by Leonard Dorny
The European Commission has published its long awaited Action Plan on Retail Financial Services. The paper sets out 12 policy actions that the Commission is tackling over the next two years in the area of retail financial services, with the objective of increasing transparency in cross-border relations, removing regulatory obstacles for businesses and enhancing digital innovation.
The paper, which is one of the commitments coming from the Action Plan on Building the Capital Markets Union (CMU), aims to further enhance the demand and supply of retail financial services across Member States, and ultimately focuses at the completion of the CMU. But why is it needed, what will it deliver and can it deliver?
Why is the Action Plan needed?
Retail financial products are often complex products which rely upon a consumer’s trust. At the same time, to pursue the completion of the Capital Markets Union, it is necessary to enhance cross-border trade and increase the online sale of retail financial products. Traditionally, none of those two elements are known for generating trust among consumers.
Specifically, the Commission is aiming to tackle consumer protection rules that go beyond necessary standards, posing unjustified barriers to trade.
The origin of the current shortage in cross-border retail financial services is twofold. First, the demand of cross-border retail products is lagging behind its potential because the offered products run short in transparency at a pan-European level. Second, the supply side is also lagging behind its potential, as regulatory obstacles act as barriers for businesses to offer products across borders.
What will it deliver?
The measures will specifically try to stimulate the demand and supply of retail financial products across borders, and furthermore try to enhance digital innovation. Each action comes with a concrete timeline to be tackled throughout the next two years.
On the demand side, the Commission will focus on introducing transparency requirements in non-euro transactions a nd in currency conversion procedures.
Furthermore, the Commission thinks that the appetite for retail financial products would be enhanced if the switching to different service providers would be facilitated under certain conditions, and by promoting key principles for comparison websites.
Some additional specific actions in the domain of transparent pricing of insurance costs for car rental, and cross-border recognition of claims in case of traffic accidents complete the framework.
On the supply side, the Commission will look at regulatory barriers and at national legislation that introduces additional requirements to EU standards. Specifically, the Commission is aiming to tackle consumer protection rules that go beyond necessary standards, posing unjustified barriers to trade. Furthermore, the harmonisation of creditworthiness assessments will be addressed to facilitate the provision of pan-European consumer credit.
As the main distribution way for cross-border retail financial services is online, the paper also incorporates three actions that aim at boosting digital innovation. Domains like FinTech or e-Identification are expected to give an additional stimulus to the supply of financial services and the creation of consumer trust. Also, the legislation for the online selling of retail financial services will be reviewed and adapted to the new environment.
Can it deliver?
It remains to be seen if the Commission will be able to deliver all of the 12 policy actions in the tight timeline of two years. But even if it does, the main question to be answered is if the proposal will boost the cross-border dimension of retail financial services. Many of the measures do not directly aim at proposing new legislation, but rather at providing guidelines, best practices and market studies to analyse what the concrete barriers are; and therefore, a priori have a doubtful impact. Boosting the Capital Markets Union is an arduous process, and the future will tell what impact the Retail Financial Services Action Plan has on that overall goal.