16 November 2007

Commission to go easy on retail banking for now, but threatens tougher regulation

Commission to go easy on retail banking for now, but threatens tougher regulation

The Commission has backed away from hard-hitting intervention against banks and insurers who restrict the flow of retail financial services, through product tying or high account closure fees, despite a raft of investigations in recent years. According to documents seen by MLex, the commission will offer the industry further studies and a self-regulatory approach with the latent threat of future regulation.

A draft copy of the Single Market Review, to be signed off by the commission on Tuesday, indicates that recent antitrust enquiries into retail banking will not lead to competition law intervention at this stage but rather further reviews and industry-led voluntary codes. 

DG Competition concluded a full sector enquiry into retail financial services in January, identifying “four sources of switching costs that are likely to reduce the ability of consumers to switch bank: administrative burden; information asymmetry and low price transparency; bundling and tying; and closing charges.”

But despite this probe, a subsequent expert forum and a Green Paper on Retail Financial Services earlier this year, it seems competition policy is not the right tool to deal with bank account mobility which is often subject to unquantifiable and unpredictable consumer habits. 

A working document on retail financial services, which forms part of the Single Market Review, states rather that “the EU banking industry will be invited to develop, before mid-2008, via self-regulation, a set of common rules to the benefit of all customers (individuals and corporates alike).”

“Such arrangements [...] should facilitate the operation of switching by, for example, ensuring within a certain deadline that direct debit and standing orders are redirected to the new bank, that proper information is given to the customer, that there is adequate co-operation between both banks involved,” continues the document.

The commission is also asking for banks to abolish discrimination on the basis of nationality or country of residence. “Should the banking industry fail to set up adequate arrangements, initiating legislation would need to be considered.”

DG Competition's own enquiry had flagged up competition abuses in product tying as well, and the review tables a further study of “current tying (and other unfair) practices in all financial services areas (credit accounts, payments, insurance)”. 

 “The merits of a regulatory approach on unfair commercial practices in the field of financial services should be assessed,” continues the commission. 

Similarly, the internal market and competition directorates of the commission have frequently stressed the anticompetitive effects of poor access to credit data, meaning that customers seeking to take out a loan with another institution face higher prices or rejection because lenders are unable to access full data on their credit profile. 

This not only hinders the flow of services but also restricts market entry, according to the commission. 

But despite the repeated warnings, the commission is opting for further investigation rather than action and will set up a “expert group” in 2008 to “assist [...] in the identification and analysis of adequate measures to ensure the smooth circulation of credit data.

“Regulatory solutions could eventually be envisaged in this area,” warns the commission, however. 

Furthermore, the commission promises to “pursue a vigorous infringement policy” against member states which “have in place rules that prohibit the selling of certain products, even though the same products are offered under normal conditions in other member states.”

Despite recent comments from the commission, the paper fails to elaborate on the liberalisation of the mortgage sector, shelving this until 19 December when its White Paper on Mortgage Credit will be unveiled. 

More broadly, the Single Market Review sets out a range of documents designed to “put the citizen back at the heart of the single market”, looking at services of general interest, sectoral monitoring and social policies. 

By Lewis Crofts

© MLex