EN Official Journal of the European Union C 434/51

Opinion of the European Economic and Social Committee on the ‘Communication from the Commission to the European Parliament, the Council, the European Central Bank, the European Economic and Social Committee and the Committee of the Regions — Consumer Financial Services Action Plan: Better Products, More Choice’

[COM(2017) 139 final]

(2017/C 434/08)

Rapporteur: Michael IKRATH Co-rapporteur: Carlos TRIAS PINTÓ

Consultation European Commission, 26.4.2017 Legal basis Article 304 of the Treaty on the Functioning of the European Union Section responsible Section for the Single Market, Production and Consumption Adopted in section 5.9.2017 Adopted at plenary 20.9.2017 Plenary session No 528 Outcome of vote (for/against/abstentions) 136/0/2

1. Conclusions and recommendations

1.1 The EESC welcomes the fact that at this stage the European Commission is refraining from regulatory measures, and supports it in its determination to apply the relevant competition rules if this should prove necessary to ensure a level playing field and consumer protection.

1.2 The EESC welcomes the European Commission's initiative aimed at deepening the single market by means of the action plan. This will require, on the one hand, the gradual extension of the economic and monetary union and, on the other hand, further harmonisation of financial products and services in combination with digital innovation while maintaining fair and technology- and business model-neutral conditions of competition.

1.3 The EESC calls on the Member States to redouble their efforts to achieve the in-depth, harmonised, coordinated and systematic application of the broad range of pan-European standards currently in the process of being implemented to ensure that they are fully inclusive for consumers, while protecting them from the numerous risks associated with the new financial scenarios.

1.4 The EESC notes that particular attention is to be paid to the traditional retail banks (‘boring banking’) as a key intermediary of such products and services. Traditionally these banks, especially regional or local banks, have enjoyed a high level of trust from EU consumers, whose tendency to switch providers is rather low. Nevertheless, cross-border products should be promoted to underline the idea of the single market and the free movement of persons and goods.

1.5 At the same time consumers' concerns e.g. difference of language, of legislation, higher charges for non-residents, refusal of access to certain financial services and products for non-residents, tax differences, over exploitation of the money laundering legislation, currency exchange risks, should be addressed.

1.6 The EESC invites the Commission to carry out a study on how many economically vulnerable borrowers are taking on cross-border consumer loans which are not available to them at home (loan shopping), thus exposing themselves to a high risk of over-indebtedness.

1.7 In the interests of comparability and transparency of financial products and services in order to create a level playing field between the Member States, the EESC recommends taking steps to ensure that the tax arrangements for products and services are no longer an obstacle to fair competition.

1.8 The EESC urges the Commission to make provision for appropriate, independent, obligatorily certified comparison tools for different financial products in the various legal jurisdictions that make up the European Union.

1.9 The EESC recommends regulation of non-European IT giants, such as Google, Apple etc., which can use their customer databases to offer customised products for direct sale without being subject to EU consumer protection rules and other regulations.

1.10 The EESC is firmly convinced that digitalisation is continuously and constantly changing consumer behaviour. It therefore welcomes and supports the Commission's focus on boosting the Digital Single Market with particular attention paid to financial services. The Commission is right to focus on eliminating barriers that hinder cross-border digital distribution (geo-blocking). This is, in the EESC's view, the only opportunity to bring about a genuine single market of financial services for consumers.

1.11 In the area of FinTech and in the interests of sustainable regulation, and with a view to preserving financial stability as much as possible, the Committee believes that there should be a level playing field between all those who provide the financial services in question and that the same guarantees for consumers as those that exist in the traditional banking sector must take precedence at all times.

1.12 The EESC recommends that the Commission define additional products, which are simple, with the same characteristics and so comparable and transparent alongside the consumer products already set out in the action plan. These open up the possibility of being offered as ‘flagship products’ across the entire EU via various distribution systems (FinTech, traditional branches, etc.), and of encouraging consumers to trust these products. With sound information about the product and product transparency, consumers can choose the best provider from across the EU, risk free.

1.13 The independence between the different involved parties in the management of the same financial service, avoiding any conflict of interest, should be reinforced, since this facilitates good governance and effective supervision of financial services.

1.14 The EESC stresses the need to review periodically the impact of every standard on the development of financial products and services intended for consumers, while at the same time appropriately strengthen the resources of the supervisory authorities. It also points out that effective alternative dispute resolution (ADR) and online dispute resolution (ODR) mechanisms are needed for cross-border transactions, as a key factor in improving consumer confidence.

1.15 Ultimately, if we want the results obtained for citizens and businesses to be effective and efficient at minimising costs, the Committee is of the view that any action and any text on the subject must build upon and take into account the principles of the REFIT programme. Without compromising the clear objectives in this area, it is important that any future legislation and regulation relating to this remains simple and removes unnecessary burdens. Similarly, in order to achieve a genuine single market, which is not fragmented, any over-regulation at national or regional level must be avoided.

2. Background

2.1 This action plan aims to give European consumers a wider choice of and better access to financial services in the EU.

2.2 It covers financial services that are an important part of consumers' everyday lives, such as savings in current accounts, payment services, credit cards, mortgages and other loans, and various types of insurance.

2.3 The action plan represents an integral component in the development of a deeper and fairer single market. In terms of financial services, this means that competition among financial services providers and consumer choice must be improved, so that consumers can benefit from lower prices, higher product quality, and innovation.

2.4 Consumers should be able to choose freely from a wide range of financial services and products available across the entire EU; the Member State where the provider is located should no longer be a relevant factor.

2.5 Providers of financial services and products should be enabled to reap the benefits of the EU-wide market (the single market).

2.6 The EU has already adopted a number of measures to create a single market in financial services for consumers, such as the directives on payment accounts (1), mortgage credit (2), and insurance distribution (3), the Action Plan on Building a Capital Markets Union (4), the strategy for Europe's Internal Market (5) and the strategy for the Digital Single Market (6).

2.7 This action plan — based on the consultations relating to the Commission's green paper (7) — was drafted in order to pinpoint and overcome the remaining obstacles.

2.8 The action plan focuses on three main areas: — increasing consumers' trust and empowering them; — encouraging the elimination of legal and regulatory obstacles; — providing continuous support for the development of innovative digital services.

Twelve implementation actions were set out.

2.9 Given that only 7 % of consumers currently make use of financial services from another Member State, the action plan prioritises the development of FinTechs and online businesses.

3. General comments

3.1 The EESC notes that the creation of an EU single market for financial services requires harmonisation of the various EU financial market projects. For example, the Capital Markets Union affects all EU Member States; meanwhile, the Banking Union with its three pillars is only relevant to the euro area, and ‘new’ Member States' markets are not taken into account. This means that the hoped for cross-border provision of financial services and products is coming up against invisible borders.

3.2 The EESC therefore considers it appropriate, simultaneously with the further deepening of the single market in financial services, to further expand the economic and monetary union: unless all countries gradually join the single currency — especially in the digital field — it will be impossible to fully implement the action plan. There is also a risk of alternative digital currencies such as bitcoin exploiting this state of affairs, which could undermine security, data protection and consumer trust in cross-border financial services.

3.3 The EESC points out that consumers currently treat the trade in financial services as a local and regional business model. Therefore, as anxieties and uncertainties about the new financial landscape persist, it agrees with the Commission's finding that ‘most customers of retail financial services are likely to remain domestically focused’ (8).

3.4 The EESC sees the differing tax arrangements in the Member States as a major obstacle to ensuring the comparability and transparency of financial products. The attraction of key products often lies in their tax incentives, which, however, only benefit national taxpayers. Moreover, the fight against tax avoidance, which places owners of foreign accounts under suspicion of dishonesty in their tax affairs, is a serious barrier to the cross-border financial market. The EESC therefore calls on the Commission to incorporate additional proposals into the action plan.

3.5 Despite the considerable efforts made by the Commission, according to Eurobarometer 446 only 7 % of EU citizens have so far made use of cross-border financial services. It is also unclear how many economically vulnerable borrowers are taking on cross-border consumer loans which are not available to them at home (loan shopping), thus exposing themselves a high risk of over-indebtedness. The EESC therefore proposes that a study on this subject be carried out.

3.6 However, we should not neglect to mention that this cross-border demand exists in border regions with a common language. And even within national markets, less than a third of consumers change their provider. One of the main reasons for this is the higher level of satisfaction mainly with local or regional traditional retail banks (see EBS 446). In this regard, the EESC would point out that the profitability of regional retail banks has been under particular pressure since the financial crisis. The question of how banks are to bear the high cost of having a relatively small proportion of customers from other Member States therefore needs consideration. The EESC urges the Commission to address other reasons for this low percentage of cross-border purchase of financial products, e.g. difference of language, of legislation, higher charges for non-residents, refusal of access to certain financial services and products for non-residents, tax differences, over-exploitation of money laundering legislation, currency exchange risks etc.

3.7 In this context, the EESC considers it necessary to pay the utmost attention to preserving precisely this role played by local and regional retail banks: financial service providers that enjoy the trust of consumers. This requires much more differentiated banking regulation, with consistent application of the principle of proportionality (9). Only under this condition can these banks successfully act as innovation leaders or innovation followers.

3.8 In the EESC's view, this is a precondition for tackling the Commission's justified goals: that the financial sector should be able to make use of modern technologies needed to develop the single market, and that this sector should remain both financially sound and secure for consumers and investors.

3.9 The EESC is firmly convinced that digitalisation is continuously and constantly changing consumer behaviour. It therefore welcomes and supports the Commission's focus on boosting the Digital Single Market with particular attention paid to financial services. The Commission is right to focus on eliminating barriers that hinder cross-border digital distribution (geo-blocking). This is, in the EESC's view, a good opportunity to bring about a genuine single market of financial services for consumers. Nevertheless other measures (as described in point 3.6) are needed too.

3.10 The EESC shares the Commission's view that future work should focus, on the one hand, mainly on the proper implementation of previously adopted legislation (see point 2.6). On the other hand, there is a need for additional measures to ensure that the advantages of an EU-wide single market in financial services can be unlocked for consumers.

3.11 In this regard, the EESC welcomes the fact that the action plan includes an ambitious roadmap of actions and expects national legislators, supervisory authorities and consumer organisations to play a full part in implementing them. The social partners, too, have an important role to play here.

3.12 The EESC similarly welcomes the fact that market participants are given more opportunities to develop their individual financial services, particularly with regard to digital innovation. This takes sufficient account of the currently very different market conditions in the Member States, in line with the common objective.

3.13 The EESC recommends that the Commission define additional easily comparable and completely transparent products, which are simple and have the same characteristics, alongside the consumer products already set out in the action plan. These open up the possibility of being offered as ‘flagship products’ across the entire EU via various distribution systems (FinTech, traditional branches, etc.), and of encouraging consumers to trust these products. With sound information about the product and product transparency (harmonised terminology, avoidance of too professional descriptions, easy and understandable contract terms), consumers can choose the best provider from across the EU, risk free.

3.14 In the EESC's view, the effective combination of new online technologies and comparable and transparent consumer products will be critically important to the further development of a deeper single market for financial services.

3.15 The EESC therefore welcomes the fact that the Commission's reflection paper on the deepening of the economic and monetary union, published on 1 June, includes key aspects relating to harmonisation of financial products and services in the EU. In particular, this concerns the establishment of a level playing field between the various Member States and thus financial service providers. The Union's proposals on EMU thus simplify the comparability and presentation of the various ‘cross-border’ financial products.

3.16 In this context, the EESC also considers it important to continue to call for regulation for FinTechs. During the 2008-2010 financial crisis, very regimented regulation (Basel III, CRD IV) was one of the factors that meant that traditional retail banks were no longer able to sufficiently fulfil their main role (lending to SMEs and private individuals); meanwhile, what FinTechs offer is not subject to this regulation. The EESC therefore calls — prior to the establishment of the action plan for cross-border financial services for consumers — for a level playing-field in terms of regulations applying to traditional retail banks and FinTechs (10).

3.16.1 It is imperative that the Commission addresses consumers' concerns about FinTech, such as personal data and privacy protection, redress mechanisms, over-indebtedness risks, consequences of possible insolvency of these platforms, lack of independent and responsible advice on the products and services they offer, risk of financial exclusion for consumers who are digitally illiterate, exploitation and use of Big Data, availability and accessibility of these products, so that the forsaken trust of consumers in financial institutions, because of the crisis, can be restored.

3.17 The EESC calls on the Member States to ensure that the implementation of each of the measures provided for in the action plan always complies with the Directive on Accessibility requirements for products and services and the European Accessibility Act.

3.18 The action plan will only achieve the desired effectiveness if it goes hand-in-hand with a gradual reinforcement (both qualitative and quantitative) of the supervisory functions of financial authorities, with the introduction of systematic monitoring of the conduct of suppliers of financial services in implementation of PSD2 and MIFID II, and ensuring the complex balance between privacy and transparency, and a distinction between product advice and marketing functions. All of this should be combined with special attention to credit rating agencies and independent financial intermediary services, as the EESC pointed out in its opinion on the Green Paper.

3.19 Education and lifelong training are needed to combat financial illiteracy that can lead to over-indebtedness and financial and social exclusion.

4. Specific comments

4.1 In light of the remarks made in point 3, the EESC recommends that the Commission should concentrate on rapidly implementing measures relating to enhancing the quality and reliability of financial services comparison websites (Action 4), examination of national consumer protection rules (Action 8), FinTech (Action 10) and electronic identification (Action 11).

4.2 (Action 11)

The EESC considers that the inconsistent national implementation of current anti-money laundering provisions (e.g. residency requirement) is a decisive obstacle to the further development of the retail single market. Every effort must be made to provide the electronic identification means to ensure that new customer relationships can be forged as quickly as possible within the single market. Security and liability concerns should be addressed in order to enhance consumer trust in electronic identification procedures.

4.3 The EESC therefore particularly welcomes the measures proposed under Action 11, such as promoting the use of the eIDAS regulation (Regulation on electronic identification) — e.g. extending it to B2C — as well as boosting new means for digital onboarding (e.g. video identification procedure). In this regard, the EESC supports the corresponding European Parliament position (11) on the fifth Directive on money laundering (12). All these digital procedures should not undermine data and privacy protection.

4.4 (Action 10)

To ensure that financial innovation goes hand in hand with consumer protection, the EESC calls for the establishment of a framework to test new financial services (13) which, once tested with the cooperation of stakeholders, could supplement the range of standardised financial products (in accordance with point 3.12).

4.5 (Action 8)

The EESC supports the measures proposed under Action 8, which aim to identify and eliminate unjustified gold-plating by Member States. Nevertheless, consumer protection rules should not be watered down.

4.6 The EESC also recommends reviewing the current special legislation relating to financial services with regard to its impact on the desired single market and with regard to its digital suitability. Information to consumers should be understandable, simple and appropriate, allowing consumers to make choices that are right for them. Excessive information, advice and documentation obligations are particularly detrimental to developing a digital single market in the area of financial services. A holistic evaluation approach should therefore be taken.

4.7 (Action 1)

Regarding the proposal under Action 1 to extend the Regulation (14) on cross-border payments to non-euro payments, the EESC points out that these cost providers significantly more than euro payments. The EESC therefore finds that a price difference, compared to payments made only in euros, is justified. It therefore advocates applying non-euro transaction prices that enable real costs to be covered. In line with the principle of proportionality, these prices should also take the size of the executing provider and the frequency of such transfers into account.

4.8 (Action 2)

The Commission should increase the transparency requirements for dynamic currency conversion.

4.9 (Action 3)

The EESC supports this Commission measure in principle, but points out that many market participants' hitherto incorrect implementation of the SEPA regulation (15) causes problems that are not the responsibility of consumers and financial services providers. The EESC therefore calls on the Commission to prioritise the comprehensive application of Article 9 of the SEPA regulation (prohibition of IBAN discrimination). This is the only way to expand the switching service so that it is effective across the single market.

4.10 (Action 4)

The EESC believes it is imperative to comply with the ‘Key principles for comparison tools’ and calls on the Commission to closely monitor existing websites in cooperation with stakeholders, in particular consumer organisations. Comparison websites should comply with certain criteria of independence and transparency. They should also be obligatorily certified.

The EESC proposes that the establishment of a pan-European comparison website be explored with stakeholders that would cover the flagship cross-border products referred to above (see point 3.13).

4.11 (Action 9)

The EESC supports the proposed measures to press ahead with the harmonisation of creditworthiness assessment at European level, as economically disadvantaged consumers will otherwise be at risk of indebtedness when taking on cross-border consumer credit. It therefore supports harmonised minimum criteria for creditworthiness assessments, incorporating the existing uniform credit check standards (Directive 2008/48/EC (16), Directive 2014/17/EU (17)). Care should be taken to ensure that this does not call into question the new Basel III algorithm-based credit scoring models (credit tech).

4.12 (Action 7)

The EESC supports the Commission's efforts to find ways to prevent consumer over-indebtedness. Financial education as well as lifelong training, together with responsible lending rules and legislation on consumer insolvency (18) should therefore be a key concern. To promote more ambitious and harmonised financial education, the EESC recommends that the Commission define financial education as an additional competence as part of its ongoing revision of the European Key Competences Framework. The social partners have a particular responsibility in this regard.

4.13 It is also essential that the Commission focus strongly on express consumer credit loans, which often lack transparency and include all kinds of unfair clauses, while using misleading marketing practices supported by advertising in the major media outlets (press, radio and television). In this connection, the EESC calls on the supervisory authorities of the Member States to exercise proper monitoring of the market behaviour of these companies, in close cooperation with consumer organisations.

Brussels, 20 September 2017. The President of the European Economic and Social Committee Georges DASSIS

(1) OJ L 257, 28.8.2014, p. 214.

(2) OJ L 60, 28.2.2014, p. 34.

(3) OJ L 26, 2.2.2016, p. 19.

(4) COM(2015) 468 final, EESC opinion OJ C 133, 14.4.2016, p. 17.

(5) COM(1999) 624 final.

(6) COM(2016) 176 final.

(7) COM(2015) 630 final.

(8) Green Paper on Retail Financial Services in the Single Market, COM(2007) 226, point 10, page 6.

(9) OJ C 209, 30.6.2017, p. 36.

(10) OJ C 246, 28.7.2017, p.8.

(11) A8-0056/2017.

(12) COM(2016) 450, EESC opinion OJ C 34, 2.2.2017, p. 121.

(13) See OJ C 246, 28.7.2017, p. 8, point 1.4.1.

(14) OJ L 266, 9.10.2009, p. 11.

(15) OJ L 257, 28.8.2014, p. 214.

(16) OJ L 133, 22.5.2008, p. 66.

(17) OJ L 60, 28.2.2014, p. 34.

(18) OJ C 311, 12.9.2014, p. 38.