Growing the cross border retail business in Europe can only be successful if the consumer credit dir...
Growing the cross border retail business in Europe can only be successful if the consumer credit directive is formulated from a consumer's perspective and not from the point of view of a "tidy minded legislator", said the FSA chairman Howard Davies yesterday while speaking at a conference on the direction of European financial regulation at the Guildhall in London.
Speaking about the current development of the consumer credit directive, which would impose standardised requirements on disclosure of information to consumers across Europe, Davies said he doubted whether this initiative would be enough to stimulate additional cross border activity.
Although wholesale markets have been quite successful at moving towards an integrated European approach, the cross border retail banking, life insurance and pensions businesses have not fared so well.
Davies attributes this to regulatory obstacles, different tax regimes and different cultural structures of the long-term savings industry. Consumer credit markets across Europe are extremely different in terms of the nature of product, the nature of distribution and the sales process.
For example, in France there is a greater focus on product regulation, as opposed to the UK experience of focusing on sales/provider regulation. While tied advice is fairly common across the EU, the UK's dual system of tied and independent advice is not widely operated elsewhere.
And the more generous nature of state pension provision outside of the UK, means that many continental Europeans are not used to private pension products, which in Portugal, for example, is only used by 5-7% of the working population, says Davies.
With all these obstacles, Davies argues that regulatory harmonisation in itself cannot deliver a single market.
The FSA's chairman is calling for a greater emphasis on the coverage of deposit protection schemes – that can be a confusing area for depositors – which may have a greater influence on encouraging cross border retail transactions than synchronising pan-European regulations.
Davies is also calling for the availability of cross border access to ombudsman schemes, as the possibility of making a complaint and seeking redress are crucial to transacting business across borders.
Elsewhere in the speech Davies calls for barriers to cross border acquisitions to be brought down, saying that a single financial market would only be successful with European-wide financial institutions.
Informal barriers, often imposed by prudential regulators, which have made it impossible in some countries to buy a bank, or a fund management operation need to be addressed, he said.
The FSA's chairman also discouraged continued debate on the formation of a single European regulator, which he said would have little remit seeing the Commission is set to retain monopoly of proposing legislation and national regulators are positioned to enforce the practicalities.
In summing up the speech Davis said, "I hope these points are seen for what they are: constructive suggestions to make the FSAP process more effective, and not sniping from the sidelines.
"At the FSA we are not on the sidelines, we are thoroughly engaged in the process. But we do see some weaknesses, and some dysfunctional behaviour, which is getting in the way of a very laudable objective."
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