​European Commission’s Green Paper on Retail Financial Services - BIPAR’s response

In December 2015, with its Green Paper on retail financial services “Better products, more choice and greater opportunities for consumers and businesses”, the European Commission launched a consultation on how the European market for retail financial services – namely insurance, loans, payments, current and savings accounts and other retail investments – could be further opened up, including by making best use of new technology, bringing better results for consumers and firms, whilst maintaining an adequate level of consumer and investor protection. The consultation also considers the impact of digital technology on the market. The Commission explains for example that digital services such as price comparison websites present many opportunities for the providers and consumers, but can also pose a regulatory and consumer-protection challenge.

After analysing responses to the consultation, the Commission announced that it will look to reduce the barriers which stop consumers from accessing financial products and services across borders. A Commission’s Action Plan on Retail Financial Services is expected to follow in 2017.

In its response to the European Commission’s consultation on its Green Paper on Retail Financial Services, BIPAR said that while insurance and financial intermediaries have embraced the digital revolution and will continue to contribute to it, it must be noted that digitalisation is merely a tool at the service of the insurance industry and is not to be considered as a distribution channel as such.

BIPAR understands that the European Commission is exploring how the development of new business models and services through technology could help to improve the market in retail financial services and therefore create new markets, opportunities for suppliers and more choice for consumers, supporting growth in the European economy and creating jobs. BIPAR supports that objective. However, this can only be done without creating any distortion of competition, in a "channel neutral way", without penalising one channel of distribution.

The European Commission's Green Paper assumes incorrectly that digital development should result in lower prices and marketing costs. If increased competition may result in lower prices, the cost of cross-border complaint handling, the cost of investments required for digital development, for distance claims handling, etc are likely to increase prices. Digitalisation is not a panacea. Digitalisation and innovation within industry will not overcome barriers created by the varying legal and regulatory requirements in local/domestic markets within the EU. Nor will digitalisation boost consumer confidence where local guarantee schemes or other comparable guarantees are not available. Language barriers will also remain. Insurance and financial services are not airplane tickets nor goods or one-off services.

BIPAR believes that intermediaries can play a major role in raising consumer awareness about available services and products in the EU Single Market, in promoting their sales cross border and therefore in reducing the fragmentation of retail (insurance) markets. A survey has demonstrated that customers exhibit much greater propensity to purchase insurance cross border if a local intermediary recommends the product.

The Commission sees in digitalisation the faculty to deliver standardised advice targeted at a specific group of consumers. It is not certain that the emergence of automated advice is always an appropriate answer to consumers’ needs when it comes to insurance and investment products and services. BIPAR is convinced that the human factor will remain an important element in the distribution process, even when distribution is carried out through digital means, and the importance of personalised and adapted advice provided by intermediaries should not be underestimated.

BIPAR called for a “pause” in regulation on insurance and financial intermediation in order to leave the opportunity to the market to implement new rules (IDD, MiFID II, PRIIPs, etc). BIPAR urged the Commission to only pursue initiatives where there is evidence of clear and concrete benefit for citizens and a strong economic rationale.

In its response, BIPAR also outlined several areas where action by the European Commission would be welcomed. These include, for example, raising awareness of FIN-NET (a financial dispute resolution network of national out-of-court complaint schemes in the EEA countries), addressing regulatory loopholes and inconsistencies in the EU to cover failure of insurance companies (IGS), bringing more clarity, via an interpretative communication, on general good provisions and the triggering elements of the FOS and FOE activities of intermediaries.

The European Parliament’s Economic and Monetary Affairs Committee, ECON, is also preparing a (non-binding) "own-initiative report" on the Commission’s Green Paper. The Rapporteur is Swedish Social Democrat, Olle Ludvigsson. BIPAR has had meetings with the Rapporteur and key shadow rapporteurs and will continue monitoring this own-initiative report. The draft report is expected to be published in June 2016 and the vote in ECON is scheduled for the end of September.

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