Retail financial services explained to consumers

Retail financial services are an essential part of the everyday life of European Union (EU) citizens. The integration of these services has progressed significantly over the last years; however, much remains to be done to establish a truly single market in this sector.

ACT

Commission Green Paper of 30 April 2007 on retail financial services in the single market [COM(2007) 226 final - Not published in the Official Journal].

SUMMARY

With this Green Paper the Commission is launching a strategy in the field of retail financial services * to gain a better understanding of the problems encountered by consumers and businesses in the retail financial services sector.

The Green Paper sets out the Commission's objectives and launches a consultation in this field (closing on 16 July 2007) on the basis of a series of analyses, the most recent of which is the Commission's sectoral inquiry into retail banking (pdf).

The Green Paper reviews current initiatives in such fields as mortgage credit, bank account mobility, and education in financial matters. Furthermore, it emphasises the fields where initiatives still have to be taken, such as insurance and retirement savings.

The Commission proposes to publish, in the autumn 2007, a final report on the "Single Market Review", which will also take into account this consultation.

BARRIERS TO THE INTEGRATION OF RETAIL FINANCIAL SERVICES

The Green Paper identifies four main stumbling blocks to the integration of retail financial services in the single market: the relatively modest level of cross-border activity, the considerable variation in the prices of these types of services, the lack of choice and real diversity of products and the significant disparities in market performance.

Furthermore, different regulatory frameworks and the fragmented nature of infrastructures create legal and economic barriers to market entry. The habits of consumers, who prefer local products, constitute even more barriers to the integration of financial services.

The following actions may help to make progress in integrating the retail services market:

• encouraging the opening-up of markets and their competitiveness so that consumers benefit from products which meet their needs in terms of choice, value and quality;
• increasing consumer confidence by providing greater protection for providers and increasing their reliability;
• helping consumers make a decision, while giving priority to correct information and initiatives aimed at improving their financial literacy.

LOWER PRICES AND WIDER CHOICE FOR CONSUMERS

Achievement of greater competition

The Commission aims to establish competition-friendly rules by taking action under existing competition or by means of infringement proceedings. Furthermore, the Green Paper points out that barriers to customer mobility will be eliminated, for example the charges levied to close an account. The Commission is also examining the possibility of eliminating artificial charges which inflate the costs invoiced to customers regarding payment cards, and widening the access to credit registers, and clearing and settlement systems.

Extending the choice

Other Commission initiatives are aimed at the elimination of market protectionism, which prevents a product or service from being provided in another Community country (for example, due to differences between the national legal systems). The Commission also intends to reduce unnecessary regulatory costs and proposes to create optional simplified, standardised financial services, for example, basic bank accounts.

Among the ongoing initiatives, the Commission is calling on the payment sector to regulate itself in order to create the single euro payments area (SEPA) by 2010.

ENHANCING CONSUMER CONFIDENCE

The Community legislation established minimum consumer protection rules concerning retail financial services, allowing the Member States to create more strict rules. Therefore, consumer protection is not harmonized in this field and the conditions of competition differ from one Member States to another. At present, the Member States have not yet agreed on the necessary degree of harmonisation.

Providing legal certainty for consumers

When a customer signs a contract for the supply of goods or services, he is normally subject to the law of the country chosen by the service provider. The future Regulation on contractual obligations [COM(2005) 650] states that the law of the country of habitual residence will apply to a contract signed with a consumer.

Ensuring access to appeal procedures

In 2001 the Commission established the FIN-NET for the out-of-court settlement of cross-border conflicts in the field of financial services.

Promotion of solid and safe retail financial institutions.

The Commission puts emphasis on the need for a framework to protect consumers and increase their confidence in financial institutions. Moreover, consumers must have a high standard of protection against bankruptcy.

ENHANCING CONSUMER ACTION

Developing consumers' financial literacy

Consumer education in financial matters and competence of the Member States. The Commission, however, has already funded some initiatives such as the Dolceta programme.The Commission estimates that consumers still need more knowledge about financial matters and intends to promote a high standard of education in this field by drawing up new guidelines, promoting best practices and identifying innovative approaches.

Providing the right information at the right time

In order to improve the quality of the information provided to consumers. The fields covered are, for example, mortgage credit, consumer credit, payment services and investment funds (UCITS).

Advising consumers

The financial advice given must be objective and based on the customer's profiletaking account of the complexity of existing products and the risks associated with them. The Commission is giving increased attention to the role of credit intermediaries who give advice to consumers. It has launched a study on the working environment of these professionals to detect any possible consumer detriments. After this study, it will propose, if necessary, a new adapted legal framework. Moreover, the Commission intends to amend the Directive on insurance mediation (Directive 2002/92/EC).

See also

For further information, please visit the website of the Directorate-General for the Internal Market.

Last updated: 13.09.2007