Banking paper takes soft line

Date: 09/05/1996

By Fiona McHugh

THE European Commission, bowing to pressure from big banks, is due to agree in the coming weeks to take a softly softly approach to regulating the EU's financial sector.

Complaints about the poor quality of services offered by foreign banks have flooded consumer organisations since the creation of the single banking market.

But, even so, the Commission shies away from proposing concrete action to tackle such problems in its draft Green Paper on financial services, preferring instead to point to a number of danger zones and promise to monitor them closely in the future.

However, Commission officials indicated this week that the tone of the document might be made more “consumer-friendly” before its final adoption in an attempt to answer critics who say it places bankers' interests over those of their customers.

European banks, struggling to cope with the cost of monetary union, have fiercely resisted attempts to place what they deem to be too-heavy legislative burdens on their already aching shoulders. They will, undoubtedly, be delighted with the current text, which is littered with “mays” and “considers”, but is short on “wills” and “musts”.

“I think that the Commission is adopting a very sensible approach by assessing whether there is a need for more rules before proposing legislation,” says Nikolaus Bömcke, Secretary General of the European Banking Federation. “What often happens in these cases is that the serious banks, which account for 95&percent; of the market, get punished for the bad behaviour of a handful of not serious people.”

But consumer groups expressed dismay.

“There is a stark contrast between the Commission's attitude to consumers and its attitude to businesses,” complains Jim Murray, director of the European consumer organisation, BEUC. “When dealing with industry's problems it demands action, but when dealing with citizens it is noticeably mute.”

Of particular concern to BEUC is the Commission's failure to promise rules to govern the sale of mortgages and loans from a distance by phone or fax.

The European Parliament voted at the last minute to exclude financial services from the scope of a general directive on distance selling, but only after Consumer Affairs Commissioner Emma Bonino hinted that she would bring forward a separate directive to deal with banking services. The decision not to do so will be greeted with profound disappointment in a number of quarters.

The draft Green Paper finds it regrettable that certain banks refuse to serve foreigners, that a lot of banking services are of poor quality and that contracts are not always easy to enforce, but concludes that the Commission can do nothing to alter the situation.

It promises to assess what, if anything, should be done about cowboy intermediaries who liaise between banks and foreign clients, and to consider “appropriate action” to help victims of car accidents abroad claim compensation from insurance companies.

When it comes to problems encountered by banks, the Commission takes a much tougher line, promising to clamp down on governments which fail to transpose EU law and to clarify rules on the sale of insurance and securities abroad.

The paper provides an exhaustive catalogue of protection measures already in place, but long though the list is, it will come as cold comfort to those who believe the EU's financial sector needs to be reined in. By increasing competition, the single market in banking was supposed to bring with it a bounty of low-cost banking services. But, hampered by protectionist governments and reluctant consumers, it has been slow to take off.

With the advent of virtual banking services enabling customers to pay bills with cyber-money stored in electronic purses, the Commission hopes cross-border banking will flourish. It is to water the seeds of this online banking sector that the Commission has gone easy on consumer protection rules.