, I cannot succeed in my goals – breaking down barriers to competition and consumer choice, making sure that markets work for consumers – if policy making happens inside a locked room, only unbarred to present the regulator's fiat to Europe.
Good regulation requires broad consultation, drawing upon deep and detailed understanding of the market, and an open debate in which ideas are properly tested.
We have some knotty problems to resolve if we are to succeed in opening up retail markets. There are some issues that are rightly the product of local market conditions but we should sift the wheat from the chaff – we must distinguish those necessarily local features from special pleading that favours incumbents at the cost of new entrants and consumers.
So I want and need to meet people from different Member States, from different parts of the financial industry, from different supervisors and of course from different kinds of financial services user. I’m not interested in a one-sided discussion.
I want to hear from those who produce services, especially from small companies, and I also want to hear from consumer groups such as BEUC, Finance Watch, Better Finance for All, and the FSUG. They have a vital role because in the ceaseless interaction between producer and consumer that is the basis of any market, no one side should have a monopoly of expertise.
As you will be discussing today, there is still a lot of work to be done. To achieve what hasn't been achieved: a real single market for all financial services. So we have some important questions to ask ourselves:
What can we do to increase transparency and reduce complexity, so consumers can understand what they are buying and can compare costs?
What can we do to increase choice, competition and innovation?
What can we do to align business incentives with the interests of consumers?
How can we bring about a culture of true compliance rather than mere compliance – that is, the spirit, not the letter, of regulation?
If today’s event helps us to start to find answers to those questions it will have been very valuable. So please give us ideas for the concrete steps to help create that real single financial market. Our rules should allow a market to develop that delivers what consumers really want – access to the best products and services on the market for their specific needs; clear and understandable products; ease of use through digital devices; and solutions when things go wrong.
Let us remember how this fits into the bigger picture in Europe. President Juncker has talked of the EU being in the last chance saloon. As I see it, the EU faces two great challenges: the democratic and the economic. The EU's legitimacy depends on the continued provision of tangible benefits to the public. Retail financial services and consumer policy is, I believe, an area where we can do exactly that.
This Commission's priority is growth and jobs, delivered by being big on the big things and small on the small things. That will be my approach in this area of policy as elsewhere.
If through choice, competition, transparency and high standards we can help the retail service sector develop as a growing part of the economy that costs consumers less and underpins broader economic stability we will contribute to Europe's wider success.
I look forward to learning your views and arguments and I hope your discussions today will be vigorous and productive – and help us put European consumers centre-stage.