McCreevy targets EU-wide consumer financial services

Charlie McCreevy, the European commissioner for the internal market and services, will next week bid to bring down the price of financial services for consumers. Measures contained in a green paper on retail financial services, to be approved by the Commission on 2 May, will focus on removing remaining barriers to companies offering cross-border products and services.

A draft version of the green paper, seen by European Voice, says that despite the Financial Services Action Plan, "retail financial services integration has not yet reached its potential". Competition in some markets, the paper says, is insufficient, particularly in areas like payments and retail banking, leaving EU consumers unable to take full advantage of the benefits of the single market.

Only 1% of EU consumers buy financial services across borders. Domestic insurance companies account for more than 90% of total premium income in most markets.

The paper notes that the lack of market integration may be down to customer behaviour and preferences, with consumers preferring to choose products offered by local branches and intermediaries.

It also notes that prices vary widely especially for payment services, consumer credit and current accounts. The average cost of a current account in the EU is €119 while it only costs €15 in Lithuania but €265 in Luxembourg.

The green paper aims to bring down consumer prices by ensuring that there is sufficient competition in the financial services market. This depends on guaranteeing access for financial institutions in other member states as well as ensuring that customers do not face unreasonable penalties for switching providers. The paper identifies artificial barriers to changing providers, such as fees for closing accounts or policies, poor or complex information, product-tying and heavy administrative burdens. An expert group has been studying customer mobility since 2006 and will present its report in the coming month, including recommendations such as measures to improve information transparency.

The Commission is also concerned at the level of consumer choice and innovation on products and services. It points out that some member states impose different rules and requirements on providers because of different consumer protection rules, taxation and legal systems. For example, equity release mortgages, which allow people to take some of the value of their property as a lump sum, cannot be offered in some member states. The Commission paper says that such restrictions should only be maintained if "objectively justified", ie, if they are necessary to protect consumers, if they are proportionate and if they do not duplicate home country requirements.

The Commission will also re-examine the ‘general good’ rule which allows national authorities to require insurance product providers to respect national rules.

The paper sets out a range of other studies and possible follow-up actions:

l by the end of 2007 a report on the market for retail long-term savings;

l in 2008 a white paper and proposals on creating an integrated market for mortgage credit; a review of national regulatory frameworks for marketing equity release products and the role of non-banks; a report on the effectiveness of the 2002 directive on distance marketing of financial services; studies on long-term savings and investment and financial intermediaries.

Charlie McCreevy, the European commissioner for the internal market and services, will next week bid to bring down the price of financial services for consumers. Measures contained in a green paper on retail financial services, to be approved by the Commission on 2 May, will focus on removing remaining barriers to companies offering cross-border products and services.