Cash without borders

Having recently returned from a six-month secondment to the Law Societies’ Brussels office, the issues which arise as a consumer of cross-border retail financial services are still fresh in my mind.

Opening a bank account was a relatively smooth process. Working out where my new bank card would be accepted was a little trickier, transferring money from my UK account was a real pain (not to mention expensive), and closing my account incurred a charge of 10 euro. Although each of these hurdles in themselves is of little consequence, viewed as a whole the concept of the European Single Market seems far from reality. Easy access to the financial services which underpin so many aspects of our lives, both personal and professional, is a prerequisite for true freedom of movement throughout the European Union. So what exactly is being done to increase customer mobility and what should we, as practitioners, be aware of going forward?

The lack of integration between domestic retail financial services industries is an issue which is being tackled on many fronts at EU level. From the perspectives of both competition and consumer law, the relevant Directorates-General of the European Commission have instigated various initiatives to try to address the fragmentation of markets, increase cross-border competition and decrease costs to consumers. The Commission’s white paper on Financial Services Policy 2005-2010, published in December last year, has acted as a springboard for many of the projects and proposals which are already underway. 

From a legislative perspective, there are a plethora of ambitious proposals on the table at present. A green paper on mortgage credit in the EU, published in July 2005, examines the case for EU action in the residential mortgage credit market and is currently being evaluated by the European Parliament. Scottish MEP John Purvis is tasked with drawing up a report on this matter, taking account of how issues such as valuation and registration of property, early repayment options, interest rate caps and credit databases would be regulated and managed in a truly EU-wide market.

Although the current level of cross-border mortgage activity accounts for only 1% of all EU residential mortgage transactions, it is predicted that consumers will become ever more targeted by lenders in other member states; and on the flip side, using a UK mortgage provider to fund, for example, the purchase of a holiday home in Spain could also become a more feasible option. In June the Commission announced the creation of the Mortgage Funding Expert Group (MFEG), composed of parties representing most funding products and EU mortgage markets, to analyse existing barriers to cross-border activity. The MFEG will feed into the Commission’s white paper, detailing the final policy decision, to be published in early 2007. 

Payments services, described by the Commission as “the oil in the wheels of the internal market”, are also the subject of a proposed directive, aimed at eliminating legal obstacles to cross-border electronic payments, including card payments, credit transfers, e-payments and direct debits. In practice, it would become possible to set up a standing order from a Scottish bank account to pay a Belgian utilities bill, or use any national debit card to pay for a meal in another EU country without charge – the overarching principle being that you would be able to pay anywhere in the EU as you would at home. One way of achieving this is to ensure that payment providers, such as banks (but also new market entrants like supermarkets) can offer their services in other member states.

The Commission’s ambitious proposal has been met with some scepticism by MEPs, who voted in mid-September to temper its scope. Whereas the Commission was aiming to create a payments framework to cover all currencies, MEP amendments limit the breadth of the proposal to EU currencies only. In addition, the consumer-friendly “D+1 system”, whereby the execution time of a payment would not exceed one day, has been extended to two days by MEPs. The European Consumers’ Organisation (BEUC) has expressed disappointment at this more modest approach, and as negotiations continue it will become clearer whether the final directive will edge more towards consumer or business convenience.

It is also important to note that in parallel with this legislative agenda, the Commission’s competition regulator is undertaking related sector inquiries into payment cards and core retail banking services (for example current accounts, savings deposits and consumer and small business loans), to address issues such as narrow product choice, obstacles to switching banks, and high fees. A final report is due from the Commission at the end of 2006, and Competition Commissioner Neelie Kroes has already clearly signalled that enforcement proceedings will be taken against anti-competitive market participants.

Related action on developing the so-called “portability” of occupational pension rights, improving conditions for consumer credit, and maximising the benefits of the EU investment funds industry complements the work already described and serves to emphasise the importance of the retail financial services sector to the wider goals of the EU. From a practitioner viewpoint, we must be aware of the changing regulatory environment in which familiar and hitherto accepted practices may no longer pass muster, and the retail financial services industry is being encouraged to take a long, hard look at itself as a consequence. Consumers are being mobilised to use more efficiently the market-shaping power which they wield, and we must keep pace with new market expectations in order to provide best service to our clients, whether it be in relation to advising on buying property abroad, giving information on how “portable” a pension is, or ensuring competition compliance. Step by step national borders are blurring, financial consolidation is gaining ground and new legal challenges and opportunities await.

Sarah Hoskins, EU Competition & Regulatory, Maclay Murray & Spens