Commissioner for Financial Stability, Financial Services and Capital Markets Union
Regulatory responses to the global financial crisis in the EU and US: Implementation and enforcement of retail financial services regulation
It's a great pleasure to be here at your annual conference and to have the opportunity to talk about financial services from the point of view of the consumer. We depend on a strong financial services industry to pay our bills, to insure against ill-health, to plan for retirement. And the financial services industry depends on consumers and retail investors to provide the pools of capital it needs to invest.
Today, I want to look back and reflect on some of the steps we have taken and how far we have come since the financial crisis to strengthen consumer protection. But I also want to look forward, to talk about our plans to strengthen the single market in retail financial services in order to benefit consumers. I want to touch on the disruptive power of technology and how by harnessing it we can increase choice, improve service and lower costs for citizens no matter where they live in Europe.
The crisis brought a great deal of change to how we govern the financial services sector. To protect and reassure consumers, we built a new legislative architecture in Europe. And in America, the rules, supervision and enforcement framework were also overhauled.
On both sides of the Atlantic, regulators worked to create more stable financial markets supported by institutions that had the resources to deal with future crises. For retail financial services, one of our top objectives was to give consumers the right information so they could make more educated decisions about the products they were buying and the risks they were taking. There was a push to improve access to financial services for those less well off. And after a crisis that revealed the widespread misselling of certain products, a drive to ensure that incentives were better aligned with the interests of consumers by standardising the information that has to be disclosed by service providers.
In the United Sates, the Dodd Frank Act was passed. A huge piece of legislation that included measures to improve investor protection, increase the availability of basic financial services, encourage more responsible lending, and strengthen credit worthiness assessments.
The Consumer Finance Protection Bureau – CFPB – was created to set the rules for the consumer finance industry and apply them consistently across the market. Before Dodd-Frank, there was no single federal institution in America which did this.
Today, the CFPB lies at the heart of the US regulatory architecture for consumer financial services. It supervises, and has the authority to investigate, financial service providers like mortgage companies, payday lenders and debt collectors. It works to ensure prices and risks are clear upfront.
In Europe, we set up three European Supervisory Authorities with consumer protection as part of their mandate, and with a Joint Committee to ensure a coherent approach.
The ESAs have a duty to promote transparency, simplicity and fairness in the market for consumer financial products and services. They can issue warnings if they believe a financial activity is a threat to stability. And they promote supervisory convergence to maintain a level playing field in the single market.
We passed a range of legislation to restore trust in the system. One of our goals was to make sure citizens could understand products better and compare them more easily. So a consistent theme has been to simplify and standardise information that is provided to consumers, before they choose a bank account, take out a loan, or make an investment.
For me, transparency is crucial. It helps consumers make decisions on the basis of common sets of information. It puts more power in the hands of consumers and helps open up competition.
Let me touch on just some of the legislation we have agreed.
To encourage more responsible lending and set standards for a creditworthiness assessment of borrowers, we introduced a Mortgage Credit Directive. As a result, key information about the credit on offer and the risks associated with it must now be disclosed. And, in a first step towards creating a single market for mortgages, we've created a passporting regime for mortgage intermediaries, like mortgage brokers.
We've simplified and standardised the information that's provided to citizens before they invest their savings in packaged retail and insurance investment products – PRIIPs: the products people use to save for retirement or buy a house. Key Information Documents now have to be produced to give consumers the facts they need before making an investment.
To improve the way insurance products are sold, we've agreed the Insurance Distribution Directive. Its goal is to make insurance distributors clearer about the cost of their products and about the commission they get for selling one product rather than another. When insurance is packaged with another product, like a car or a holiday, we'll now have the option to buy the main product with, or without, the added insurance.
We've acted to give European citizens the right to a basic bank account from which they can withdraw cash, transfer and receive funds, and make payments on-line. And the second Payment Services Directive – PSD 2 – will make electronic payments in Europe more secure and more convenient for European shoppers.
These are just some of the areas where we've taken action. The architecture we've constructed will make our financial system stronger, and our consumers safer. We've put in place the right incentives, and made good progress towards hard-wiring transparency into the way we manage financial services.
What we haven't done yet is complete a single market for consumer financial services.
Today, only a small minority of retail financial service purchases take place across European borders. There are many good products in Europe's individual domestic markets. But it's still difficult for consumers in one EU Member State to buy products in another.
Only three percent of consumers have used bank services in another EU member state. Life insurance costs, fees for credit cards, mortgage rates and car insurance premiums vary drastically between countries. Only one percent of loans in the euro area are made across borders.
Some of this can be explained by different risks, legal frameworks and costs. But the extent to which services and products remain confined by national boundaries makes no sense in an era of digitalisation.
Today, mobile and internet banking is completely changing the way that we interact with our banks. New transfer services have reduced the cost of foreign currency exchange. New savings companies offer opportunities in different member states and allow consumers to spread their risk. And new mobile payment services are making purchases easier.
I want to us to make the most of these changes. I want all consumers to be able to shop across Europe for the product that's right for them, and for businesses to be able to offer their services to customers wherever they are.
To do this, we need to identify the barriers to a single market in consumer financial services, and then work on how we knock them down. That's why I published a Green Paper in December. I want the consultation it launched to help us collect evidence of problems encountered and work out the best solutions. The focus of it is to improve the competition and choice of financial products that are part and parcel of our daily lives.
Some barriers to the single market are already clear. It's often difficult for consumers to know what products are available in different countries. There needs to be an effective system of redress if things go wrong. Credit information is not always easy for companies to get hold of. And it's not always obvious how to sell at a distance while complying with the security requirements we need.
We also want to tackle the problems consumers are faced with when they move abroad to work, or for retirement. In a single market, products that are central to people's financial security – like life or private health insurance - need to be portable: in other words, you should be able to take them with you when you move.
In our consultation, we're asking people to share their experiences so that we can map out the barriers. Once we're clear on these, we'll set to work on taking them down, one by one. I want to hear good ideas from all sides, and then decide on what measures we need. So please send us your comments before March.
You can also let us know about any problems you've had using services across borders by taking a 30 second video of yourself explaining the problem, and posting it on your favourite social media platform using the hashtag #MymoneyEU.
The work we're taking forward with the Consumer Financial Services Green Paper is part of a broader push to build a single market for capital in Europe - a Capital Markets Union. We need to develop it as we continue to implement our new regulatory and supervisory framework.
Working closely with member states, the European Parliament and consumer organisations, I know we have a real opportunity to strengthen the single market around the principles of transparency, competition and choice. To rebuild trust in financial services. And to the make the daily lives of European consumers better and easier. That's an opportunity, with your help, I hope we can take.