Opinion of the Economic and Social Committee on the ' Draft Commission communication: "Freedom to provide services and the interest of the general good in the Second Banking Directive"'
Date: 1996-04-24
Institutions: European Economic and Social Committee
Subjects: banking, credit institution, freedom to provide services, restriction on competition, single market













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51996AC0542

Opinion of the Economic and Social Committee on the ' Draft Commission communication: "Freedom to provide services and the interest of the general good in the Second Banking Directive"'  


Official Journal C 204 , 15/07/1996 P. 0066 





Opinion of the Economic and Social Committee on the 'Draft Commission  communication: "Freedom to provide services and the interest of the general good in the Second  Banking Directive"` ()(96/C 204/18)On 26  March 1996, the Economic and Social Committee,  acting under the third paragraph of Rule 23 of its Rules of Procedure, decided to draw up an  Opinion on the above-mentioned draft communication. The Section for Industry, Commerce, Crafts and Services, which was responsible for preparing the  Committee's work on the subject, adopted its Opinion on 3  April 1996. The Rapporteur was Mr  Pelletier. At its 335th Plenary Session (meeting of 24  April 1996), the Economic and Social Committee adopted  the following Opinion by 44 votes to 20 with 10 abstentions. 1. Subject of the draft Commission communication1.1. The European Commission has adopted  a draft communication on the freedom to provide services and the interest of the general good in  the Second Banking Directive (89/646/EEC). The draft sets out the Commission's thinking on and  interpretation of the freedom to provide services (Title I) and the interest of the general good  (Title II) under the Second Banking Directive. The Commission has initiated consultations on its  interpretation and will turn the draft into an interpretive communication in the light of the  comments received. 1.2. The Commission's discussion concentrates on Article  20 of the Directive which requires credit  institutions to notify the competent authorities of their home Member State of services which they  intend to offer for the first time in another Member State. The Commission also analyzes the  concept of the general good and the conditions under which rules adopted in the interest of the  general good can be applied to a branch of a European credit institution. 2. General commentsThe Treaty of Rome and its enhancement in the Banking Directives of the  Single Market Programme were aimed at creating commercial opportunities for European credit  institutions, and reducing the power of all Member States to prevent the free flow of capital and  the provision of financial services. Where credit institutions have been authorized by their home  states, including compliance with basic prudential Own Funds, Solvency Ratio, and Accounting  Directives, they have the right to provide those services listed in the Annex to the Second Banking  Directive throughout the EEA. All exceptions to this must be justified in Community law.  Restrictions beyond this are a clear attempt to thwart the Single Market and the intention of the  Treaty of Rome. Similar considerations apply to the Investment Services Directive. However, in practice, several structural and regulatory impediments to competition in financial  services in Europe exists despite a popular presumption that a Single Market has been created. 2.1. The Committee considers that the Commission's draft communication was necessary as there were  too many uncertainties and differences of interpretation which were impeding the development of the  single banking market. The Commission's clarifications will make it easier for credit institutions  to invoke the freedom to provide services and thus to offer consumers competitive services. 2.1.1. The reasons why the use of the freedom to provide banking services has fallen short of the  expectations aroused in consumers and industrial and commercial firms by the Second Banking  Directive may be principally economic but legal or administrative impediments can also be a factor.  In contrast to other forms of service, banking services, and lending in particular, place the risk  not on the buyer but on the seller, i.e. the credit institution (credit risk). Controlling this  risk logically requires that the credit institution be very close to its customers. Establishment  makes this easier. Moreover, in all the Member States the banking sector is very competitive, both  because supply greatly exceeds demand and because of the sector's international openness which in  most Member States seems to predate the Second Banking Directive by a considerable margin. 2.1.1.1. The above explains why credit institutions seeking to expand in Europe have tended to do  so by setting up branches or by acquiring or forming alliances with local credit institutions,  rather than via the freedom to provide services. 2.2. This situation will no doubt change, as the activities of investment firms listed in the  investment services Directive (the communication and execution of transactions in financial  instruments and the management of investments) ought to lend themselves more to the freedom to  provide services. Also, there will be considerable growth of secure electronic trading and custody  systems for financial instruments. 2.2.1. Moreover, economic and monetary union and the establishment of the single currency, and thus  the elimination of exchange risk, limited, it is true, to the currencies which form the hard core  of EMU participants, together with the necessary although still embryonic fiscal harmonization,  will make the freedom to provide services more attractive in the European context. 2.2.2. The Single Market for financial services is based on the principle of the 'single passport`  whereby a financial institution may offer its services throughout the EU, whether via local  branches or cross-frontier services based on a common framework of rules administered by competent  authorities in the home country where the financial institution is licensed. These basic principles  underlie the Second Banking Directive. 2.2.2.1. The Second Banking Directive also enables the host country to introduce regulations for  monetary policy purposes (Art. 14.2) and on grounds of 'the general good` (Art. 19.4). With regard  to monetary policy, itself a specific example of 'the general good`, it is essential that Member  States should not invoke Article  14.2 for bogus reasons to protect national financial institutions  from competition, e.g. by banning or slowing down the introduction of new financial services  offered by banks based in other Member States, competition from which is opposed by domestic  banks. 2.2.2.2. The question of whether or not such regulations are for protectionist rather than genuine  monetary policy reasons may need to be resolved by the European Court of Justice. 2.2.2.3. As to 'the general good` provisions of the Second Banking Directive, a problem arises  because 'the general good` is not defined in the Directive and different Member States may have  different conceptions of 'the general good`, e.g. some may feel that consumer protection requires  very strict control over the range of financial products and services on offer, whereas others may  believe that the consumer's interest is best served by opportunities for financial innovation and  competition between banks to promote consumer choice. 2.2.2.4. The Treaty of Rome requires any national regulations must not be discriminatory as between  firms based in different Member States. 2.2.3. The Commission's frequent assertions that it will ensure the strictest possible compliance  with the spirit and letter of the Second Banking Directive through examining its implementation and  practical application is most welcome. However, to be more effective in this task the Commission  needs more staff resources to be involved. 2.2.4. Any Member State proposing to introduce new regulations on 'general good` grounds should  first notify the Commission and the authorities of the other Member States; if 'the general good`  policy arguments are bogus, the Commission should initiate appropriate action. 3. Specific commentsThe draft communication gives rise however to observations on the two  questions raised in the draft: - The scope of the criteria for distinguishing the freedom to provide services from the freedom of  establishment, particularly with regard to the use of an intermediary or electronic equipment. - The scope of the rules of the host country adopted in the interest of the general good insofar as  they relate to contract law applicable to banking transactions in that country, under the right of  establishment and the right to provide services with movement on the part of the provider. What is  at issue here is the relationship between Community law (in this case the Second Banking Directive)  and the Rome Convention on contractual obligations. 3.1. Freedom to provide servicesIn Title I the Commission clarifies the scope of Article  20 of  the Second Banking Directive which requires a credit institution wishing to exercise the freedom to  provide services by carrying on activities within the territory of another Member State for the  first time to notify the competent authorities of the home Member State of the activities which it  intends to carry on. 3.1.1. Services covered by the DirectiveNature of the services concerned: The Commission considers that: - only services involving activities listed in the annex are covered; - only services carried out for the first time fall under the Article  20 procedure (notification  of the competent authority of the home Member State). 3.1.1.1. The upshot is that a credit institution which, under freedom to provide services, has  already carried on activities listed in the Annex prior to the entry into force of the Second  Directive is not, as regards those activities, subject to the Article  20 procedure. 3.1.1.2. This raises two questions which are not answered by the Directive: - Should the fact that an activity has been carried on only once or a few times be considered  sufficient?- How far back in time should one go to find evidence that the activity has been  carried on previously?3.1.1.3. The Commission rightly considers that it would be absurd to set a  quantitative limit or a cut-off date. The credit institution need only have provided a service at  least once, regardless of when that was. It must simply be able to furnish evidence of this  previous activity. 3.1.2. Forms of provision of services3.1.2.1.Various forms of provision of servicesWhen activity  is to be conducted in the territory of another Member State provision of services may be exercised  in one of three ways: - With movement on the part of the provider, in which case Article  20 applies; - With movement on the part of the recipient: the service is provided in the Member State in which  the credit institution is established, with the recipient not having been subjected to commercial  canvasing in the country in which he is ordinarily resident. Article  20 does not apply. - Movement of the service itself, in cases where the service is provided by post, telephone, fax  etc. If the service is provided on the initiative of the customer, Article  20 does not apply. If  the credit institution canvases for business, Article  20 does apply. 3.1.2.2. Advertising3.1.2.2.1. The Commission sets out to determine under what conditions  advertising could rank as an intention to provide a service in the territory of another Member  State. 3.1.2.2.2. Advertising defined as the making of a representation in any form in order to promote  the supply of goods or services is to be regarded as simple promotion and, as such, not subject to  prior notification. 3.1.2.2.3. When however the advertisement constitutes commercial canvasing, ranking as an actual  invitation, issued at a distance, to enter into a contract or where it precedes a physical journey  by the supplier, the Article  20 procedure must be observed. 3.2. Freedom to provide services and commercial sales3.2.1. The Commission makes a distinction  according to whether the service is provided on the initiative of the customer, in which case the  credit institution is exempted from compliance with the Article  20 procedures, or the result of a  commercial approach on the part of the credit institution, on the territory of the beneficiary. An  act of this kind demonstrates the intention to provide a service within the meaning of Article  20  and is thus subject to prior notification. 3.2.2. The Commission is right to argue (see I(B) - Commencement of the provision of services) that  the supervisory authorities of the host country are not entitled to make the commencement of  activities under the freedom to provide services subject to their confirmation of receipt of  notification from the supervisory authorities of the home Member State, as they would be if the  rules governing freedom of establishment were to apply. 3.2.3. The removal of the requirement for notification of the supervisory authorities of the Member  States of origin under the freedom to provide services does not appear desirable however where this  procedure, as suggested in point I(A)(4) of the draft communication, pursues a simple objective of  exchange of information between supervisory authorities. 3.2.3.1. The notification procedure enables national authorities to exercise supervision over  foreign institutions operating on their territory, particularly with regard to application of the  rules adopted in the interest of the general good for the protection of consumers. 3.2.3.2. Moreover, although lack of notification may not in itself vitiate a contract, it may, if  accompanied by infringement by the institution in question of national general good rules, provide  grounds for termination of the contract. 3.2.3.3. The current provisions should therefore be maintained and, where necessary, certain  national practices which might infringe the Second Directive should be ended. In order to ensure  that the law, thus defined, is effectively applied, it would be helpful if the Commission were to  specify the sanctions which might be applied against institutions failing to provide the required  notification, even this did not render banking contracts invalid. 3.3. Freedom to provide services via an intermediaryThe Commission states that it follows from the  case law of the Court of Justice that, 'for the links between an independent intermediary and a  credit institution to be regarded as meaning that the credit institution falls within the scope of  the arrangements governing a branch, the intermediary must at one and the same time: - have received an exclusive brief from a single credit institution, - be able to negotiate on behalf of the credit institution and commit the latter, and- operate on  a permanent basis`. 'It is, therefore`, the Commission concludes, 'only where the independent intermediary acts as a  genuine extension of the credit institution that the credit institution falls within the scope of  the arrangements applicable to the establishment of a branch`. There are a number of problems with the interpretation of these criteria: 3.3.1. Exclusive brief3.3.1.1. This means that if the intermediary has an exclusive brief the  credit institution falls within the scope of the arrangements applicable to the establishment of a  branch. In the absence of an exclusive brief, however, for example if the independent intermediary  is acting for a number of different institutions, the rules on freedom to provide services apply. 3.3.1.2. With regard to intermediaries, the mere fact that an institution holds multiple briefs  does not seem sufficient grounds to bring it automatically within the scope of the freedom to  provide services. 3.3.1.3. It is not clear from the case law of the Court of Justice cited by the Commission (De  Bloos Judgment of 6  October 1976 and Blanckaert and Willems of 18  March 1981) that an exclusive  brief is a necessary condition for application of the rules governing freedom of establishment. It  is true that absence of an exclusive brief has been considered as one factor among others leading  to the conclusion that there was no establishment. But it is going too far to deduce from this that  the absence of an exclusive brief would mean that the rules on the right of establishment were not  applicable, even if all the other criteria were fulfilled. 3.3.1.4. The Committee would also like to draw the Commission's attention to difficulties which  application of this exclusive brief criterion might pose: - What approach would be adopted in the event that an intermediary represented a number of  different institutions, but each one in respect of distinct types of transaction or product, with  the result that its brief was, de facto if not de jure, exclusive?- It should be ensured that each  of the briefs is actually exercised, to prevent theoretical or dormant briefs being invoked to  confer on an intermediary, whose brief is in effect exclusive, the status of provider of services. 3.3.1.5. The Committee therefore considers that it is preferable to observer the criteria  established by the Court of Justice in its 'insurance` Judgment (Commission versus Germany) of 4   December 1986, in which the Court ruled that 'an  ... undertaking of another Member State which  maintains a permanent presence in the Member State in which it provides services comes within the  scope of the provisions of the Treaty on the right of establishment even if that presence has not  taken the form of a branch or agency, but consists merely of an office managed by ... a person who  is independent but authorized to act on a permanent basis for the undertaking, as would be the case  with an agency`. The Committee therefore considers that the 'exclusive brief` criterion should be more closely  defined to take account of the reservations expressed in points 3.3.1.1 to 3.3.1.4. A financial intermediary should therefore be considered to constitute a branch only if all the  other criteria listed by the Commission in the draft communication are also met: - permanent presence of the financial intermediary in the host Member State; - ability to negotiate on behalf of the credit institution and commit the latter. 3.3.2. Ability to negotiate on behalf of the credit institutionThe same analysis applies to the  ability to negotiate. In the strict legal sense this means the power explicitly granted to the  intermediary to enter into legal agreements on behalf of the credit institution. In assessing the  power to negotiate, the decisive factor should be the intermediary's ability to commit the credit  institution. 3.3.2.1. The intermediary may well not be empowered to grant loans on its own authority and yet  still, from the point of view of the client, provide a permanent service analogous to that of a  branch, which, incidentally, might also not be empowered to grant loans. 3.3.3. PermanenceThe Commission draws attention to the fact that under the Treaty the concept of  freedom to provide services differs from that of freedom of establishment in that the former is of  a temporary nature. But provision of services still has to be assessed in terms of the frequency of  activities, and establishment implies a permanent, stable and continuous presence in the host  country. There is however no case law to determine what this actually means. 3.3.3.1. The concept of permanence also poses problems in relation to the use of electronic  machines. 3.4. Freedom to provide services using electronic machines3.4.1. The Commission argues that in the  (unlikely) event that an electronic machine is the only place of business of a credit institution  in a Member State, the machine is not an establishment in its own right, having no 'human`  management. Installation therefore requires only notification under the rules on provision of  services. 3.4.2. The Committee would stress that it fully shares the European Commission's stance on the  rules applicable to electronic machines. An electronic machine cannot come under the rules  governing an establishment unless it meets all the criteria set by the Court of Justice to qualify  as an establishment. Since one of these criteria -  the presence of management  - is not met, an  electronic machine therefore comes under the rules governing freedom to provide services. This  solution is appropriate: it would be surprising if an electronic device providing a direct contact  between the consumer and the service provider (comparable to a telephone, etc.) were to be  designated a branch. 3.4.3. The Committee endorses the approach adopted by the Commission, of firstly checking whether  electronic machines come under the rules governing freedom of establishment and concluding that  since this is not the case, they come under the rules governing freedom to provide services. This  approach tallies with Article  60 of the EC Treaty which provides that 'services shall be  considered to be 'services` ... where they are normally provided for remuneration, in so far as  they are not governed by the provisions relating to freedom of movement for goods, capital and  persons'. The Commission should, perhaps, restate this in the communication. 3.5. Specific problems of application with regard to the freedom to provide services raised by the  banks and not clarified by the Commission3.5.1. The Committee would like to draw the Commission's  attention to a number of practical problems. There is no reason why freedom to provide services may  not be exercised via a branch once authorization to provide services has been obtained by the  parent company. In such circumstances it would seem appropriate for the benefit of notification to  be extended automatically to all the branches of a given company within the European Union. 3.5.2. Moreover, the multiplicity of opportunities for approaches using telematics - both on the  initiative of banks and on that of their customers - necessitates detailed study of the Member  States' ad hoc rules on contracts with a view to distinguishing between services provided on the  initiative of the customer and those provided under the freedom to provide services by a bank  situated in another Member State. 3.5.2.1. The Commission ought to be in a position to make a comparison and to provide some  clarification, for example in the case of a consumer credit proposal (model offer of credit to a  consumer in accordance with national case law, conditions for inclusion in the proposal of exact  financial information). 3.5.3. In some Member States the supervisory authorities require banks providing services on their  territory to provide them with various information (e.g. volume and type of activities) for  statistical purposes. This is very expensive and involves a great deal of administrative work,  particularly as the requirements vary from on Member State to another. Such a requirement is not,  we feel, in conformity with the Second Banking Directive for the following reasons: - Article  21(1) of the Second Directive states that the 'host Member State may, for statistical  purposes, require that all credit institutions having branches within their territories shall  periodically report on their activities in those host Member States to the competent authorities of  those host Member States`. No such possibility exists for freedom to provide services. - It is doubtful that such an obligation is justified by the interest of the general good. 3.5.4. In some Member States foreign banks wishing to offer portfolio management services are  required - like national banks - to join a national supervisory organization and to pay the  relevant membership fees. Such a requirement is an obstacle to the freedom to provide services as  banks are already suitably supervised in relation to this kind of activity in their country of  origin. 3.5.5. It is also a cause for concern that some Member States require banks conducting certain  types of activity to have a permanent physical presence on their territory. Such a requirement has  always been considered disproportionate by the Court of Justice - insofar as it constitutes a  negation of the freedom to provide services  - except in one specific case: when it is necessary to  prevent the freedom guaranteed by Article  59 (freedom to provide services) being used by a service  provider whose activities are conducted mainly or entirely in a Member State other than that in  which he is established in order to circumvent the professional rules which would apply to him were  he to be established in that Member State. The Committee would like to see the Commission draw  attention to this in the communication. 3.5.6. Commencement of servicesWhen may a credit institution, which has notified the competent  authority of its home Member State of its intention to exercise the freedom to provide services,  commence its activities?  May it do so immediately following notification or must it wait for  acknowledgement from the authorities of the host country?3.5.7. Article  20(2) of the Second  Directive requires the competent authority of the home Member State to forward the notification to  the competent authority of the host Member State within one month of receipt. 3.5.7.1. The Commission rightly considers that the competent authority of the host Member State is  not entitled, as it would be under the rules governing the establishment of branches, to make the  commencement of activities under the freedom to provide services dependent on the issue of an  acknowledgement of notification. 4. General good4.1. Notification of conditions to be met in the interest of the general  goodBefore discussing the concept of the general good contained in the Second Banking Directive,  the Commission raises the question of notification by the competent authority of the host country  of the conditions to be met in the general good, and expresses the view that this is an option and  not an obligation. 4.1.1. The Commission takes the view that it is not possible to conclude from the wording of  Article  19(4) that an obligation exists, since the text is silent about the content and form of  such notification and about sanctions. At all events it would be undesirable to burden the host  Member State with a duty to provide the credit institution with information which is so ill  defined. The duty to obtain information thus rests with the credit institution itself. 4.1.2. The Commission goes on to argue that a credit institution wishing to set up a branch in  another Member State should be able to obtain the information it is seeking from the host country  without any difficulty. There are two provisos however: - first, refusal to accede to such a request for information would not be in breach of Community  law. Any harm suffered would be covered only by national law; - secondly, the Member State is bound by an obligation as to means and not as to result. Thus the  Member State could not be required to give notification of all its legislation and a non-notified  text could still be fully relied on against the credit institution. 4.1.3. The Committee considers it regrettable that the Member States are not required to  communicate a list of all the rules which they consider to be in the interest of the general good,  even if such a list could not be exhaustive. This would make it easier for credit institutions  wishing to operate in another Member State to research the local legal environment and would  eliminate the need for systematic recourse to legal counsel. 4.1.3.1. The Commission maintains that the supervisory authorities may carry out the notification  provided for in Article  19.4 but they are not required to do so. Notification would thus be  optional and not obligatory. The Committee does not subscribe to this approach, for the following  reasons: - If the authorities merely have the option of notifying credit institutions of the rules in the  interest of the general good, why is a specific provision needed on this?- To support its  interpretation, the Commission cites the uncertainty arising from the use of the expression 'if  necessary`. The meaning is however clear: notification of the rules is obligatory only if the host  Member State has general good provisions applying to the branch. - In order to support its argument that the burden of information rests with the credit institution  the Commission invokes the principle that ignorance of the law is no excuse. We feel that this  principle also applies to the supervisory authorities of the country concerned. - The Commission argues that it is not possible to conclude from the wording of Article  19(4) that  an obligation exists, since the text is silent about the content and form of such notification. The  Committee feels that this lack of precision does not remove its obligatory force but concedes that  it does weaken it. The Committee would therefore like to see the Commission propose an amendment of  Article  19(4) so as to define the requirement for notification both as to form (e.g. publication  or notification on demand - by post or via consultation at the offices of the supervisory  authority) and as to content (e.g. notification of textual references or their content). The  Committee would emphasize that it is of great importance that the Commission determine which are  the areas of the general good whose rules must be notified to the credit institution. It would be  difficult to require the supervisory authorities to communicate all the rules adopted in the  interest of the general good applicable within its territory. Certain areas should therefore be  excluded (eg. criminal law, large sections of civil law, etc.). The Committee calls upon the  Commission to examine this question carefully. 4.1.3.2. The Committee would also like to see Article  19(4) amended so as to require the  supervisory authorities to inform a credit institution wishing to provide services in another  Member State of the conditions to be met in the interest of the general good. A credit institution  providing occasional services in another Member State will have even more difficulty than a credit  institution established there in obtaining information on the rules in the interest of the general  good in force in that Member State. 4.1.3.3. In general terms, the Committee feels that the requirement to inform credit institutions  of the rules adopted in the interest of the general good can only facilitate the exercise of  freedom of establishment and freedom to provide services. 4.1.3.4. The Commission should consider the case where a Member State's refusal to provide  information on general good rules reasonably requested by a firm leaves that firm to conclude it is  unable to undertake business in that State's territory: in such a case the Committee believes the  State would be guilty of taking measures which had the effect of discriminating against firms from  another Member State. 4.2. Applicability of rules adopted in the interest of the general goodMay the host Member State  require a credit institution wishing to operate on its territory to comply with the same conditions  laid down in the interest of the general good, regardless of whether the credit institution intends  to conduct its activity through a branch or under freedom to provide services?4.2.1. The Court of  Justice has spelt out a number of criteria for determining whether a measure can be relied on  against a service provider to ensure compliance with rules adopted in the interest of the general  good. Such a measure must: - come within a field which has not been harmonized, - be in the interest of the general good, - be non-discriminatory, - be objectively necessary, - be proportionate to the objective pursued, - not duplicate rules to which the provider of services is already subject in the Member State in  which he is established. 4.2.1.1. The host Member State may enforce its general good rules against a service provider only  in accordance with the criteria set out above. 4.2.1.2. The Commission considers that the Second Banking Directive adds nothing new to the Court's  long-established case law. 4.2.2. In its case law on branches' compliance with rules relating to the general good, the Court  has in two respects softened its approach with regard to the principle that the economic operator  must comply with the laws of the country in which it is established, unless it can demonstrate that  they are discriminatory. It has held that the rules on equal treatment also prohibit all hidden  forms of discrimination which, by applying other distinguishing criteria, actually lead to the same  result. More recently it has held that any restriction is in principle contrary to Article  52  unless it is in the interest of the general good and is necessary and proportionate. This is an  instance of the full and complete application of the principle of mutual recognition. 4.2.2.1. The Second Directive provides for mutual recognition of the banking activities listed in  the annex, both by a branch and under freedom to provide services, subject to the host country's  general good rules. With regard to the conditions of carrying on this activity, it does not  distinguish between setting up a branch and the provision of services. 4.2.2.2. The Commission is therefore of the opinion that the legal reasoning to be applied when  assessing the conformity of general-good measures with Community law is identical, whether the  operator to which the measure applies carries on its activity through a branch or under freedom to  provide services. 4.2.3. The Commission deduces from the Second Directive, read in conjunction with the Court's  general good case law, that any non-discriminatory national measure which restricts a banking  activity benefiting from mutual recognition and carried on either through a branch or under freedom  to provide services must, if it is to be capable of being lawfully enforced against a Community  credit institution, be in the interest of the general good, be necessary and proportionate and not  duplicate the rules of the home country. 4.2.4. The Court of Justice has so far recognized the following areas of the financial sector as  being covered by the concept of the general good: professional rules intended to protect the  recipient of services, the protection of consumers and workers, preservation of the good reputation  of the national financial sector, the prevention of fraud, social order, the protection of  intellectual property and the cohesion of the tax system. 4.2.5. These principles are those established by the Court in its case law on the general good. The  Member State imposing the restriction might therefore have to show that a measure fulfils the  conditions. 4.2.5.1. However, the assessment of the proportionality of a restriction may differ according to  whether the institution is operating as a branch or under freedom to provide services. The Court  has recognized this difference by imposing a less restrictive and more 'lightweight` legal  framework for provision of services than for establishment. A general-good restriction might  therefore be judged proportionate when applied to a branch, but disproportionate in relation to a  provider of services. 4.2.6. The Commission is aware that the question of the applicability of the general-good rules is  closely linked to that of the law applicable to banking contracts. But the single market in banking  has not harmonized the substantive law of the Member States applicable to banking contracts. The  Commission therefore recommends that reference be made to the Rome Convention of 19  June 1980  which unifies the rules governing the choice of law and makes it possible to determine which law  shall be applicable to a contractual obligation. 4.2.7. However, the Commission considers that application of the Rome Convention's rules for  determining the law applicable may conflict with the principle of mutual recognition of banking  activities, the cornerstone of the Second Directive, which tends towards application of the law of  the service provider, subject to the rules governing the interest of the general good in the host  country, provided however that those rules satisfy the Court's criteria. The question is whether  the solutions offered by application of the Rome Convention could be set aside if they conflicted  with the Community principle of mutual recognition. 5. Principle of mutual recognition5.1. The commission takes the view that, for full effect to be  given to the principle of mutual recognition, a three-stage approach should be adopted: 5.1.1. Determination of the law applicable on the basis of the Rome Convention. In the draft communication the Commission concentrates essentially on conflicts between the Rome  Convention's rules on the law applicable to contracts concluded with a consumer and Community  rules. The possibility of other conflicts between the Rome Convention and Community rules on establishment  and provision of services should be checked: for example, a credit institution provides a service  to a non-consumer (e.g. another credit institution). In such a case it is possible that the host  Member State would, under Article  7 of the Rome Convention, require compliance with its directly  applicable laws. The Commission should take account of this possibility in its communication. 5.1.2. The Commission correctly concludes from the Court's case-law that (1) application of the  principles of the Rome convention could lead to a conflict with the principle of mutual  recognition, under which only the rules adopted in the interest of the general good of the host  Member State which pass the tests laid down by the Court may be applied to the provider of  services, and that (2) if such a conflict should arise, Community law would prevail. 5.2. The Committee approves the Commission's initiative to create a single competitive market  without administrative obstacles. 5.2.1. It should be pointed out however that the great majority of rules adopted in the interest of  the general good are intended to protect consumers in each Member State. 5.2.2. Failing to take account of general-good rules essential for consumer protection can have the  opposite effect. Liberalization of the market, particularly that for savings, must not be done at  the expense of the small saver. 5.2.3. The Committee therefore proposes that the Commission apply different reasoning, according to  whether the free provision of services is aimed at a well informed or less well informed person. 5.2.4. The need to protect the latter category of customer and such customers' ignorance of foreign  law ought to justify application of national general-good laws. 5.2.5. There are two precedents in Community law for distinguishing between informed and less  informed customers: 1) Article  11 of the investment services Directive requires that the rules of  conduct which investment firms are required to abide by 'must be applied in such a way as to take  account of the professional nature of the person for whom the service is provided`; 2) Article  4  of the proposal for a Directive on investor-compensation schemes authorizes Member States to  exclude certain professional investors from coverage or to reduce their coverage. Done at Brussels, 24  April 1996. The Presidentof the Economic and Social CommitteeCarlos FERRER() OJ No C  291, 4. 11. 1995, p. 7. APPENDIX to the Opinion of the Economic and Social CommitteeThe following amendments  which received at least one quarter of the total votes cast, were defeated in the course of the  debate: Point 2.2Delete the point. ReasonsA separate communication from the Commission on the ISD will be forthcoming and the  Committee should offer no comment on the Investment Services Directive at this stage. Result of the votingFor: 31, against: 34, abstentions: 3. Add a new point 2.2.3 worded as follows: 'In theory any financial institution which feels that it may be discriminated against can complain  to its national authorities or to the Commission; ultimately the matter could go to the European  Court of Justice which has a rather good track record in cracking down on abuses of "general good"  provisions. But financial institutions are normally reluctant to challenge their supervisors -  whether domestic or foreign. Many years of expensive litigation may be involved and there are many  ways in which the supervisor can damage their business prospects.`ReasonUnlike most other  sectors, banking is both heavily regulated and dependent on the good will of supervisors so that  discrimination is rarely complained against. It would further strengthen the Opinion to recognize  this. Result of the votingFor: 26, against: 38, abstentions: 4. Delete point 3.2.3.2. ReasonIt would be extremely damaging to have financial contracts terminated, both to the financial  institution involved and to the whole principle underlying the Second Banking Directive and the  Single Market for financial services more generally. Result of the votingFor: 23, against: 35, abstentions: 5. Point 3.2.3.2Reword the point to read: 'Lack of notification may not in itself vitiate a contract, nor, for reasons of legal certainty,  may it provide grounds for termination of the contract, even if accompanied by infringement by the  institution in question of national general good rules.`ReasonThe Commission also considers the  sole purpose of the notification procedure to be the reciprocal provision of information between  supervisory authorities. It is not intended as a consumer protection measure. Nor is it a  precondition for the validity of a banking contract. Lack of notification thus may not under any  circumstances justify the termination of a contract. Result of the votingFor: 19, against: 31, abstentions: 10. Add to point 4.2.1.2'However, it needs to be recognized that financial institutions may be  unwilling to initiate or threaten litigation or even to query the legality of "general good"  restrictions on their activities because banks are conscious that the balance of power is weighted  very heavily in favour of their host country supervisors.`ReasonSelf explanatory. Result of the votingFor: 18, against: 51, abstentions: 4.