Cicero Policy Briefer

Issue 22, March 2008

EU retail financial services market: What’s the score?

By Michael Cooper

Ever wondered why average banking fees across the EU can vary between zero and more than €80? Or why more than a third of EU citizens struggle to compare offers between banks? So too has the European Commission…

The Barroso Commission is fast approaching the final year of its tenure and while it can already boast successes from negotiating the Lisbon Treaty to widening European integration, there is still plenty of time for Commissioners to ‘secure their legacy’ and tackle their pet projects. When looking at what could be on the horizon for the remainder of the current Commission, there is still plenty of food for thought in the field of single market legislation.

The main champions of the free market within the Commission, Charlie McCreevy and Neelie Kroes, internal market and competition Commissioners respectively, have both won plaudits from industry thus far: the former for embracing the better regulation agenda in the post-FSAP era, and the latter for showing real teeth in the Commission’s crusade to remove unfair competition in the single market. While some Commissioners from more traditionally protectionist Member States have not always been keen on the dynamic duo, their appeal is spreading to the (relatively) newly created Consumer Protection DG.

As it continues its quest to close the circle of the internal market, the Commission has announced the Consumer Market Watch—a new scheme which will shed light on sectors of the internal market. The initiative, headed up by Consumer Protection Commissioner Meglena Kuvena, will investigate markets to assess whether they are serving the interests of EU consumers and, where policy concerns are identified, rectify them.

Firstly the Commission will screen the market in question, from a consumer perspective, on an annual basis. Using such indicators as price, the prevalence of product switching and the frequency and severity of complaints in the market, a scoreboard will show the degree to which a market serves the interest of European consumers. The degree of severity highlighted from the scoreboard will then form the foundation of possible further analysis in the shape of in-depth sectoral inquiries. If this continues to highlight widespread malpractice, then the Commission will make use of tools at its disposal to address market shortfalls. These would range from better provision of information to competition action from the anti-trust department.

The first sector going under the microscope is the retail financial services market, with McCreevy assisting Kuneva in overseeing proceedings. While the Commission has had to concede that the market for retail financial services is and will continue to be fragmented along national lines for the foreseeable future—only 1 per cent of consumers are said to be truly ‘mobile’, with barriers such as language often being cited as reasons why retail consumers won’t shop cross-border—it has not been deterred in pushing forward its agenda and so it is no surprise that this will be the first sector to get the scoreboard treatment. As set out in its Green Paper on retail financial services at the end of last year, the effect on the market of key issues such as consumer redress, product bundling and contractual obligations will be tackled in the ‘Market Watch’. With results due out within the year this is clearly a message that if the Barroso Commission cannot boast having completed the single market in retail financial services (and despite self-confessed setbacks), the free market Commissioners are doing everything they can to keep this agenda as a top priority for the next 18 months.

Michael Cooper can be contacted on +44 (0)20 7665 9530 or click here to email.