The EU single market produces an unmatched € 15trillion worth of goods and services annually. Such a large and unified market presents many opportunities for businesses willing to invest in it.
To boost the attractiveness of this market further, European regulators have been working to ensure that it indeed operates like a single unified market. The primary thrust to achieve this goal is being made in the retail financial sector.
The Consumer Financial Services Action Plan
The retail finance sector presents more challenges and opportunities to showcase the strength of the EU single market than any other sector. The challenges stem from the complex regulatory requirements of each member state as well as security concerns (which can range from credit card fraud to terror funding). However, the ubiquity of financial products and their direct and indirect impact on other sectors of the economy makes retail finance an important cog in the single market machinery. It is with the aim of further reforming and unifying this sector that the European Commission introduced the Consumer Financial Services Action Plan in 2017.
The action plan focuses on three main areas in order to achieve the Commission's goals:
1. Consumer Empowerment and Trust
Cross-border adoption of financial products or services is limited due to consumer concerns regarding fees, the nature of products, remediation mechanisms, and opacity in terms and conditions. The Commission wants to address these concerns through the comprehensive legal framework it has created and through enforcement via the European Supervisory Authorities (ESAs) and the Consumer Protection Cooperation (CPC) Network. Consumer rights are also enforced through FIN-NET, a network that the Commission has created to resolve financial disputes.
The Commission is also working to ensure transparency regarding transaction fees, currency conversion methods, and other charges and would amend regulations based on the results of its review. Competition in the retail finance sector would improve by making it easier for consumers to switch service providers and improving the quality and reliability of financial services comparison websites.
2. Legal and Regulatory Obstacles for Businesses
A main concern for businesses wishing to provide services abroad has been regulatory uncertainty. They have to comply not only with EU guidelines but also with the regulations of the other member state where they wish to offer their services. The commission aims to tackle this challenge by reviewing such rules and working with member states to remove those barriers to cross-border business that it deems unjustified. Meanwhile, the Commission continues to develop separate products that can easily be carried across Europe. The EU personal pension product (PEPP) would be an example of such a product.
3. Innovation and Technological Development
The third main aim of the action plan is to create an environment that allows for innovation and technological development in fintech. The Commission has created a FinTech Task Force which is actively working on all aspects - technology, regulation, data, security, competition, etc.
The Commission plans to use the eIDAS regulation to facilitate the cross-border use of electronic identification and KYC procedures. eIDAS would allow consumers to open a bank account online while still adhering to strict KYC norms and identity proofing and verification. eSignatures implemented under eIDAS provide legal certainty and validity for securing electronic transactions. EU's Fourth Anti-Money Laundering Directive accepts the electronic means deployed under eIDAS to meet KYC and customer due diligence requirements.
The European Commission has been tackling many of the regulatory obstacles to cross-border businesses through legislation. Through this action plan, they could build customer trust in cross-border products and create a safe and secure digital environment to use these products. Efforts undertaken under this plan would definitely further the Commission's goals for a single market.
- Factsheet Consumer Financial Services Action Plan (2017), by the European Commission
- Consumer Financial Services Action Plan: Better Products, More Choice (2017), by the European Commission
Image "Euro Man" courtesy of Rock Cohen, (CC BY-SA 2.0)