Annexes to COM(2017)139 - Consumer Financial Services Action Plan: Better Products, More Choice - Main contents
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This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2017)139 - Consumer Financial Services Action Plan: Better Products, More Choice. |
|---|---|
| document | COM(2017)139  |
| date | March 23, 2017 |
2.6.A deeper and safer Single Market for consumer credit
In recent years, the consumer credit market has developed quickly, also across borders, notably through on-line lending and peer-to-peer lending platforms. EU legislation (notably the Consumer Credit Directive 18 ) was designed for more traditional forms of lending and may not always cover adequately those new forms of lending, in particular on-line cross-border lending. The lack of harmonised authorisation and supervisory requirements at EU-level (which exist for many other financial services), might also impede the development of the consumer credit market, as consumers and lenders are not certain which requirements apply and which supervisor (if any) is monitoring consumer credit activities, be they carried out domestically or across borders.
While the increased availability and easier access to consumer credit create opportunities for business and result in lower costs for borrowers, there is also an increased risk of irresponsible lending and borrowing causing over-indebtedness. This risk needs to be mitigated.
Creditworthiness assessments foreseen in both the Consumer Credit Directive and the Mortgage Credit Directive 19 seek to prevent irresponsible lending and borrowing. Nevertheless, over-indebtedness remains a serious issue in the EU. On average, according to Eurostat (Statistics on Income and Living Conditions, SILC), around 10% of European households are over-indebted, and this is to a large extent due to credit activities. Low-income households are particularly vulnerable to economic shocks when indebted, as lower earnings or higher interest rates could quickly lead to an unsustainable debt burden and economic distress. 20
A Commission study of 2013 confirmed the effectiveness of debt advice together with financial education in alleviating debt burdens and tackling excessive debt. 21 There is, however, a great diversity in the way debt advice is currently provided in the EU. It is largely underdeveloped in some countries and regions and, in some cases, its effectiveness may be low due to limited knowledge of how this advice should be provided, or due to limited awareness of such advice among consumers.
Action 7
The Commission will explore ways of facilitating access to loans across borders whilst ensuring a high level of consumer protection. In this context, the Commission will also consider ways of addressing in a more efficient manner consumer over-indebtedness linked to credit activities.
3. Legal and regulatory obstacles for businesses
Businesses responding to the Green Paper stressed that they cannot build a business case to provide services abroad due to lack of demand coupled with regulatory uncertainty, i.e. the risks (and costs) of having to comply with another Member State's national legislation which may go beyond EU legal requirements. Action is therefore needed on the supply side to identify and tackle some of the national regulatory constraints for providers.
One option to reduce uncertainty resulting from differing national regimes is by developing separate European regimes for certain products in addition to existing national regimes. For example, the Commission’s work on developing a simple, efficient, and competitive EU personal pension product (PEPP) – a portable financial product that can accompany people as they move across borders within the EU – is relevant. The PEPP will aim to create a genuine Single Market for personal pension products, facilitating cross-border selling (by insurance providers or asset managers) and cross-border portability for savers. At the same time, it would constitute a template for domestic third pillar pension products in Member States where these are under-developed. It should thus help to bridge the pension gap and release new savings for investment.
3.1.National regulatory constraints
Differences between national legal systems, as well as a tendency to add national rules on top of the EU provisions when implementing EU law, can distort competition to the detriment of new entrants, who are confronted with high compliance costs. EU law aims to strike a balance between the freedom to provide financial services and sufficient safeguards for consumers and market stability. This, combined with rules on the responsibilities of home and host state supervisory authorities and applicable law, allows passporting, i.e. the right to provide certain financial services in other Member States. EU legislation leaves some space for Member States to adapt the framework to the particularities of their markets. For example, certain consumer protection rules are in the jurisdiction of Member States. However, responses to the Green Paper suggest that differences across Member States are such that they hamper the proper functioning of the Single Market.
More detailed evidence is needed, though, on the particular rules and practices that might constitute unwarranted barriers to firms seeking to offer their services cross-border and that may not be justified by national consumer protection concerns. An exercise to dismantle barriers to the free movement of capital is already being undertaken with a group of Member State experts who are mapping barriers and exchanging good practices. The results of this work will be published in a report which will also set out a first roadmap of actions that Member States would be encouraged to take by 2019 at the latest. Cross-border barriers in the specific area of fund distribution were addressed in a recent consultation to which the Commission will be setting out its response in 2017. A major knowledge gap remains, though, in relation to national consumer protection and conduct rules.
Action 8
The Commission will examine national consumer protection and conduct rules to assess whether they create unjustified barriers to cross-border business.
3.2.Facilitating cross-border credit
A key requirement for issuing consumer credit under EU law is creditworthiness assessment, which protects both the lender and the borrower. Creditworthiness assessment is also an effective preventive measure against over-indebtedness. However, credit providers face difficulties assessing creditworthiness of borrowers from other Member States, due to poor availability and comparability of relevant data in other countries.
Feedback received from national consumer protection authorities and through complaints has shown that such assessments in the area of consumer credit are carried out in ways which differ significantly across Member States. Standardised and harmonised assessment of creditworthiness would facilitate cross-border lending, which could lead to lower prices and offer more choice for consumers. Moreover, it would prevent vulnerable consumers from falling into a "debt trap" and ensure that consumers purchasing credit from other Member States are as protected as if they purchased credit domestically.
When assessing a credit application, creditors usually rely on different internal and external data sources, including data from credit registers. Credit providers responding to the Green Paper insisted that they cannot offer cross-border services as they lack access to relevant data in other Member States. This makes assessing borrowers’ creditworthiness more difficult. Standardising credit data could make the provision of pan-European online credit easier. FinTech 22 and big data developments have led to the use of alternative data elements and sources which should be carefully assessed from the point of view of compliance with EU personal data protection law 23 and in view of their relevance for determining a borrower's rating or the pricing of financial services.
Efficient credit reporting systems can provide creditors with access to information that complements data received from borrowers themselves, allowing for well-informed credit decisions (especially if based on standardised creditworthiness assessments as mentioned above) resulting in better availability of credit to creditworthy borrowers. Both the Mortgage Credit Directive and the Consumer Credit Directive already grant creditors equal access to credit registers in other Member States. However, the information provided varies: in some Member States, credit registers only report on missed payments (i.e. negative reporting); in others, they also report on the regularity of payments (i.e. positive reporting). Moreover, credit data are usually shared only reciprocally. As a result, credit registers are not interoperable, the relevance of the available data for creditworthiness assessments is unclear, and information is not widely used across borders.
Some work to address these issues is already under way. There are market-led reciprocal information exchange agreements between credit registers in different Member States where national reporting traditions are similar. However, this still leaves many gaps. The work of the European Central Bank on AnaCredit, a new dataset with detailed information on individual bank loans in the euro area, should lead to further data standardisation on loans. Under the CMU Action Plan, the Commission is exploring ways of improving the availability of financial and credit information about small and medium sized enterprises for (alternative) lenders and investors. This would allow them to better understand the risk profile of SMEs seeking finance and take informed decisions.
Action 9
The Commission will seek to introduce common creditworthiness assessment standards and principles for lending to consumers and work to develop a minimum set of data to be exchanged between credit registers in cross-border creditworthiness assessments.
4. Towards an innovative digital world
Respondents to the Green Paper saw great potential for financial services in innovation and technology (FinTech), also in overcoming barriers to buying and selling retail financial services across borders. The third objective of this Action Plan is to support the development of an innovative digital world, which should make it easier for the private sector to overcome some of the existing barriers to the Single Market while maintaining a high level of security.
The Commission’s role is to create a regulatory and supervisory environment across the EU that supports digital innovation. A major step is the recently adopted Regulation on electronic identification (eIDAS) 24 which allows the cross-border recognition of electronic identification for public services and trust services across the EU Single Market. An inter-operable framework for electronic identification could also help firms develop digital customer relationships. For the longer term, the Commission needs to develop a broad strategy to harness the opportunities of technological innovation across the whole financial services sector while maintaining a high level of consumer and personal data protection and security standards, as well as market stability.
4.1.Technology-driven Single Market in retail financial services
A major challenge for the coming years will be to create an environment in which financial innovation for the benefit of consumers can thrive. Innovative firms regularly express concerns that EU and Member State legislation and supervisory practices limit their ability to innovate and to offer services across borders. They are uncertain about how their new services fit into the existing regulations, and they may experience a disproportionate, inconsistent or over-cautious application of regulatory requirements that are not well suited for these innovative services. At the same time, concerns around payment security and the fear of digital fraud are wide-spread among citizens. These concerns need to be adequately addressed when driving innovation further in the area of financial services. In the European Agenda on Security, 25 the European Commission recognised the need to review the existing EU legal framework to combat fraud and counterfeiting of non-cash means of payment, 26 updating it where necessary. A legislative proposal is planned for autumn 2017.
Innovation presents new challenges to financial services regulators and supervisors who have to ensure that consumers are protected and market stability is preserved without being able to rely on previous practice and experience. Several EU financial services regulators have started to be more proactive, developing new methods to support the development of innovative businesses while learning from these firms. These initiatives include hubs providing guidance on applicable regulation and teams looking at the policy implications of technology. Some national regulators and supervisors are working particularly closely with innovative firms, piloting their activities in so-called regulatory sandboxes.
Building a true technology-enabled Single Market in financial services will require the cooperation of all stakeholders (i.e. consumers, incumbents, alternative FinTech providers). The Commission encourages new regulatory and supervisory approaches and cross-border co-operation when dealing with innovative firms, as long as consumers remain well protected.
The Commission also launched an internal FinTech Task Force which involves all relevant services working on financial regulation, technology, data and competition to ensure that our assessment reflects the multi-disciplinary approach that Fintech developments ask for. Alongside this Action Plan, the Commission is launching a public consultation to receive input from stakeholders to further develop the Commission's policy approach towards technological innovation in financial services. The consultation is structured along four broad policy objectives that reflect the main opportunities and challenges related to Fintech:
(1) Fostering access to financial services for consumers and businesses;
(2) Bringing down operational costs and increasing efficiency for the industry;
(3) Making the single market more competitive by lowering barriers to entry; and
(4) Balancing greater data sharing and transparency with privacy needs.
This work will also benefit from specific funding from the European Parliament for a pilot project aimed at reinforcing the capacity and technical expertise of national regulators with regard to distributed ledger technology.
Action 10
Based on the work of the FinTech Task Force and the public consultation, the Commission will determine which actions are required to support the development of FinTech and a technology-driven Single Market for financial services.
4.2.Digital customer relationships
One of the main benefits of FinTech in the short run is its potential for facilitating on-line relations with customers. Enabling firms to establish fully digital customer relationships is key to building a Single Market for retail financial services, as leaders of major European banks confirmed in November 2016 at a roundtable organised by the Commission. 27 Cross-border provision of financial services will not take off as long as consumers have to appear at providers’ offices to be identified, receive disclosure documents on paper, and give handwritten signatures on contracts.
4.2.1.Remote identification
Innovators are developing new ways to identify and authenticate customers. ‘RegTech’ 28 could change markets by automating checks on companies, people and ID documents to meet know-your-customer requirements through remote identification and to tackle fraud issues. 29 The use of electronic identity schemes, as set out in eIDAS, would make it possible to open a bank account on-line while meeting the strong requirements for customer identity proofing and verification for know-your-customer or customer due diligence purposes. The legal certainty and validity of qualified eSignatures, as provided for under eIDAS, could also enhance the security of electronic transactions. This should work across borders and across sectors, and it should have the same legal effect as traditional paper based processes.
The soon to be transposed 4th anti-money laundering directive 30 , with its proposed amendments 31 , acknowledges these new developments and accepts electronic identification means under eIDAS as tools to meet customer due diligence requirements. Notifications of electronic identity schemes are expected as of mid-2017, and it is important that Member States ensure that the schemes they are preparing for notification will be interoperable and available also for private sector use. The Commission will continue to promote the use of electronic identity in the Member States and encourage their notification.
The 4th anti-money laundering directive is a minimum harmonisation directive and thus leaves space for differing application across Member States. The decisions on how innovative digital tools for identifying customers can be used remain with the Member States, who also have to ensure that these tools are safe and secure, do not introduce new risks to consumers or the system and comply with EU data protection laws. The Commission will launch a dedicated expert group to explore these issues further and develop common guidelines. The group will comprise regulators, supervisors, financial institutions and the existing group of identity experts from Member States.
In this context, the Commission is conducting a study to assess the current regulatory and supervisory framework and best practices for remote identification and customer due diligence across the EU. In parallel, the Commission will shortly make it possible, under the Connecting Europe Facility, to test the cross-border use by banks of electronic identification means. It will also put forward an implementation plan and define information systems architecture solutions with the objective to progress towards a specific eBanking building block that will meet the requirements of remote identification of bank customers.
Action 11
The Commission will facilitate the cross-border use of electronic identification and know-your-customer portability based on eIDAS to enable banks to identify customers digitally.
4.2.2.Digital distance selling
Changing consumer behaviour coupled with new business models of financial service providers could lead to new consumer protection risks (e.g. online consent issues, financial exclusion, supervision/regulation issues in this market, etc.). These may not be sufficiently addressed yet. Thus, an assessment is required to check whether the existing sector-specific and horizontal legislation (e.g. the Directive on Distance Marketing of Financial Services 32 ) is still fit for purpose.
For example, prior to purchasing a financial services product, consumers must be given information on the product either on paper or on-line to enable them to make informed decisions. Feedback from the industry suggests that the current pre-contractual disclosure requirements might not be fit for the digital world. Respondents to the Green Paper suggested the use of more interactive and engaging platforms, suited to smartphones or tablets, to enhance the consumers’ understanding of financial products.
Disclosure requirements are included in several directives and regulations, including those on mortgage and consumer credit, on payment accounts, on markets in financial instruments, packaged retail and insurance-based investment products and collective investments in transferable securities. The Commission will monitor how these disclosure requirements will be applied by digital providers before suggesting any amendments to these laws. The Commission also invites the industry to present appropriate new solutions that could help consumers gain a better understanding of financial products or services and make informed decisions.
The Commission is also undertaking a comprehensive assessment of European markets for retail investment products, focussing on distribution channels and investment advice. The aim is to identify ways to improve the efficiency of intermediation channels so that retail investors can access suitable investment products on cost effective terms. Results are due in the beginning of 2018.
Action 12
The Commission will monitor the distance selling market to identify the potential consumer risks and business opportunities in this market and, on that basis, decide on the need to amend distance selling (including disclosure) requirements.
5. Conclusion
Regardless of their current purchasing patterns, all consumers have much to gain from a true Single Market in financial services. However, substantial barriers to integration remain. These need to be removed before market fragmentation can be reduced to the point that all consumers can benefit from increased choice and improved quality combined with a high level of security. Once this is achieved and shopping for financial services across borders becomes a reality for an increasing number of Europeans, the resulting competitive pressure will benefit all consumers, including those who continue to purchase financial services domestically.
The Commission has already tackled many of the regulatory obstacles through EU legislation, and this Action Plan sets out the plans for further work, consolidating the acquis and fostering innovation. FinTech will bring new opportunities for tackling some of the remaining barriers to integration and opening up national markets further, provided that adequate safeguards are also put in place. However, truly harnessing this potential requires a framework and working methods that are fit for a rapidly changing financial services sector. Therefore, the Commission invites the Member States, the national competent authorities, financial service providers and consumer organisations to join forces in building a genuine technology-enabled Single Market for retail financial services.
(1) Special Eurobarometer 446, July 2016: http://ec.europa.eu/COMMFrontOffice/PublicOpinion/index.cfm/Survey/getSurveyDetail/instruments/SPECIAL/surveyKy/2108 . More evidence on the current state of the European Single Market for retail financial services is provided in the Green paper on retail financial services:
http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=COM:2015:630:FIN
(2) See http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=COM:2015:630:FIN
(3) See http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52015DC0468
(4) 2016/2056(INI) adopted on 17/10/2016
(5) See http://ec.europa.eu/consumers/consumer_rights/review
(6) See http://ec.europa.eu/finance/fin-net/index_en.htm
(7) Regulation (EC) No 924/2009 of the European Parliament and of the Council of 16 September 2009 on cross-border payments in the Community and repealing Regulation (EC) No 2560/2001, OJ L 266, 9.10.2009, p. 11–18
(8) Directive 2007/64/EC of the European Parliament and of the Council of 13 November 2007 on payment services in the internal market amending Directives 97/7/EC, 2002/65/EC, 2005/60/EC and 2006/48/EC and repealing Directive 97/5/EC, OJ L 319, 5.12.2007, p. 1–36
(9) Directive (EU) 2015/2366 of the European Parliament and of the Council of 25 November 2015 on payment services in the internal market, amending Directives 2002/65/EC, 2009/110/EC and 2013/36/EU and Regulation (EU) No 1093/2010, and repealing Directive 2007/64/EC, OJ L 337, 23.12.2015, p. 35–127
(10) Eurobarometer 446, Summary page 12 and following
(11) European Commission, Study on the role of digitalisation and innovation in creating a true Single Market for retail financial services and insurance, Executive Summary, July 2016, available at: https://ec.europa.eu/info/publications/study-impact-digitalisation-eu-single-market-consumer-financial-services_en , (Digitalisation study), page 5
(12) Directive 2014/92/EU of the European Parliament and of the Council of 23 July 2014 on the comparability of fees related to payment accounts, payment account switching and access to payment accounts with basic features, OJ L 257, 28.8.2014, p. 214–246
(13) See http://ec.europa.eu/consumers/consumer_rights/unfair-trade/comparison-tools/index_en.htm
(14) The study will build on the results of an ongoing behavioural study on insurance services which aims at, among other things, providing robust quantitative evidence about consumers’ experience in the insurance market, the impact of different contract features, the impact of how information is presented, and barriers to cross-border purchasing of insurance.
(15) Directive 2009/103/EC of the European Parliament and of the Council of 16 September 2009 relating to insurance against civil liability in respect of the use of motor vehicles, and the enforcement of the obligation to insure against such liability, OJ L 263, 7.10.2009, p. 11–31
(16) Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance distribution (recast), OJ L 26, 2.2.2016, p. 19–59
(17) See http://europa.eu/rapid/press-release_IP-17-86_en.htm
(18) Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on credit agreements for consumers and repealing Council Directive 87/102/EEC, OJ L 133, 22.5.2008, p. 66–92
(19) Directive 2014/17/EU of the European Parliament and of the Council of 4 February 2014 on credit agreements for consumers relating to residential immovable property and amending Directives 2008/48/EC and 2013/36/EU and Regulation (EU) No 1093/2010.
(20) The Eurosystem Household Finance and Consumption Survey, Eurosystem Household Finance and Consumption Network, 2013, available at: https://www.ecb.europa.eu/pub/pdf/other/ecbsp2en.pdf?2180f869d12ccc366869c9419b3da32e , page 71
(21) Available at http://ec.europa.eu/consumers/financial_services/reference_studies_documents/docs/part_1_synthesis_of_findings_en.pdf
(22) FinTech refers to technology enabled provision of financial services, including by alternative providers who use technology-based systems in some way to either provide financial services directly or to make the financial system more efficient.
(23) Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data and as from 25 May 2018, Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation) (Text with EEA relevance), OJ L 119, 4.5.2016, p. 1–88.
(24) Regulation (EU) No 910/2014 of the European Parliament and of the Council of 23 July 2014 on electronic identification and trust services for electronic transactions in the internal market and repealing Directive 1999/93/EC, OJ L 257, 28.8.2014, p. 73–114
(25) https://ec.europa.eu/home-affairs/sites/homeaffairs/files/e-library/documents/basic-documents/docs/eu_agenda_on_security_en.pdf
(26) http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32001F0413&from=EN
(27) Issues discussed included electronic identification and digital on-boarding, cybersecurity, data and cloud, platforms and payments as well as digital skills related to Fintech.
(28) RegTech stands for "regulatory technology" and a business model where technology enables firms to better comply with regulation; RegTech can enable also government bodies to implement, monitor, or enforce regulation in a more effective, more efficient manner, or in a user-friendly manner.
(29) Imafidon, C., The spiralling costs of KYC for banks and how FinTech can help, ITPro Portal, June 2016, available at: http://www.itproportal.com/2016/06/06/the-spiralling-costs-of-kyc-for-banks-and-how-fintech-can-help
(30) Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, amending Regulation (EU) No 648/2012 of the European Parliament and of the Council, and repealing Directive 2005/60/EC of the European Parliament and of the Council and Commission Directive 2006/70/EC, OJ L 141, 5.6.2015, p. 73–117
(31) See http://ec.europa.eu/justice/criminal/document/files/aml-directive_en.pdf
(32) Directive 2002/65/EC of the European Parliament and of the Council of 23 September 2002 concerning the distance marketing of consumer financial services and amending Council Directive 90/619/EEC and Directives 97/7/EC and 98/27/EC, OJ L 271, 9.10.2002, p. 16–24