The European Commission wants to curb retail financial services that are anti-competitive and promote cross-border products, report June O'Keefe and Andrew Laidlaw


Europe is not always associated with a service culture. Indeed, one often leaves a shop or restaurant with the feeling that the waiter or assistant has been doing you a favour by serving you - rather than anyone appreciating your custom.



But the European Commission now seems to be catching on to the idea that the consumer is king. It is not content to stop at the creation of avenues of redress for consumers and, in addition to the sort of activity we have reported in the last couple of 'Brussels Watch' columns, there are plans to go much further.



Following in the footsteps of the mammoth legislative package, the Financial Services Action Plan, the commission has turned its attention to retail financial services. From mortgages to insurance, bank charges to bank cards, and pensions to savings, the commission wants us to be able to access financial products and spend our money abroad more easily, and, through more competition, increase consumer welfare.



If you have ever left a bank feeling literally short-changed, then you are not alone. The commission has been carrying out an inquiry into retail banking, the results of which have shown that the institutions involved have been making huge profits, often to the detriment of consumers. While there is nothing illegal in turning a healthy profit, the commission is of the preliminary view that certain financial institutions are indulging in anti-competitive practices. The Office of Fair Trading seems to be thinking along similar lines, having recently launched its own market study into current account pricing.



The commission is pursuing this and several other retail financial services issues through a recently published Green Paper. This pulls together many strands of ongoing work in the field. Some financial services clearly lend themselves more easily to cross-border provision than others, but even those that should be highly competitive and easy to provide from country to country, such as payment transfers, are woefully underdeveloped at present. There are also sectors, such as cross-border lending, which are very localised. According to the commission's number-crunchers, at present only 1% of the EU's 490 million people presently buy financial products from another EU country.



On the other hand, why is it still so difficult, if not impossible, to pay with a debit card rather than a credit card in a foreign country? Why do pension products remain so anchored to national markets? These are all issues being addressed with the aim of removing unnecessary barriers to the cross-border provision or use of services. Indeed, legislation on payments is just being finalised.



And although financial service providers are partly the target of the commission's attention, consumers themselves have to take some responsibility for the development of a more competitive retail financial services market in Europe. Given the high rates of personal indebtedness in the UK, however, it could be argued that we understand how to use some financial products a little too well. Not surprisingly, one of the commission's aims is to increase 'financial literacy'. In other words, it wishes to enable European consumers to become better able to understand the wide range of products that exist on the market.



The UK's Financial Services Authority carried out research in 2006 on 'levels of financial capability', which concluded that those under the age of 40 did not manage their money as well as their elders, that many people take on financial risks because of a lack of understanding of the products they are signing up to, and that in general many people fail to make adequate provision for retirement.



Clearly, as solicitors play a part in clients' finances, there is a role to play here and a need for practitioners to keep abreast of the new products available. Over the coming years, as financial institutions consolidate across borders and EU legislation brings down legislative barriers, it may make increasing sense for your clients to shop around for savings and investment opportunities, for mortgages and pensions.



Lastly, the commission realises that to improve consumer confidence, effective redress measures must be available to consumers when things do go wrong, either through the courts or out-of-court procedures. One suggestion mooted by the Green Paper is the creation of alternative dispute resolution (ADR) schemes, such as an ombudsman or consumer complaints board. A version of such a system, which goes by the name of FIN-NET, already exists to help consumers lodge their complaints with the relevant ADR scheme in the country of the financial services provider. In the UK, this is done through the Financial Ombudsman Service. However, the system is incomplete and not all EU member states have ADR schemes for financial services.



Therefore, it is clear that with the myriad of products on offer, solicitors are well placed to advise their clients not only on what to choose but also on where to turn should things go wrong. Those wishing to respond to the Green Paper have until 16 July to do so. Responses should be sent to markt-retail-consultation@ ec.europa.eu.



June O'Keeffe is head of the Law Society's Brussels office, and Andrew Laidlaw is the internal market policy executive