Vision of competitive financial service sector blighted by regulatory hurdles

Date: 19/07/01

By Peter Chapman

THE Internet should be like money in the bank for the EU's financial services sector.

For an industry still burdened with expensive branch networks and mega-bucks corporate headquarters, e-commerce offers a low-cost way to reach corporate and retail clients in everything from current accounts to treasury bonds - not only at home, but anywhere in the EU's 360-million-consumer single market.

For customers - most of them will be spending the same euro currency - it should offer for the first time the ability to sift through an increasingly competitive market place without leaving the home or office. For those willing to squint at tiny screens and to thumb numbers into tiny keypads, third-generation mobile services should also be a boon. But as so often happens in the EU's hotch-potch approach to completing the single market, a myriad of regulatory hurdles could blight this vision.

Crucially, southern member states and their French and Belgian allies won key get-out clauses from the Union's new directive on e-commerce - a law which should in theory provide the legal framework for financial services organisations to get up and running with a minimum of fuss.

This key legislation gives e-commerce service providers a lot of room for manoeuvre provided they meet the rules and regulations of their own member states. The get-out clauses give EU governments the right to seek permission from the European Commission to put in place extra rules - even for foreign firms - in the name of consumer protection or other worthy causes such as public health or crime detection.

Perhaps even more troubling is that insurance and mutual funds were left out of the scope of the directive altogether. Adding to the confusion, EU governments are hopelessly split over a draft directive which sets out some common obligations on firms' distance selling of financial services by fax, phone and online. After months of talking, member states still can't agree on standard levels of consumer protection. The result of this policy mayhem, critics fear, is the online financial services sector could be just a mirror of the offline world - with national champions lording over local markets with little competition from abroad.

Enough is enough, says economist-turned-MEP Chris Huhne. In a report backed last week by the European Parliament's economic and monetary affairs committee Huhne says the e-commerce directive should be the battering ram to drive open financial services markets - not a key to lock the door.

If restrictions become rife, then consumers would lose out - with new competition deterred."We must make sure there are no bad apples," Huhne says, "but opening up e-commerce is of tremendous interest to consumers."

He says a Commission paper on e-commerce and financial services - basically a guidebook for how existing and future rules should be applied in the sector - does not go far enough to redress the balance. "What it does not make clear is that the Commission intends to hold the line of country of origin in the e-commerce directive," he argues.

He says the country of origin approach is under threat and the Commission should not automatically grant exemptions when southern member states seek to impose national rules and regulations on foreign companies, adding that the Commission should insist that country of origin rules are the norm, not the exception, as soon as the e-commerce directive is implemented next year. "Financial services is a key area for e-commerce because it does not deliver something tangible like pizzas or groceries," Huhne says. "If it's going to work anywhere its going to have to work for e-commerce."

In the meantime, Huhne says there should be scope for the EU to take the e-commerce directive and apply it to other countries beyond the confines of the 15 member states. Mutual recognition agreements could be signed with other countries - allowing companies from either region to sell financial services easily in each-others' territories. This is happening between Australia and Singapore, says Huhne. Why, he asks, doesn't the Union follow suit?

Article forms part of a survey on e-commerce.