European regulatory and legislative issues

On the 7th February 2012 former FSA Chief Executive Hector Sants commented that “Essentially, the UK is moving to become a supervisory arm of Europe” Therefore, to protect UK consumers better it is essential for the Panel to engage with the EU policy making process. In addition, the FCA is the UK’s representative on many European-level regulatory bodies. This informs the Panel’s work and allows it to push for stronger consumer protection. The Panel has called for the EU to have an explicit savings agenda and to increase its focus on consumer protection.

The Panel is also a partner of the European consumer organisation BEUCIndividual Panel members have also been appointed to various bodies and organisations, including Panel Chair Adam Phillips on the ESMA Investor Protection and Intermediaries Standing Committee consultative working group, and Vice Chair Kay Blair who is Vice Chair of the EIOPA Insurance and Reinsurance stakeholder group. Panel members have also participated in all three ESA consumer days, as well as attending the Commission’s annual Consumer Summit. The Panel is also in regular dialogue with MEPs and the relevant Parliamentary Committees, as well as representatives of the UK government who interact with the European institutions.

Consumer representation at EU level

The Panel’s priority is to promote the key benefits of effective consumer representation at the EU level. It is presently engaged in research into mapping the current landscape of consumer representation and investigating the current effectiveness of consumer representation at the EU level in order to establish and promote best practice.

Four Pillars of Consumer Protection

Launched to mark World Consumer Rights Day on 15 March 2013 the Panel’s four pillars of consumer protection are a new framework aimed at enabling more effective assessment of EU legislation, standards and supervision.

With the EU established as a key driver of financial services reform, the Panel believes there is now a huge opportunity to put consumers at the heart of the legislative and supervisory agenda throughout Europe.

The Panel has set out four principles - access, value, redress and policing – which could be used to test any new measures. If applied consistently, they could enshrine the consumer perspective in new and developing legislation.

The Panel envisages that the four pillars of consumer protection will stimulate a debate on consistent thinking on consumer protection across the EU. We would urge legislators and regulators to test everything they do against these four principles. There needs to be a dialogue involving consumer bodies, legislators, regulators and supervisory bodies to ensure that consumers get a fair deal and that their rights are safeguarded and promoted.

Why is the Panel is working need to influence EU policymaking?

In 2006 approximately 70% of the then FSA handbook changes were necessitated by EU requirements. The financial crisis has since triggered two further major initiatives which continue under the FCA:

1) New supervisory authorities

The first was the new regulatory architecture, which includes three new European Supervisory Authorities (ESAs) to supervise the banking industry (the European Banking Authority, EBA), insurance industry (the European Insurance and Occupational Pension Authority, EIOPA) and financial markets (the European Securities and Markets Authority, ESMA).

All three of the new bodies have in their founding regulations a requirement to take a leading role in promoting transparency, simplicity and fairness in the market for consumer financial products or services across the internal market. The Panel takes an active interest in the work of the ESAs, responding to consultations, attending conferences, and providing input to the FSA’s work. All three ESAs have stakeholder groups to support their work. These include people from industry, academics and social partners as well as consumer representatives.

2) New legislation

As a result of the financial crisis, new Directives have been created to address the failures identified in the system. Existing Directives are being updated to improve their effectiveness. The Panel, through its European subgroup which meets every month, monitors key developments and becomes actively involved in many of these. More detail of current initiatives can be found on the FCA website, but key work for the Panel includes:

Retail Banking

The European Commission consulted in 2012 on a package of issues relating to retail banking for consumers. This focused on transparency and comparability of bank fees, bank account switching and access to basic payment accounts.

We are expecting to see the results of this consultation in 2013, including firmer proposals on access to basic payment accounts, to replace the Commission’s (non-binding) Recommendation on the subject, published in 2011, as well as further standardisation of the information provided to customers on charging and rights related to switching.

The Panel has called for some time for greater transparency of charging in relation to bank accounts, access to basic bank accounts, and improved efficiency of switching services.

Previously the Panel responded both to the Commission and to ESMA’s High Level Expert Group on Banking when they consulted on basic bank accounts, switching and transparency of charging. Consumers also have a right to clear information about the levels of protection they can expect if their bank gets into difficulties. The Panel has long argued that it should be a requirement for all brands to be separately authorised, to make it easier for consumers to spread their savings between brands to reduce the risk of loss. The Panel has been pushing for the Deposit Guarantee Schemes Directive to include this provision.

The Consumer Package

In July 2012 the Commission published its ‘Consumer Package’, a new name for a package of long-awaited legislation which will affect how retail investment products are sold and what information has to be given to customers. It includes:

a revision of the existing Insurance Mediation Directive (IMD), which aims to extend consumer protection standards for sales of insurance to direct sales as well as intermediaries,

new rules on disclosure of information about Packaged Retail Investment Products (known as PRIPs) which will introduce a standardised Key Investor nformation Document (KID) containing information designed to help customers understand the features and risks of the product.

an updating of the rules on collective investment funds (the UCITS Directive) following the crisis, including clarification of responsibilities and rules about remuneration.

There is a long way to go before these become law, but the Panel has been engaging in the process to ensure that the position of UK consumers is protected. All these legislative initiatives aim to improve consumer protection, but with other initiatives currently underway in individual member states, such as the Retail Distribution Review in the UK, it’s important to make sure that they all work together without creating gaps or or loopholes.

Markets in Financial Instruments Directive (MiFID)

Connected to the Consumer Package, revision of the MiFID Directive and a direct-acting Regulation (MiFIR) will also affect the way that retail financial products are sold in the UK. The update is intended to take into account products and processes that simply did not exist when the original version was drafted. The Panel supports many of the initiatives in the revised Directive (which also forms the basis for parts of the IMD), such as the requirement of firms to act ‘honestly, fairly and professionally in accordance with the best interests of its clients’, and for increased transparency in publishing sanctions. However, it would like to see MiFID contain more powerful rules on remuneration of advisers, in line with what’s being proposed in the UK.