The Consumer Financial Services Action Plan

Buying goods from abroad has become an everyday activity for most Europeans, but the same can hardly be said about financial services such as bank accounts, loans, or insurance. In fact, only 7% of EU consumers currently buy such services from a Member State other than their own, showing that people tend to obtain these from their country of residence even if there are better offers to be found abroad. Insufficient information, lack of trust, and deficient regulatory environments, among others, all contribute to the meagre amount of cross-border deals in consumer financial services. The Commission’s Action Plan for Consumer Financial Services aims to tackle these problems so that Europeans start to look for offers of financial services abroad and thus contribute to the furthering of the EU Single Market.

The Commission’s strategy, which was presented on 23 March, aims to eliminate the obstacles blocking the way to a common market of retail financial services, thus leading to lower prices and a wider range of offers, as well as more security, effectiveness, and innovation. The products that fall under this category include almost all everyday financial products, such as bank accounts (savings and current), credits and credit cards (including mortgages), and almost all types of insurance. Only “retail investment products” are exempt from the Action Plan (such as pension products or investment funds), as those are covered by the Capital Markets Union (CMU) initiative, of which the Action Plan is a part. 

There is a plethora of legislation already present in the field of financial services. The Payment Accounts Directive, the Mortgage Credit Directive and the Insurance Distribution Directive all relate to retail financial services one way or another, as well as the aforementioned CMU initiative, while Single Market and Digital Single Market strategies also touch upon corresponding areas. Accordingly, the document’s main aim is not to add to these, but instead to rationalise and amend them. The Commission indicates that it will refrain from proposing legislative action where market dynamics could foster a more integrated and competitive market for financial services.

The Action Plan is a direct result of the Green Paper on financial services, launched by the Commission at the end of 2015. During the course of the consultation, stakeholders submitted more than 400 contributions detailing the problems and giving recommendations for solutions. These contributions helped the Commission to identify the main issues to tackle, such as the lack of trust and options for consumers, the legal and regulatory obstacles for businesses as well as the complications around the usage of innovative financial services in a digital world. This briefing will follow the ternary structure of the Action Plan.

Empowering consumers and building up trust

The Commission was already familiar with the reasons why consumers mostly refrain from obtaining retail financial services abroad, even before the consultation. Europeans are afraid that they would not be able to understand the exact nature of the products offered in other countries; they also have concerns about potential issues and costs arising from the cross-border nature of the transaction, such as not understanding the terms and conditions or not having appropriate redress mechanisms. In recent years, many new pieces of legislation have been passed at EU level to tackle these problems, although as yet their effects are not always evident. The Action Plan names enforcement as the biggest issue in this regard, and plans to rectify this weakness through stronger cooperation with both Supervisory Authorities and the Consumer Protection Cooperation (CPC), while seeking to raise awareness about the so-called “FIN-NET”, a network created specifically for financial services, helping consumers to enforce their rights without having to go to court.

In terms of practical issues, the most obvious is “geo-blocking”; in other words, when consumers are not even allowed to buy a service from abroad. The Commission emphasises that the Payment Accounts Directive already tackles this issue for payment accounts, while the Geo-Blocking Regulation proposed by the Commission last May aims to forbid such practices for an even wider range of services. That being said, the Commission is keeping its options open for future measures to tackle this problem further.

Even if consumers are allowed to purchase the financial service, they may refrain from doing so due to high transaction fees. Regrettably, the Regulation on cross-border payments only covered transactions involving the Euro and therefore transactions involving other European currencies are still very expensive; no wonder third-party businesses offering reduced transaction rates (such as TransferWise) are thriving. The Commission makes it clear that it plans to extend the scope to other currencies as well (Action 1 of the Action Plan).

Another potential issue is with conversion rates, the calculation of which in most cases completely lacks transparency. Dynamic Currency Conversion (DCC) offers consumers an opportunity for seamlessly purchasing goods sold in other currencies, but often without any explanation as to how the conversion takes place, which hampers the buyer’s ability to make informed choices. The Commission indicated its plans to analyse the depth of this issue and whether the Payment Services Directive (PSD) and its upcoming revision (PSD2), along with the efforts of the national authorities to enforce transparency, prove to be sufficient or whether there is a need for further action (Action 2).

Lack of transparency also deters consumers from changing the providers of their financial services. Naturally, their reasons may be to do with convenience, or satisfaction with their current providers, but the Commission assumes that many do not change because they are not aware of better possibilities. The Payment Accounts Directive provides comprehensive solutions for these issues, such as an obligation to have a national website for price comparison and simplified procedures for switching accounts, but similar measures are needed for other financial services as well. High exit and switching fees, as well as occasional lock-in rules, prevent consumers from choosing the option most beneficial for them. The Commission intends to analyse the reasons behind the consumers’ apparent reluctance to switch (Action 3), and also plans to ensure the availability of comparison websites on a wider range of services (Action 4).

Drivers who have many years’ experience behind the wheel without major accidents can enjoy the financial benefits of their mindfulness via the so-called “no-claims bonus”, which, over a lifetime, can amount to a very significant sum. Therefore, the cross-border portability of good driving records is pivotal in order to enhance competition. A slightly less-prevalent yet significant issue is the compensation for victims of traffic accidents where the culprit had no insurance, or even left the accident without stopping to identify themselves. In such cases of “insurer’s insolvency”, ensuring compensation for the victim is difficult, especially if there is a cross-border situation. The Commission should tackle both problems in the course of the REFIT Review of the Motor Insurance Directive (Action 5).

The insurance of rented cars is also a common issue. Customers frequently complain that they have not been properly informed of the extra insurance costs (“damage waivers”) before the actual renting took place. Since for various reasons car rentals are exempt from the Insurance Distribution Directive’s obligations on information requirements, the Commission aims to remedy the situation via dialogues with the largest rental companies concerning voluntary schemes, while close monitoring and potential (legislative or non-legislative) actions can also be expected if the need arises (Action 6).

The last field through which the Action Plan aims to empower consumers and raise their trust in cross-border financial services is consumer credits. This market has developed rapidly in the last few years, and hitherto adopted legislative measures, such as the Consumer Credit Directive, may not always be able to cover the new methods (such as online or peer-to-peer lending). In addition, authorisation and supervisory requirements are in desperate need of harmonisation, without which development could be hindered and risks stemming from irresponsible lending increased. The latter remains a serious problem throughout the EU, with 10% of all households over-indebted despite the strict requirements on lenders to assess creditworthiness, as laid down in the Consumer Credit and Mortgage Credit Directives. The Commission believes that raising the quality and spectrum of credit advice and financial education across the Member States could do a lot to remedy the issue, while plans for facilitating access to cross-border loans and simultaneously to raise consumer protection levels are also foreseen – albeit without specifying the concrete measures planned to achieve these goals (Action 7).

Regulatory obstacles for businesses

The supply-side contributions to the Green Paper consultation exposed two reasons why businesses are reluctant to target foreign citizens, or even just to provide cross-border services. One of those, the lack of demand, is clearly more of a symptom than a justification. The other reason was related to the costs and risks of complying with another Member State’s legal requirements, for which the Commission indicates that EU regimes could be developed (in addition to existing national regulations) in order to reduce uncertainty. One example is the Pan-European Pension Product (PEPP), the aim of which is not to replace national regimes but to supplement them in order to bridge the pension gap, and potentially to act as a template for domestic third-pillar pension products in countries experiencing performance issues.

In this regard, there are clearly many differences between the legal systems of different Member States, as well as the detrimental effects of “gold-plating” (adding national rules on top when implementing EU law). These distort competition and therefore undermine the Single Market’s proper functioning. In theory, the EU rules on “passporting” (the right to provide financial services in other Member States) only allow Member States a narrow range of deliberation, for example on consumer protection, but in practice it appears that collectively they constitute a major obstacle. The Commission plans to gather more evidence on the phenomenon and will analyse whether the Member States’ practices amount to unjustifiable barriers. At the same time, it plans to work closely with the Member States to map barriers and exchange best practices, with a view to releasing a roadmap detailing the steps to be taken (Action 8).

Another obstacle for businesses offering financial services across borders is the difficulty of establishing the creditworthiness of the consumer, due mostly to the unavailability of reliable data. There is no well-established standard of assessing creditworthiness in the EU, so practices differ across Member States. At the same time, credit registers are frequently inaccessible to foreign creditors and, without the data from the registry, the elevated risk could hamper the creditor from lending abroad. This is an area where established standards and more cross-border cooperation could have enormous benefits, including cheaper prices, more choice, and more security for vulnerable consumers to protect them from falling into “debt traps”. The Mortgage Credit Directive and the Consumer Credit Directive are two important pieces of legislation granting equal access to credit registers in the Member States, but there are many issues and gaps with regards to the type and quality of the data provided. The Action Plan also points to the European Central Bank’s new dataset (“AnaCredit”) which it hopes could improve the availability and quality of information. The Commission indicates that it would introduce standards on creditworthiness data (such as the minimum amount of data to be exchanged) as well as ensuring the appropriate flow of such data across borders (Action 9), although no further details are provided in the strategy.

Harnessing the Digital Revolution

The enormous potential of digital financial services (“FinTech”) has been talked up by most respondents during the Green Paper consultation, both in terms of raising the efficiency of current services and for designing completely new, innovative products. Regulating such a fast-changing area poses a particular challenge, as the Commission wants to be careful not to create unnecessary obstacles to innovation but feels that regulation will be needed to ensure the security of new products. The Regulation on electronic identification (eIDAS) is a major development in this regard, as it allows for identification across the EU in an interoperable way, potentially helping businesses to find new ways of establishing customer relationships. Naturally, in the long term, the Commission plans to develop a broader strategy which helps to ensure the protection of consumers (such as data protection and security), while not restricting the enormous potential within FinTech to flourish.

When a business develops a new, innovative financial service, they usually face the issue of establishing where their creation fits within national and EU regulations, and this problem is amplified if there is a cross-border context. National entities can choose to enforce pre-existing rules overzealously and risk destroying incentives for innovation, or to be lenient and jeopardise the security of citizens’ data or increase the risk of fraud committed against them. The Commission emphasised, in its “European Agenda for Security”, the need to analyse whether the current legal framework is still fit for purpose when it comes to tackling the counterfeiting of non-cash payments, and will propose new legislation by autumn 2017. The Action Plan reiterates that the Commission is open to innovative solutions as long as the protection of consumers is ensured.

After the introduction of the FinTech task force at the end of 2016, the Commission launched a public consultation on matters related to technological innovation in financial services. The four categories of policy objectives, to which stakeholders can submit contributions until 15 June, are the following:

  • Fostering access to financial services for consumers and businesses;
  • Bringing down operational costs and increasing efficiency for the industry;
  • Making the single market more competitive by lowering barriers to entry; and
  • Balancing greater data sharing and transparency with privacy needs.

The results of the consultation (along with the findings of the task force) will determine what actions the Commission will take to support the development of FinTech (Action 10).

The digital revolution also allows for more straightforward relations between consumers and businesses. Administrative “fossils”, such as hand-written signatures or in-person identification, make consumers refrain from looking for offers across borders; thus the development of remote identification methods is pivotal to create a truly integrated market in retail financial services. The private sector and the Commission are working together and in parallel to create reliable identification schemes (e.g. “RegTech” and eSignatures) which would allow consumers to conduct any kind of business from home with their service providers. As a demonstration of these developments, the 4th money-laundering directive and its amendments acknowledge the possibility of e-Identification, at the Member States’ discretion.

An expert group will be launched to analyse the field and develop common guidelines, while the Commission itself will also carry out studies to assess the adequacy of the current regulatory and supervisory framework (Action 11). At the same time, the Connecting Europe Facility already allows for the testing of banks’ cross-border use of eIdentification. To ensure proper functioning and interoperability, the Commission will also put forward an implementation plan and concrete information systems architecture solutions.

Another problem related to the digitalisation of retail financial services is that long-standing requirements for informing consumers may no longer fulfil their role. More interactive and engaging platforms may be necessary to help consumers make informed choices, since they very rarely actually read long chunks of text online before clicking “I understand the terms and conditions”. The Commission will first only monitor how existing legislation is transposed to reality by providers and invite industry members to share their ideas, and only after its findings will it propose amendments. In parallel, there is an ongoing assessment (with results expected early 2018) of European markets for retail investment products, to identify the workings of intermediation channels with a view to ensure that retail investors have access to investment products suitable to their needs (Action 12).

In brief, the Action Plan is a highly comprehensive and detailed strategy that involves steps to be undertaken in many different areas through various means. Its ambition is to remove the remaining obstacles in the way of achieving a truly well-functioning single market for retail financial services; however, the success of these initiatives will largely depend on the ability of the Commission to cooperate with both the Member States and various stakeholders in order to identify the most imperative issues and provide innovative regulatory and non-regulatory solutions.

Next steps

The Action Plan has been sent to both the European Parliament and the Council so that both Institutions have the chance to debate its contents and formally respond to it. Should they decide to do so, debates in both the Parliament and the Council are expected to take place in the next few months. As for the different actions mentioned in the document, their completion will largely depend on the nature and complexity of the tasks as described above.

Additional Facts


Type of procedure: Strategic Consultation

Presented: 23 March, 2017 (European Commission)