Opinion of the European Economic and Social Committee on the Green Paper on Retail Financial Services in the Single Market COM(2007) 226 final
Date: 2008-01-16
Institutions: European Economic and Social Committee
Subjects: approximation of laws, consumer protection, financial institution, financial market, free movement of capital

17.6.2008

EN

Official Journal of the European Union

C 151/1

III

(Preparatory Acts)

EUROPEAN ECONOMIC AND SOCIAL COMMITTEE

441st PLENARY SESSION, HELD ON 16 AND 17 JANUARY 2008

Opinion of the European Economic and Social Committee on the Green Paper on Retail Financial
Services in the Single Market

COM(2007) 226 final

(2008/C 151/01)

On 30 April 2007 the European Commission decided to consult the European Economic and Social
Committee, under Article 262 of the Treaty establishing the European Community, on the

Green Paper on Retail Financial Services in the Single Market

The Section for the Single Market, Production and Consumption, which was responsible for preparing the
Committee's work on the subject, adopted its opinion on 3 December 2007. The rapporteur was Mr Iozia
and the co-rapporteur was Ms Mader-Saussaye.

At its 441st plenary session, held on 16 and 17 January 2008 (meeting of 16 January), the European
Economic and Social Committee adopted the following opinion by 129 votes to one with one abstention.

1. Conclusions and recommendations

1.1
The European Economic and Social Committee supports
the Green Paper's aim of developing the single market for retail
financial services, seeking to pinpoint and remove all the artifi-
cial barriers whose exploitation prevents European citizens from
taking full and direct advantage of the benefits in terms of cost
and quality of supply. The Committee believes that the Green
Paper provides only a partial review of the financial services and
products market, overlooking the issue of distribution, which is
a key factor in terms of competition.

stimulating the supply of high-quality,

The EESC shares and appreciates the Commission's objec-
1.2
tive of
innovative
products, by promoting the free movement of banking and
insurance products that are currently penalised by national legis-
lative and tax-related restrictions limiting such possibilities.

1.4 While agreeing with the premise that the retail market
would benefit from being less fragmented, the EESC would
stress that, as a rule, retail markets are more segmented than
wholesale markets.

1.5
The EESC notes that new market models are emerging.
The global market is being built on the basis of cross-border
consolidation processes. Banking and insurance multinationals
are centring their acquisition strategies on increased mobility of
supply. However, these cross-border consolidation processes are
having or could have very negative repercussions for employ-
ment. Announcements
are
followed by news of tens of thousands of job losses, though in
practice these cuts are not always carried out. The EESC has
previously highlighted this risk of social crisis and proposed
appropriate countermeasures, such as vocational training and
retraining schemes and social shock absorbers (1), which are
in the European
written into many collective agreements
banking sector.

regarding possible

acquisitions

The general principle behind the Green Paper on Retail
1.3
Financial Services in the Single Market
is the need to
improve consumer welfare. The dissemination and use of these
services is increasingly widespread and therefore initiatives in
this field are of general interest. The further integration of retail
financial services could lead to a reduction in costs by means of
increased competition. Consumers will
reap the benefits
providing the European financial system manages to remain
competitive both within the EU and externally.

There is an urgent need to take the necessary measures
1.6
to increase consumer skills and awareness. Consumer protection
requires that the consumer be provided with all essential infor-
mation, while clearly always bearing in mind that
financial
products and services are in a category apart. When it comes to
information, consumers need quality rather than quantity.

(1) OJ C 309/26 of 16.12.2006.

C 151/2

EN

Official Journal of the European Union

17.6.2008

1.7
The EESC believes that a distinction must be made
between information and advice. The former must be given as a
matter of course and must be tailored to the client's under-
standing and risk profile, warning them of possible pitfalls.
Advice, in contrast, is a professional service to be provided on
request, where the advisor could shoulder some responsibility.
The MiFID Directive delimits the boundaries of information and
advice, as well as conflict of interest situations.

1.8
The EESC believes that it is essential that this issue be
addressed with clear regulations, so as to combat certain prac-
tices involving potential conflicts of interest, sales incentives and
staff bonus schemes, borrowed from commercial distribution
and linked to sales targets for specific products. The EESC
recommends holding a specific debate between the sector's
companies, consumers and employees, as the first step towards
meeting consumers' primary demand for transparent behaviour
from banking and insurance companies.

1.9
The EESC would recommend in particular that banking
and insurance companies develop specific vocational training
for bank and insurance employees. Consumers are better
protected when operators are better skilled. With due respect for
the independence of the parties involved, such projects could be
discussed as part of the social dialogue between the European
trade union federation for the sector, Uni-Europa Finance and
the European banking and insurance associations

1.10
The EESC would note that the Commission is more
favourable than in the past to the adoption of an optional
system, known as the ‘28th regime’. Alongside a European
optional regime, a European ethical code should be adopted,
defined independently by operators and discussed and agreed
with the relevant Commission departments and the sector's user
associations, dealing specifically with the
and employee
company-client relationship in the context of financial services.

1.11
The EESC shares concerns regarding transparency of
banking conditions. Differences in prices and price formulas
often result in asymmetry and make it difficult to compare
prices, while there is no proper information on applicable
charges.

The EESC will shortly issue an opinion on the matter. The
Commission submitted a proposal for a consumer credit direc-
tive to the Council in May 2007.

1.13
The EESC agrees with the idea that client mobility is an
important factor in the development of the financial services
sector, in terms of both quality and efficiency. The EESC believes
however that the objectives with regard to consumer mobility
in this sector should not be overly optimistic.

1.14
Relationships of trust are exceedingly important in the
financial sector, given that most products are specific and
involve long-term commitments between buyer and seller. There
are many reasons to explain why consumers find it harder to
form relationships of
trust with intermediaries that are not
physically present in their own country.

1.15
People form their impressions of financial services from
their description in information leaflets and in the terms and
conditions; the language and culture issue cannot therefore be
underestimated. On this note, the EEC believes that it would be
neither realistic nor fair to require intermediaries to draft infor-
mation leaflets and terms and conditions in all EU languages. In
the medium term,
the language
barrier is destined to remain unresolved and be a major barrier
to consumers' cross-border mobility.

the problem of

therefore,

structures

service contract

1.16
The EESC agrees that it is time to take a careful look at
the legitimacy of barriers to consumer mobility, such as high
fees for closing accounts, a lack of transparent information, and
financial
that are calculated to
dissuade clients from changing product or supplier, as occur in
some countries. The EESC would also stress, however, that tech-
nical, regulatory, fiscal and legal constraints can often make it
difficult
the degree of
consumer mobility suggested by the Commission. There is also
a danger that simplifying financial services rules will result in
weaker consumer protection. The dismantling of barriers must
lead neither to increased product prices nor to deterioration in
the present protection measures.

to create the right conditions

for

The EESC supports the consumer protection commis-
1.12
sioner, Ms Meglena Kuneva, who has set three main objectives
regarding the 2007-2013 consumer policy strategy:

1.17
The difficulty in harmonising the framework of safe-
guards that emerged, for instance, in the process of revising the
consumer credit directive, might give consumers the impression
that the level of protection on offer will depend to a large
extent on the country in which they are buying the service.

— empowering consumers;

— enhancing the economic and non-economic welfare of

Europe's consumers;

— protecting consumers effectively.

1.18
The EESC maintains that only consumers with a good
level of financial understanding can properly grasp just how
complex meeting financial needs can be and, consequently,
appreciate the added value of competent, independent financial
advice. There should also be special arrangements for consumers
who are not (fully) at ease with new technologies.

17.6.2008

EN

Official Journal of the European Union

C 151/3

1.19
The EESC maintains that it is essential to bridge the gap
between financial companies and clients. Some democratic
countries with market economies have managed to establish
certain minimum rights for consumers, such as the legal right
of bona fide residents to a bank account, as a citizenship right.
If national
legislation and practice is brought into line with
these good practices, they could conceivably shape a common
EU heritage (2).

1.20
For the purposes of drafting this opinion, the EESC
held a hearing of organisations representing businesses, consu-
mers and workers. The positions expressed by these organisa-
tions have been condensed into the opinion. The EESC shares
the legitimate concerns expressed by consumers regarding the
need to improve conditions so as to open up the single market
effectively to retail financial activities and remove the artificial
barriers that get in the way. The Green Paper has helped by
launching an important debate. Meanwhile, if there is to be a
general
in cooperation between the various
economic and social players, proper attention must be given to
the objective considerations of business leaders and requests
from workers' representatives. For this reason, before any provi-
sions are adopted, the EESC recommends holding a specific
discussion forum for the above-mentioned representatives of the
interests that must be reconciled.

improvement

2. Introduction

2.1
The Commission uses the Green Paper to define its
intended policy in the retail financial services sector, which it
describes as ‘current accounts, payments, personal loans, mort-
investments and insurance products,
gages, savings, pensions,
when they are provided to individual customers, including retail
investors.’

The Commission pinpoints barriers to market access in
2.2
legislative and fiscal differences and in market fragmentation,
with a view to enabling EU citizens to benefit from the single
market, taking into account the remaining barriers and poor
development in cross-border activities.

The Commission is set on using market

2.3
forces and
competition as a springboard for bringing down prices in these
services; and it is committed to taking appropriate action in
cases where Community rules are not upheld. The Commission
argues in the Green Paper that legislative measures should be
adopted if necessary.

2.4
The Commission aims to stimulate the supply of high-
quality, innovative products, by promoting the free movement
of many banking and insurance products which are currently
penalised by national legislative and tax-related restrictions that
limit such possibilities.

As regards the legislative framework, the Commission
(seemingly

2.5
has relaunched the debate on the ‘28th regime’
putting all previous concerns to one side).

(2) OJ C 309/26 of 16.12.2006.

3. Comments

3.1
The EESC cannot respond to all the questions raised by
the Green Paper in this opinion, but it aims to make a thorough
assessment of the most important themes addressed.

3.2
The EESC stresses the need to distinguish between finan-
cial products and financial services. The former are purchased
and are then ‘owned’ (e.g. securities, funds, insurance policies)
and the purchaser bears the risk. Banking services, however, are
used rather than owned (e.g. personal loans, mortgages, over-
draft
facilities) and the service supplier bears the risk. The
Committee believes that the Green Paper provides only a partial
review of
the financial services and products market, over-
looking the issue of distribution, which is a key factor in terms
of competition. The inherent characteristics of the various distri-
bution channels and types of products and services available
have a huge bearing both on price (consider third-party motor
insurance policies sold over the telephone or internet), and on
the
the authorised parties
(financial institutions, large retailers, brokers, post offices etc.).
The EESC believes it necessary to broaden out the debate to
include non-traditional distribution channels and the link
between the products and the distribution systems.

reliability and competence of

3.2.1
Segments: In order to consider the consumer dimen-
sion of financial services it is necessary to segment the services
and then to consider the retail outlets — the distribution system
— by which the consumer can access these various services and
the degree of competition in the retail system. Personal financial
services segment naturally into three groups: retail banking,
personal lines insurance and savings and investment products.

3.2.2 Retail banking ( 3)

Customers have

traditionally obtained all

3.2.2.1
retail
located in bank
banking services by contact with bank staff
branches, once having established their identity and bona fides.
In most countries there are many competing banks. For a
foreign bank to enter a domestic market it is more practical to
acquire an existing bank than to create a new network which
would take time and would, in turn, create even more competi-
tion (cf. acquisition of Abbey National by Santander and acquisi-
tion of ABN Amro by Fortis, RBOS and Santander, etc.). In
effect, consumer choice depends on the competitiveness of
national markets since customers must choose one or other of
the banks in the domestic market place.

Internet banking is now under development but is
3.2.2.2
likely to remain mostly nationally based because the brand must
be known and trusted by customers and the bank will need to
depend on national regulations to determine the identity and
bona fides of its customers.

(3) Current account plus cheque book; savings account; loan account and/
(international) money

or overdraft; standing orders; direct debits;
transfer; debit card; credit card; global ATM access.

C 151/4

EN

Official Journal of the European Union

17.6.2008

3.2.2.3
Internet and telephone banking are providing 24/7
access to banking services which is a huge advance over the
time when access depended on bank opening hours.

3.2.4 Savings and investment products ( 5)

3.2.2.4 While competition between banks for full service
customers is necessarily restricted to full service banks, there is
a great deal of ‘cherry picking’, especially in the credit card
domain by banks like American Express and MBNA. These
services are offered via direct sales channels and are available
throughout
the EU. Credit card customers are subsequently
offered ATM access and extended consumer credit. In this way
consumers can benefit from competition between national and
international banks. At the same time, however, there is a risk
of individual debt increasing further.

3.2.4.1
Savings and investment products are a major busi-
ness segment for banks. They are also the segment which offers
the widest range of competing products and the most highly
developed system of independent intermediaries. The comments
about personal
lines insurance in point 3.1.3.4 above apply
equally to consumer choice in this segment. Regulations require
that bank staff who advise customers on savings and investment
products must, as part of their advice, explain that as bank
employees they can only sell bank branded products and that
these may not carry the lowest cost or give the best value.

3.2.2.5
Retail banks do not confine themselves to offering
retail banking services. With a strategy often described as
‘Bancassurance’ they now offer products and services across the
whole spectrum of retail financial products and services. Their
branches and their customer records provide a captive distribu-
tion capacity of huge value. Banks tend to brand most or all of
the financial products and services offered to their customers,
but these branded products are not necessarily best price or best
value.

3.2.3 Personal lines insurance ( 4)

Consumer choice in personal

lines insurance is a
3.2.3.1
function of the strength and extent of the independent distribu-
tion system provided by intermediaries such as brokers and
independent financial advisors. The traditional role of the inter-
mediary has been to provide best advice for the circumstances
of the particular client. The intermediary would consider value
as well as price.

As in banking, there has been ‘cherry picking’ by
3.2.3.2
direct selling insurance organisations which seek out clients in
low risk categories.

3.2.3.3
The business of the direct sales companies and the
role of the intermediary are now being challenged by internet
sites which offer on-line comparison of competing products,
especially motor insurance. This disintermediation focuses on
price and tends to reduce all products to commodity status.

3.2.3.4
For consumers to have the best possible choice in
personal lines insurance, including motor insurance, there must
be an alternative to Bancassurance distribution. That requires
that there are no anti-competitive restraints on the development
of independent intermediary networks or on distribution via the
internet.

(4) Home (buildings) insurance; home contents and personal property
insurance; motor insurance; travel insurance; life insurance; medical
insurance.

3.2.4.2
Consumers are bound to take advantage of govern-
ment sponsored savings schemes in their home country. Inter-
national companies will provide competing products within
those schemes where the volumes are attractive and distribution
channels exist.

3.2.4.3 Mortgages are an essential product for consumers.
The most highly developed national markets are characterised
by the presence of many mortgage providers in addition to the
banks and very sophisticated networks of independent advisors
backed up by a great deal of direct marketing. Competition has
created a hugely inventive market with a plethora of different
product offerings and a good deal of customer switching
between mortgage providers as terms and conditions change.
With so many options, clients need the best possible guidance
from their advisors.

3.2.4.4
Personal pensions, collective investments, stocks and
shares and stock market derivatives are also sophisticated
products which require best advice based on a thorough under-
standing of the client's circumstances. Therefore the customer
needs to have access to competent advisors and intermediaries
who in turn have access to a wide range of product options. As
previously mentioned, advisors employed by banks have to be
particularly concerned about giving best advice.

3.2.5
The emphasis in the Green Paper is on bringing the
benefits of the single market to customers for retail financial
services. The central issue is the divide between the retail banks
and the rest of the industry. The banks have an unassailable
position in retail banking which means that they have unique
market power since all users of financial services are already
their customers. The nature of the advice given by banking staff

(5) Government authorised savings schemes with tax incentives; mort-
gages: fixed and variable rates, fixed and variable terms, equity release,
etc.; primary and supplementary personal pensions; collective invest-
ments: sicavs, unit trusts, etc.; stocks and shares; derivatives, e.g.
exchange traded funds, contracts for differences, etc.

17.6.2008

EN

Official Journal of the European Union

C 151/5

is central to the working of the market because in the fields of
personal lines insurance and savings and investments there are
alternative products and alternative distribution systems which
customers should consider if they are to have access to all that
the market can offer.

doned by insurers for reasons of prudence, depriving consumers
and insurers from tangible benefits of cooperation i.e. consumer
mobility, products comparability, insurability, and opening-up of
to small and medium sized enterprise and new
markets
entrants.

Accordingly the presence of a network of well qualified
3.2.6
independent intermediaries and the emergence of distribution
channels on the internet for commodity products are key to the
working of the market.

3.3 Summary and findings of the public hearing

3.3.1
A number of critically important points emerged
during a hearing organised by the EESC. These points had
already been raised by consumer, business and employees' asso-
ciations in documents submitted to the Commission.

3.3.2
The debate highlighted agreement with the Commis-
sion's proposed objectives, as well as the practical difficulties
encountered in certain areas. The Green Paper sheds no light on
how legal and fiscal constraints can be overcome, such as the
law on money laundering and terrorist financing, which requires
the client to be personally identifiable for an account to be
opened or for certain financial transactions to be carried out
(KYC — Know Your Customer). Neither does it address the
barriers to full market integration, stressing the fragmentation
of the retail market, and almost calling for further procedures to
consolidate national and, above all, transnational markets.

3.3.3
Operators feel that the demand for mobility has been
overestimated, and call for a careful and detailed assessment of
real market demand, as they believe that provisions in the area
of the European payments system ought to have contributed to
reducing consumer interest. The call
for a completely new
numbering system for European accounts to improve the mobi-
lity of personal numbers appears excessive, as the benefits
would be few whereas the cost, eventually carried by consumers,
would prove exorbitant.

The hearing also highlighted the need to examine all
3.3.4
improving regulations in the sector. The
possible means of
banking industry calls for a reduction in compulsory regula-
tions, so as to enable the market to react spontaneously to
demand and strike the right balance in an ever more tailored
and specialised market.

3.3.5
In the field of insurance, more so than in banking,
demand in the retail sector centres on the national market, and
customer satisfaction (83 %) is such that there is nothing to
suggest that the structure of demand will change. On the other
hand, there are concerns about the forthcoming expiry of provi-
sions that are important for insurance companies, particularly in
the field of reinsurance, such as Regulation 358/2003 and the
Commission intention not to renew the Block Exemption Regu-
lation (BER), in 2010. Not renewing the BER would mean that
the legal clarity it guarantees would no longer exist. The positive
cooperation currently secured by the BER may then be aban-

3.3.6 Workers' representatives in the financial sector pointed
out that the Green Paper pays no attention to the role of
workers, and reiterated their demand for more specific training,
to enable them to meet the growing demand for information
and clarification on the various investment options on offer.
They also stressed the way in which particularly aggressive
commercial practices and performance-related bonus and assess-
ment systems have in many cases resulted in the sale of
products unsuitable for clients or not geared to their needs. This
point was highlighted alongside considerations about the most
recent financial crisis and the problems caused by the lack of
proper, meaningful,
in-built market vigilance, associated with
the increasingly important role played by hedge funds and
private equity funds. Another factor is the need to keep a
careful eye on the behaviour of rating companies, often called
upon by issuers to assess the value of their shares in an obvious
instance of conflicting interests.

Consumer

representatives,

finally, called for

3.3.7
radical
measures to cut the red tape and difficulties surrounding the
mobility of national and transnational accounts, well-informed
and responsible advice, full and comprehensible information,
and common rules for the various countries. They were also
highly mistrustful of the idea of an optional single system (the
so-called 28th regime) or of harmonising the existing laws
which are at the root of the differing degrees of protection
within the EU.

3.3.8
All the participants in the hearing stressed the need to
strengthen cooperation between consumers and financial insti-
tutions, recognising the practical and specific role played by
employees in improving relations and bridging gaps.

extremely

significant.

The EESC believes that the contributions made during
3.3.9
the hearing were
the
comments made and believes they bear witness to the urgent
need to open up a multi-stakeholder forum following the publi-
cation of the public consultation results, so as to seek to strike
the right balance between the various bodies. The EESC would
be prepared to act as a coordinator and facilitator at an event of
this kind.

endorses

It

3.4 The Single Market

3.4.1
The broad principle that informs the Green Paper on
Retail Financial Services in the Single Market is improving
consumer welfare. Since consumers have many opportunities to
financial
avail
in their daily lives,
themselves of
improving the retail
financial services sector could play an
important role in fulfilling the overarching goal.

services

C 151/6

EN

Official Journal of the European Union

17.6.2008

3.4.2
The European Union has adopted a framework of rules
and inspection which, by encouraging the soundness of finance
brokers and promoting the unrestricted provision of services,
has been a major step forward in promoting competition in the
financial sector.

significant benefits for consumers as businesses tend to base
their pricing system on the local market, and the expected bene-
fits of bringing new players onto the market are taking time to
materialise.

In addition to this,

the single
3.4.3
currency and the effects of the Financial Services Action Plan
have given a substantial boost to the single market at the level
of the institutional and wholesale clientele.

the introduction of

3.4.4
The retail market, on the other hand, has, according to
the Commission, remained extremely segmented, with the result
that:

— activity beyond national borders is on the whole limited;

— there are widely differing prices for services which are, by

and large, similar;

— consumers have a relatively limited choice; and

— the profitability of brokers varies markedly from one

country to another.

3.4.5 While agreeing with the premise that reducing the frag-
mentation of the retail market would be a good thing, the EESC
stresses that,
in general, retail markets are inevitably more
segmented than wholesale markets for obvious reasons to do
with the fragmentation and diversity of the demand to which
they are geared; as a result, the retail market cannot be judged
with the criteria applied to the wholesale market.

3.4.6
The EESC notes that new market models are emerging.
The global market is being built on the basis of cross-border
consolidation processes. Banking and insurance multinationals
are centring their acquisition strategies on increased mobility of
supply. The European market is becoming the domestic market
for some major groups, and they are not concerned with
providing their products and services in their own name in
another Member State but rather with increasing volume and
opportunities through direct entry onto individual national
markets, establishing themselves from within. The fierce compe-
tition for the acquisition of a major Dutch bank is evidence of
this.

However,

3.4.7
these cross-border consolidation processes
are having or could have very negative repercussions for
employment. Announcements regarding possible acquisitions
are followed by news of tens of thousands of job losses, though
in practice these cuts are not always carried out. The EESC has
previously highlighted this risk of social crisis and proposed
appropriate countermeasures, such as vocational training and
retraining schemes and social shock absorbers (6), which are
moreover written into many collective agreements in the Euro-
pean banking system. Cost savings are made but there are no

(6) Idem.

The potential economic return on the development of
3.4.8
the single market is inherently lower than the benefits of direct
entry onto national markets,
in terms of both economies of
scale and position. This means that the potential benefits for
enterprise are considered negligible, so specific thought needs to
be given to possible measures to be taken.

3.4.9
Of course, the EESC endorses the aim of removing all
artificial barriers to the single market which mask hidden
agendas. It therefore calls for all appropriate measures to be
taken to this end, but also stresses the need for the measures
undertaken to be genuinely targeted and for the cost/benefit
ratio to be clear.

4. Consumer
operators

information and vocational

training for

4.1
There is an urgent need to take the necessary measures
to increase consumer skills and awareness, in order to facilitate
the
responsible choices. Consumer protection requires that
consumer be provided with all essential
information, while
clearly always bearing in mind that
financial products and
services are in a category apart.

4.2
The EESC believes that a distinction must be made
between information and advice. The former must be given as a
matter of course and must be tailored to the client's under-
standing and risk profile, warning them of possible pitfalls.
Advice, in contrast, is a professional service to be provided on
request, where the advisor could shoulder some responsibility.
The difference is not always sufficiently understood. In some
countries, these services are supplied by independent profes-
sionals, as in the case of the UK,
in others by employees of
financial
institutions, who may find themselves in a clear
conflict of interests between the need to sell financial products
that may be linked to bonus systems and the need to take care
of the client who is relying on their professional expertise.

The EESC believes that it is essential that this issue be
4.3
addressed with clear regulations, so as to combat certain prac-
tices involving potential conflicts of interest, sales incentives and
staff bonus schemes, borrowed from commercial distribution
and linked to sales targets for specific products. The EESC
recommends holding a specific debate between the sector's
companies, consumers and employees, as the first step towards
meeting consumers' primary demand for transparent behaviour
from banking and insurance companies.

17.6.2008

EN

Official Journal of the European Union

C 151/7

i.e.

4.4
To be genuinely effective, consumer information must
take into account cultural diversity, the fact that there is no one
recipe which can be considered the best;
information
requirements must be geared to the different national situations.
A minimal system of joint European protection such as the
Commission is about to propose could be envisaged. Considera-
tion also needs to be given to the fact that the MiFID Directive
includes advice as an investment service. Such advice therefore
becomes a restricted activity. In terms of the provision of advi-
sory services MiFID guarantees investors a very high level of
protection: The advisor is required to obtain all the information
necessary to assess the suitability of
the recommendations
made. There is a need to define such an advisory service in
order to be able to distinguish it clearly from the general advice
provided through the distribution networks and to clarify the
scope of the application of the more rigorous obligations.

involving not only specialised institutes but also major investors,
which have liberally underwritten high-yield (because high-risk)
shares to the tune of billions of dollars. The crisis has affected
all the financial markets and has brought to light the limitations
of rather loose vigilance systems, as in the case of the UK. This
calls for a review and strengthening of the third level of the
Lamfalussy process regarding coordination between national
regulatory authorities. In Europe, the impact on the financial
market has been relative, although some countries that employ
similar banking practices, e.g. constant
remortgaging, are
starting to encounter serious difficulties because of rising rates.
The main problem has been the falling value of the dollar,
jeopardising
which has propelled the euro to record levels,
Europe's moderately positive economic cycle (see opinion ECO
202, rapporteur: Mr Derruine).

4.5
Intermediaries are required to take all reasonable steps to
identify conflicts of interest and manage them in such a way as
to prevent conflicts of interest from adversely affecting client
interests. Where arrangements made to manage conflicts of
interest are insufficient to ensure, with reasonable confidence,
that risks of damage to client interests will be prevented, the
intermediary must clearly disclose to the client
the general
nature and the sources of the conflicts of interest before under-
taking business on the client's behalf. In general, intermediaries
are now required to act in the client's best interests.

4.6
The EESC would recommend in particular that banking
and insurance companies develop specific vocational training
for bank and insurance employees who promote and sell finan-
cial services and products. Contact between financial institutions
and consumers is through operators, who should be enabled to
become familiar with the features of financial products and
services and in turn advise clients well. The system in Cyprus,
which has drawn on the British model, and includes a require-
ment to determine the client's risk profile and provide complete
and accurate information, has shown its effectiveness. Consumer
satisfaction there is very high. Consumers are better protected
when operators are better skilled. As part of sectoral social
dialogue, and with due respect for the independence of the
the Commission should promote a specific
various parties,
programme dedicated to developing the training of sales opera-
tors in charge of financial services and products. This could be
done by means of a project
jointly run by the European
banking and insurance associations and the European trade
union federation for the sector, Uni-Europa Finance.

Financial products

The EESC would note that

4.8
the Commission is more
favourable than in the past to the adoption of an optional
system, known as the ‘28th regime’. In this regard, it refers to
the comments it made previously, in the Opinion on the White
Paper on Financial Services Policy 2005-2010 (7).

Alongside a European optional

4.9
regime, a European
ethical code should be adopted, defined independently by opera-
tors and discussed and agreed with the relevant Commission
departments and the sector's user and employee associations.
This code would deal specifically with the company-client rela-
financial services, as well as the
tionship in the context of
possible plans for directives being discussed.

On 18 July 2007, during a statement made at the invi-
4.10
tation of the EESC INT section, the Commissioner for Consumer
Protection, Ms Meglena Kuneva, said that three main objectives
had been set with regard to the consumer policy strategy for the
period 2007-2013:

— empower consumers;

— enhance

the

economic

and non-economic welfare of

Europe's consumers;

— protect consumers effectively.

To achieve these objectives, last May the Commission put before
the Council a proposal
for a consumer credit directive, on
which a political agreement was reached.

Increasingly often,

4.7
identical financial products are sold
under many different guises. Clients are sometimes urged to buy
products and services which are not particularly tailored to their
actual needs, and the risk of excessive debt, especially in
consumer credit, is causing increasingly substantial problems for
families and also for specialised firms. In the United States, the
financialisation of the economy has resulted in the subprime (i.
e. high risk) mortgage crisis. It is like an enormous chain letter,

4.10.1
The proposal for a Directive lays down parameters for
providing consumers with comprehensive, understandable and
comparable information on credit offers, a fully harmonised
formula for calculation of the Annual Percentage Rate of Charge
and the Single European Form containing pre-contractual infor-
mation, a new 14-day right to withdraw from a credit agree-
ment without any penalty, and a right to repay the credit early.

(7) OJ 309/26 of 16.12.2006.

C 151/8

EN

Official Journal of the European Union

17.6.2008

The Commissioner also stressed her

4.10.2
intention to
increase ‘the consumer's financial capability’. This is firstly a
matter of information, but another factor to be developed is
financial education of consumers, which must go hand in hand
with information requirements rather than replace them.

6.2
The EESC agrees that client mobility is an important
factor in developing both quality and efficiency in the financial
services. The EESC maintains, however, that goals set for cross-
border access to financial services should not be over-optimistic.

4.10.3
objectives and is drafting an opinion to examine the proposals.

The EESC fully supports Commissioner Kuneva's

5. Operational objective

The operational objective of the Green Paper is to reduce
5.1
the segmentation of the retail financial market and lift legal and
economic barriers to client mobility. Having laid the ground
work for mobility of supply, the European Union wants to
complete the picture by supporting the mobility of demand.

5.2
Producing the rules this necessitates is costly in itself and
in terms of the adjustments it requires from the various stake-
holders, especially intermediaries. The EESC agrees that initia-
tives should only be launched if the benefits to the public are
significant and there is a high likelihood of achieving them. The
EESC also applauds the desire to monitor the consequences of
initiatives adopted in order to verify whether results match
expectations and be ready to rescind actions that do prove unsa-
tisfactory. However,
it must be pointed out that the costs of
unsatisfactory initiatives which are to be rescinded can also be
very high, and experience has shown that these costs may be
passed on to consumers, making things more difficult for them
rather than easier.

5.3
In this connection, the EESC points out that in many
cases this kind of process — ‘modifying the initial state —
impact assessment — possible return to the initial state’ — may
be more of a declaration of intent than a truly viable plan of
action. This is because in the financial sector cultural models,
relations of trust and accumulated experience play a crucial role
in shaping the dynamics of commerce and competition. Most
actions have an impact on these elements, changing them irre-
vocably and making it impossible to recover the initial state of
affairs simply by rescinding actions found wanting at the impact
assessment. For this reason, the EESC hopes that the Commis-
sion will not be overly optimistic and set too much store by the
possibility of restoring the initial state of affairs once the results
of actions undertaken have proved inadequate.

6. Cross-border access to financial services

6.1
The Green Paper takes the view that the fragmentation of
the retail financial market will remain by and large unchanged
in the medium term unless efforts are made to cut the barriers
that hamper consumer mobility, such as: lack of homogeneity in
rules and consumer protection, different fiscal regimes, fragmen-
tation and incompatibility of the operational infrastructures in
which financial services are embedded.

6.3
Consumer mobility can be understood in terms of either
geography (acquiring the product in a place at a distance from
one's residence) or relationships (the ability to change supplier
easily). The two types of mobility, while distinguishable as
concepts, are closely connected.

6.4
At least potentially, the services sector can offer greater
geographical mobility than the consumer goods sector, since the
encumbrance represented by the physicality of
the goods
exchanged is lifted. For example, buying a car abroad involves
substantial transport problems that are absent when the object
of the transaction is an ‘intangible’ service that travels on ‘infor-
mation highways’ rather than on asphalt.

6.5
On the other hand, there is a barrier to mobility of rela-
tionships in the service sectors in that their designation as an
‘intangible’ product often makes services difficult to fully eval-
uate and understand, making the relationship of trust between
seller and buyer particularly important. The relationship of trust
is singularly important
in the financial sector, since most
products are specific and involve long-term commitments
between seller and buyer. There are all manner of reasons why
consumers find it more difficult to establish a relationship of
trust with brokers that are not actually present in their own
country.

Another aspect not to be underestimated is the means by
6.6
which the consumer perceives the product.
In the case of
tangible goods, the product is perceived through the senses,
which, clearly, are not susceptible to linguistic or cultural
barriers. Financial services,
in contrast, cannot be seen or
touched, but are only perceived via the description given in
information leaflets and in the terms of contracts: the language
and cultural issue cannot, then, be underrated. Consumers can
purchase services abroad effectively if they have a good knowl-
edge of the language and the key financial practices of the
broker's country. Imposing a kind of multilingualism in infor-
mation and contracts could be envisaged as a way around this
obstacle. The EESC thinks it would be neither realistic nor
reasonable to oblige brokers to draft information leaflets and
contracts in all the Union's languages. There is no way that the
costs of initiatives of this kind, made all the greater by the conti-
nuing evolution of the product, could be offset by an increase
in volume. The Green Paper itself, in fact, maintains that in the
medium term no increase in cross-border consumer mobility
can be expected in the financial services sector. The language-
barrier
to remain unresolved in the
medium term and be a major obstacle to cross-border access to
retail financial services.

issue is therefore set

17.6.2008

EN

Official Journal of the European Union

C 151/9

6.7
The Commission instructed a high-level group to assess
the current situation as regards consumer mobility in relation to
bank accounts. On 30 May 2007, it published an interesting
report which revealed major differences in opinion on very
many points. Consumer associations see this as a genuine issue
while banking industry experts do not consider it to be an
issue. Some say that clients are very satisfied and see no need to
facilitate mobility, while others feel that these statistics must be
treated with great caution because satisfaction depends on the
level of expectation, and it is important to give consumers the
opportunity to switch banks without hindrance, enabling even
satisfied consumers to switch banks if they find better offers on
the market.

On the one hand,

6.8
the banking industry stresses that
consumers focus essentially on the domestic market. On the
other, consumer associations bewail the lack of cross-border
competition resulting from the barriers to switching accounts
and the poor transparency and comparability of products and
services on offer; consumers also show a lack of confidence in
foreign businesses.

6.9
The experts' report analyses the current difficulties of
opening an account: banks are concerned by legal and regula-
tory barriers, including the personal identification requirement
laid down by legislation combating money-laundering; consu-
mers highlight poor transparency of information on products
and services supplied and on the documentation required.
Consumers feel it is now essential that the right to open a basic
current account be recognised, as it is in a number of European
countries' legislation, given the impossibility of participating in
economic and social
life without a current account. On this
point, the banks stressed that freedom of contract is a funda-
mental principle of the market economy, enshrined in many
Constitutions.

6.10 Without wishing to embark on a constitutional debate,
the EESC feels it is essential to bridge the gaps between financial
companies and clients. Some democratic countries with market
economies have managed to establish certain minimum rights
for consumers, such as the legal right of bona fide residents to a
bank account, as a citizenship right. If national legislation and
practice could be brought into line with these good practices,
they could conceivably shape a common EU heritage. The EU
has often, in the past, taken advantage of the success of local
legislation and applied it to all the other Member States. In a
previous opinion, the EESC called for this right of access to be
granted across the board (8).

initiatives are under way in the retail
7.2
For this reason,
banking sector to examine,
the possibility of
promoting the ‘portability’ of bank accounts. A directive is also
being considered on improving the portability of supplementary
pension rights.

in particular,

7.2.1
The subject of current account transferability must not
however be confused with that of the single European account
number. The adoption of a single European number would
carry enormous costs that would be totally unjustified, and that
would end up being paid for by consumers. Transferability
should refer to all the transactions linked to the account, such
as standing orders, direct debits or securities accounts, but
certainly not to the account number. The implementation of
SEPA at European level is based on the current IBAN and CIN
identification codes, which should remain the same. Banking
companies must provide for maximum cooperation to ensure
account mobility and the transferability of arrangements,
possibly by means of codes of conduct or inter-bank agree-
ments, as is already the case in some countries.

7.3
The EESC agrees that it is time to take a careful look at
the legitimacy of obstacles to consumer mobility such as fees
for closing accounts, poor information transparency and the
nature of
financial service contracts that are calculated to
dissuade clients from changing product or supplier. The EESC
also stresses, however, that technical, regulatory, fiscal and legal
constraints can often make it difficult to create the right condi-
tions for the degree of consumer mobility suggested by the
Commission. The coexistence alongside the euro of various
other currencies presents a further difficulty. The non-euro area
still comprises numerous Member States and this adds to the
problems outlined above.

7.4
In particular, efforts to create homogenous conditions in
the financial services sector are also hampered by barriers
created by national authorities in the desire, legitimate in itself,
to give consumers better guarantees. The Commission voices its
intention to avoid limitations on choice that are not strictly
justified. The EESC advises caution, however, in moving towards
standardising the system of protection afforded to consumers,
given that the EU countries are not culturally and socially close
enough to justify a strongly centralist approach.

7. Objectives and action to be taken

Lower prices and more choice for consumers

7.1
The Commission maintains that promoting conditions to
create greater consumer mobility can make it easier to achieve a
twofold benefit: offering greater range of choice to satisfy much
more diverse needs at competitive prices.

(8) Idem.

8. Enhancing consumer confidence

The exchange of

financial operations and services is
8.1
possible when there is a solid basis of trust between the two
parties. The Commission stresses that European consumers are
somewhat concerned and suspicious about the protection and
guarantees that cross-border operations might be able to offer
them. The mobility of consumers will only be fully achieved
when they are truly persuaded that the protection of their inter-
ests is dependent neither on the place in which they purchase
services nor on the distribution channel that delivers them.

C 151/10

EN

Official Journal of the European Union

17.6.2008

this goal

The Commission believes that the following issues need
8.2
to be addressed if
is to be achieved: protecting
consumer interests, providing a clear and reliable regulatory
framework, ensuring access to an appropriate extra-judicial arbi-
tration system and promoting the soundness of
financial
brokers.

9.2
literacy
The Green Paper stresses that average financial
among consumers is generally low and is a formidable barrier
to their making the right financial choices. Moreover, there is a
commonly held view that the financial information made avail-
able seems to fall into two extremes, being either too banal or
too complicated.

8.3
The issue of protecting consumer interests is a delicate
one, since, as has been stressed earlier, it is not easy to define a
regulatory framework that meets all the desires and demands of
each Member State: the difficulty of harmonising the framework
of protection — for example, as emerged during the revision of
the directive on consumer credit — may give consumers the
impression that the level of protection afforded depends to a
large extent on the country in which the service is purchased.

relations,

Regarding the clarity of the regulatory framework that
8.4
governs contractual
the 1980 Rome Convention
establishes that it is the parties who, in principle, define the law
applicable to the contract. A modification of this principle is
being examined which would establish that
the law to be
applied is that of the consumer's place of residence if the seller
conducts his commercial activity in that country. However, there
is no guarantee that the application of this place of residence
law will enhance the supply of
financial products in other
Member States.

8.5
There is no doubt that the clear establishment of this
principle could boost consumers' confidence in the legal posi-
tallies only in part with the concept of
tion, although it
consumer mobility set out in the Green Paper.
In fact, the
Commission maintains that attention should also be turned to
the cross-border mobility of consumers, since that of financial
brokers is not enough: the new principle would help make it
easier to establish a general and unequivocal rule when it is the
broker who offers his services to the consumers of other coun-
tries, but not when it is the consumers who actively seek service
providers in other countries.

9. Empowering consumers

9.1
that
The Green Paper has quite rightly pointed out
consumers often express concerns that an unduly abundant
choice of financial products could confuse them and make it
more difficult to make the right choice for their needs. In fact,
only well informed consumers who are quite financially literate
will really be able to take advantage of the possibility of greater
international mobility in the single market.

Brussels, 16 January 2008.

9.3
These problems could be at least in part overcome if
consumers were able to resort to independent advice services
that could help them decide in their best interests. Such services
have already been piloted in Cyprus and the UK and will be
extended to the other Member States under the MIFID Directive;
they would not be obligatory, but would offer an alternative to
the services provided directly by the intermediaries. At present,
consumers often seek advice from the provider of the financial
service: they probably tend to do so because of the relationship
of trust that the provision of a financial service presupposes or
because there is no explicit cost to the advice offered by the
seller. It should be realised, however, that an advice service that
is not independent may be subject to a latent conflict of interest
which makes it difficult for the consumer to get a full picture of
how useful it is for him.

savers

to foster such financial

The EESC maintains that only consumers who are suffi-
9.4
ciently financially literate can properly grasp just how complex
meeting financial needs can be and, as a result, appreciate the
added value of competent and independent financial advice. It is
literacy, but also to
therefore vital
empower
to make responsible choices. Experts are
already talking of ‘financial illiteracy’, as a result of which many
people lose track of things and cannot take autonomous deci-
sions about their financial security, leading to possible economic
losses. The education system could help young people to
acquire some basic financial acumen so they can make informed
choices about future investments, though this must not detract
from the clear responsibility of financial market operators.

Advertising, particularly via the internet, warrants much
9.5
attention. All too often considerable discrepancies have emerged
between the actual features of financial products and the returns
promised, aimed solely at enticing consumers to invest
in
specific financial products. It should, however, be stated that
intermediaries
such occurrences rarely involve the traditional
such as banks and insurance companies, which are mindful of
customer relations and, moreover, subject to stringent rules and
controls. New entrants do not always operate within a clear
regulatory framework nor are subject to comprehensive supervi-
sory provisions. All of this weakens the position of consumers.

The President

of the European Economic and Social Committee

Dimitris DIMITRIADIS