Position Paper of RIAD on the Green Paper on Retail Financial Services in the Single Market

On 30 April 2007 the European Commission published the Green Paper on Retail Financial Services in the Single Market (COM (2007) 226).

The European Commission is on its way to review the Single Market for consumers. Thereby the European Commission intends to install mechanisms for improving the consumer’s rights by ensuring that consumers are well prepared and their needs are met, e.g. through financial literacy or legal protection.

In the course of this initiative the Commission has invited stakeholders and other interested parties to present their opinions and comments on the “Green Paper on Retail Financial Services in the Single Market”.

On 13 July 2007 RIAD has submitted its position on the Green Paper to the European Commission.

I. About RIAD

RIAD represents some 60 legal protection insurance companies from 18 countries. Its Members carry on the business of legal protection insurance as an independent enterprise, have delegated the settlement of claims or are exclusively engaged in providing services in the field of the legal protection insurance and adhere to the Association’s Code of Conduct. RIAD’s primary corporate purpose is the promotion of its Members’ interests and the endorsement of conditions that guarantee an increasing presence of the industry within an environment of fair competition.

In this respect, it is important to note that legal protection insurance is a particular financial service product whose prospects go beyond a traditional insurance product (i.e., the transfer of risks): according to the legal protection insurance directive[1] the product not only consists in undertaking to bear the costs of legal proceedings but also in providing the services directly linked to the insurance cover. Thus, legal protection insurers actively provide legal services such as giving advice, defending or representing the insured person in civil, criminal, administrative or other proceedings or in respect of any claim made against him. Consequently, legal protection insurers facilitate access to law and justice and can help developing consumers’ confidence in enabling policyholders to exercise and enforce their legal rights.

RIAD’s Members are looking forward to discussing further initiatives to bring about a more effective Internal Market which guarantees a level playing field between products and service providers.

II. Responses to the European Commission’s Questions

Please note that answers are only given to questions which are of concern to Members of the Association.

  1. Question: do you agree with the objectives and priorities set out in this paper?

    RIAD Members share the European Commission’s view that there is still a lot of potential for further integration, more mobility and cross-border activity within the Internal Market. Therefore, RIAD supports the overarching objectives and priorities as set out in the Green Paper.

    Due to the fact that some of the obstacles to the free provision of financial services in the Internal Market are fundamental and cannot easily be eliminated mid or even long-term it will take a lot of patience and scrutiny to achieve substantial progress. A paramount aspect of the Commission’s approach is to seek concrete benefits for consumers as well as for companies. For the success of the Internal Market and for preventing unnecessary regulation it is crucial to single out tangible instead of abstract problems and tackle them directly. If Community action is only taken on the basis of solid evidence of benefits it should be possible to go forward but foreclose superfluous intervention and regulation on European level and allow the assessment of European and national legislation.

    RIAD explicitly welcomes the Commission’s plan to take effective measures for enhancing a level playing field between providers of services and financial services products. Especially the evaluation of national “general good” rules and, consequently, the elimination of exaggerated national legislation has a high potential of preventing market protectionism, eliminating market entry barriers and reducing superfluous regulation.

  2. Question: are there issues that are not covered in this Green Paper, which are important for the integration of retail financial markets and to which the Commission's attention should be drawn? For example, are consumers in their everyday life confronted with requirements or limitations from either financial services providers or other stakeholders (employers, social security, administrations, businesses, etc.) which restrict their ability to use cross border financial services (such as an obligation to have a bank account or insurance policy in one specific country, etc.).

    The Green Paper does not cover cross-sector issues which are, however, due to their characteristics, important for legal protection insurances and should thus not be ignored. In this respect it is necessary to mention the Service Directive[2]. This Directive guarantees the free provision of services to providers of legal services unless the Member State where the service is provided reserves an activity to a particular profession (Article 17 § 6, recital 88 of the Service Directive). Although financial services are excluded from the scope of the Service Directive legal protection insurers are caught by this provision: in case the country of origin allows legal protection insurance companies to provide legal services to their clients and a company wants to support a customer or sell insurance products in another Member State that restricts the provision of legal services exclusively to a certain profession that insurer is prohibited to do so. From RIAD’s Members’ point of view this is an obvious market entry barrier for legal protection insurers and also improperly limits the choice of the consumers in the target country.

    Under the condition that this is justified by the “public interest” the EC Treaty explicitly allows Member States to maintain and introduce certain restrictions for service providers from abroad. However, from RIAD’s point of view it is, firstly, not appropriate to encourage Member States in a directive which is meant to reduce obstacles in the Internal Market to introduce legislation which is apt to build up barriers. Secondly, taking into account that all Member States have the common objective to facilitate access to justice for their citizens and protect them from illicit practitioners it is very unlikely that the public interest which supposedly is at stake here is not already safeguarded by the rules to which the provider of such a service is subjected to in the Member State where he is established. Of course the assessment and final consideration would be subject to the scrutiny of the European Court of Justice.

  3. Question: the Commission has undertaken several initiatives to improve consultation with consumers and to secure their input into its policy making. Should further steps be taken and, if so, what steps?

    No answer

  4. Questions: is consumer choice unnecessarily limited by restrictions on the providers and channels through which they access retail financial services. What are, in your experience, these restrictions?

    From the perspective of legal protection insurers in particular the Commission’s plan to scrutinise national “general good” rules which are applied to insurance products will give evidence that many rules are unnecessary, terribly burdensome, result in the protection of certain markets (or professions), tend to restrict consumers’ choice and push up prices. As already mentioned under question 2 it would be important that the Commission broadens the aim of this exercise and extends it to services which are directly competing and are perceived as having similar characteristics, i.e. legal services provided by legal protection insurance and legal services of other providers.

    Creating a level playing field between providers of legal services would be beneficial for consumers as well as for providers of these services: the abolition of market entry barriers would allow new products to enter the markets and would enhance competition for legal services. It is the conviction of legal protection insurers that this would improve access to justice for consumers who would be able to choose between more products that could be tailor made for their needs and that more competition would also help to reduce prices.

    Additionally, it should be remembered that a better access to justice and law could also be a way to enhance the Internal Market: if legal support was more easily available at less costs it would prop up consumers’ confidence since they could depend on legal support in case a conflict arises. Consequently, they would be more willing to buy services and products cross-border and take advantage of the Internal Market.

  5. Question: despite efforts, in particular the creation of FIN-NET, the handling of cross-border consumer complaints in the field of financial services still remains problematic. The Commission would welcome input as to the ways to improve the current situation. For example, should Member States be obliged to ensure that alternative dispute resolution (ADR) schemes are in place? Should providers be obliged to adhere to an ADR scheme? Should they be contractually obliged to offer ADR mechanisms to their clients?

    Legal protection insurers are very keen to enhance the use of ADR. For consumers as well as businesses it is the less costly and the speediest way of dispute resolution. Moreover, since parties can participate actively in ADR (especially mediation) their interests are best served. However, when settling cross-border disputes especially consumers face numerous difficulties which they can hardly handle without help from third parties (e.g. foreign languages which they do not understand, legislation and procedures they are not familiar with, high costs due to distant communication and the need of supplementary legal advice).

    There are no instantaneous means to fundamentally solve these factual problems. Although the implementation of FIN-NET seems to be a feasible solution it appears not to be sufficient and consumers are still reluctant to employ FIN-NET. From RIAD’s point of view the reason for this reluctance could be that it is necessary to help consumers individually in finding adequate, easy and quick solutions for their specific problems. Regarding the multitude of difficulties in cross-border disputes which can be different in each case the key for enhancing consumers’ confidence and legal certainty is to respond directly in a flexible way to the specific needs of each individual consumer. Legal protection insurers can provide these services and offer viable solutions to eliminate these obstacles. Moreover, legal protection insurance serves the public good considering that it is able to relieve the financial burden on publicly financed legal aid systems.

  6. Questions: the creation of the Single Euro Payments Area (SEPA) offers challenges and opportunities for businesses and consumers alike. What do stakeholders think of SEPA's impact on consumers? Should consumers be more involved in the governance and the preparation of SEPA?

    No answer

  7. Question: with view to the launch of its study on credit intermediaries, later this year, the Commission would like to know whether stakeholders believe the current legislative framework to be sufficient and if consumers face any particular problems in dealing with credit intermediaries, particularly on a cross-border basis.

    No answer

  8. Question: the Commission believes that it has an important role to play in developing a competitive, open and effective market for long-term savings, retirement and pension schemes that meet consumers' needs. Do stakeholders agree and how could the Commission contribute? Could an optional legal EU-wide regime ("28th regime") for savings and/or 3rd pillar pension products be envisaged?

    No answer

  9. Question: do you think that there could be benefits for both banks and consumers, if banks would have the opportunity to offer an optional simplified standardised product, which would have a good level of consumer protection, would be easy to understand, and could be offered across borders without the need to be modified to fit local rules?

    No answer

  10. Question: the Commission believes that more could be done to improve consumers' financial literacy and capability. Possible measures include developing guidelines or promoting best practices. The Commission would welcome input on how this policy should be further developed at the European level.

    No answer

  11. Question: do you think that, as they stand, the provisions on consumer information contained in financial services directives are adequate and consistent with one another? Were it not the case, how could the Commission ensure that information requirements are set at the right level, ensuring proper information but without creating any overload? Do you think that informing consumers is sufficient or that advice should also be provided? If yes, should that be compulsory or on request?

    No answer

  12. Question: measures to improve lenders' access to credit data will be discussed in the context of the forthcoming White Paper on Mortgage Credit. The Commission believes that more could be done to promote the accessibility of credit data, in particular on a cross-border basis. Who should be able to access consumer credit data? How could the cross-border transferability of consumer credit data be improved, ensuring in particular that mobile credit data follows increasingly mobile consumers? Could a memorandum of understanding, ensuring smooth data circulation between credit bureaus, be a workable solution?

    No answer

  13. Question: fragmentation of retail insurance markets, for example in the field of motor insurance, does not allow consumers to reap full benefits of EU integration in this area. Do you think that more should be done at EU level to address this fragmentation?

    Fragmentation of retail insurance markets depends on many different factors. In the case of motor insurance fragmentation is, inter alia, due to the fact that it is a mandatory insurance which is always submitted to the law of the country that stipulates the mandatory insurance. This can be justified since mandatory insurances follow specific rules and are introduced in order to protect citizens which are exposed regularly to substantial risks that they can otherwise not sufficiently deal with. Since every EU Member State has made motor insurance mandatory for cars registered in its territory and insurers have to calculate the risks individually in respect of the location of the respective car, markets logically have developed separately and have emerged in a fragmented way.

    Furthermore, as the Green Paper indicates, fragmentation is also due to consumer behaviour and preference, practical barriers like language and remoteness between provider and customer, but also to diverging national legal frameworks, different systems and traditions of distribution which all constitute obstacles: for consumers to buy cross-border and for businesses to enter new markets.

    To solve at least some of these problems effectively the EU would need a full harmonisation of its 27 different legal systems which is - not even in the long-term - a realistic perspective. Under the condition of full harmonisation consumers would be able to put more confidence into a financial service or product bought cross-border since they would know their rights and obligations and would thus have more legal certainty; insurers would be able to offer their services cross-border without the need to adapt their products to the conditions of each national market. Full harmonisation would, however, still not abolish obstacles like differences in languages, problems resulting from the distance between service providers and consumers, diverse national distribution systems and traditions. As envisaged by the Commission progress can only be achieved slowly and on a case by case basis.

    However, RIAD’s Members would like to stress that legal protection insurance can help generating considerable certainty and confidence for consumers who contract financial services throughout the EU. In case a conflict arises the legal protection insurance assists the insured and stands as a strong supporter by his side. As a matter of fact, originally, legal protection insurance functioned as a "contre-assurance", i.e. helped claimants to pursue their rights against adverse insurers. Therefore, if European and national legislation preserves the separation of the different lines of insurances[3] and, thus, avoids conflicts of interests between the different insurance branches, legal protection insurance can be a functional tool to encourage cross-border contracting of financial services.

    As the Green Paper sets out an important aspect is securing and maintaining quality of services. This idea is also an integral part of the Service Directive which mentions codes of conduct as a possible way for quality control. From RIAD’s point of view codes of conduct, quality marks for services and European standards for insurance products could build up consumer confidence and could thus facilitate the trafficking cross-border. However, this would only work if procedures for implementing these quality indicators are flexible and not too onerous. Equally, Member States would have to make a commitment and allow the free circulation of services and products which have received an accreditation: Member States could not invoke their “general good” rules in order to prevent these services and products from entering their markets.

  14. Question: customer mobility and competition are closely associated. The Commission would welcome input as to how customer mobility could be enhanced. In particular, in the field of bank accounts, and as a follow-up to the Expert Group's work, would stakeholders see merits in, for example, having EU wide account switching arrangements? Will SEPA have an impact on customer mobility?

    No answer



[1] Directive “87/344/EEC of 22 June 1987 on the coordination of laws, regulations and administrative provisions relating to legal expenses insurance (OJ L 185/77 of 04/07/1987)

[2] Directive “2006/123/EC of 12 December 2006 on services in the internal market” (OJ L 376/36 of 27/12/2006)


[3] cf. Article 3 § 2 of Directive 87/344/EEC