The European Commission has published a speech that Meglena Kuneva (European Consumer Commissioner) gave at the DECO seminar on financial services and consumer interest. The speech is entitled Restoring consumer trust in retail financial services.
In her speech Meglena Kuneva (MK) begins by stating that the next generation of retail financial services policies must not only fix businesses’ problems, but also must tackle consumer markets. Recovery in financial services will only take root when the reform of “Wall Street” is matched by the proper regulation of main street.
MK then discusses five established consumer policy principles that need to be transposed to the market of retail services:
- European legislation already establishes that marketing must be fair, must not mislead and must not put undue pressure on the prospective customer.
- Consumers must have at the time of transaction complete and relevant information about the service they are getting and its likely true cost to them.
- The commercial practices in the delivery of the service must be fair and transparent.
- Consumers must have real choice.
- Consumers should make choices within an acceptable spectrum of risk.
MK then briefly covers European Consumer policy in retail financial markets. According to MK the European Commission is proposing this month a Communication on packaged retail investment products which provides a roadmap to harmonise and improve the mandatory disclosures and sales practices for packaged retail investment products.
MK states that the information provided to consumers must include a description of the product, a true representation of its costs and also a fair and unambiguous indication of its risk. MK then states that individual investors have learnt that past performance is not a valid indicator of risk.
On credit and mortgages MK reports that the Commission is planning to establish principles for responsible lending and borrowing. This will address the information to be provided to the individual lender, the responsibilities of the credit intermediates in terms of incentives and fees disclosure and the issue of objective and independent advice.
MK also states that more work needs to be done in the regulatory management of risk at the retail level. The European Commission is currently examining the existing guarantee schemes in banking, securities and insurance with the purpose of reinforcing their finding and enlarging their scope. However, debate is needed on whether the Commission needs to cap the risks that are admissible on a market to individuals.
MK acknowledges that the number of consumers at risk of bankruptcy or of foreclosure is rising. The Commission will be contributing to establish best practices for pre-foreclosure arrangements aimed at avoiding the necessity of foreclosure where possible.
View EC speech - Restoring consumer trust in retail financial services, (PDF 44.5KB), 27 April 2009