Brussels,

Consumer (retail) financial services policy​

The integration of the EU market for retail financial services.
Retail financial services, often referred to as consumer financial services, encompass a broad range of financial offerings tailored to regular consumers. A fully unified single market for retail financial services within the European Union is yet to be realized.

Currently, these services predominantly function within individual national boundaries, making it challenging for consumers to access or move specific financial products across borders, such as the majority of insurance offerings or mortgage credit.

Consequently, consumers may not always enjoy the advantages associated with heightened competition, such as expanded options and more affordable pricing.
 These services encompass a diverse spectrum of products, including:

1. Current and savings accounts
2. Payment services
3. Credit cards
4. Mortgages
5. Insurance
6. Investment products

The Commission's objective is to enhance transparency and bolster consumer protection within this sector. It seeks to empower consumers to make informed choices regarding financial products and ensure they have a sense of security in their financial dealings. Additionally, the Commission is dedicated to advancing market integration in this domain.
Current measures:

  1. Measures to guarantee an EU-wide right of access to basic bank accounts
  2. Rules to protect deposits of up to €100,000 in the case of bank failure
  3. Initiatives to increase the level of consumer protection and facilitate the cross-border distribution of insurance, mortgages and consumer credit
  4. Improved consumer protection rules for distance marketing of financial services and retail investment products

EU Strategy

On 24 May 2023, the Commission adopted a retail investment strategy that prioritizes the interests of consumers in the realm of retail investing. The objective is to empower retail investors, often referred to as "consumer" investors, to make investment choices that align with their specific needs and preferences. This approach ensures that these investors are treated fairly and receive adequate protection. Ultimately, this strategy seeks to cultivate trust and confidence among retail investors, enabling them to securely invest in their financial future while fully capitalizing on the EU's capital markets union.

As part of the Commission's capital markets union action plan for 2020, one of the three primary objectives was to enhance the EU's safety as an investment destination for long-term endeavors. Today's strategy endeavors to realize this objective, encouraging greater participation in EU capital markets, which has historically lagged behind other regions such as the United States, despite Europeans having notably high savings rates. Bolstering the capital markets union also serves as a vital mechanism for channeling private funding into the economy and supporting the transitions to green and digital technologies.
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Consumer financial services action plan

EU efforts to enhance retail financial services have yielded positive results, yet further steps are required to realize a fully unified European market in this sector.

In March 2017, the European Commission unveiled an action plan outlining a strategy to fortify the EU's single market for retail financial services. This action plan primarily aims to leverage the potential of digitalization and technological advancements, including FinTech, to enhance consumer access to financial services throughout the EU.

Digital services like mobile banking, peer-to-peer lending, and price comparison websites offer numerous opportunities for both service providers and consumers, potentially fostering greater integration of the single market for consumer financial services.
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Protect Deposits

The EU Deposit guarantee schemes (DGS) are designed to provide reimbursement, up to a specified limit, to depositors in the event of their bank's insolvency. A foundational principle governing DGS is that they are fully financed by banks, with no reliance on taxpayer funds.

In accordance with European Union regulations, deposit guarantee schemes serve the following purposes:

1. Safeguard depositors' savings by assuring deposits of up to €100,000.
2. Mitigate the risk of a widespread deposit exodus in the event of a bank failure, which can trigger financial instability.

Over time, the EU has incrementally raised the level of deposit protection, starting with the initial DGS directive introduced in 1994.
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Reform of bank crisis management and deposit insurance framework

On 18 April 2013, the European Commission has proposed adjustments to the EU's existing bank crisis management and deposit insurance framework, with a particular focus on medium-sized and smaller banks. While the EU's banking sector is generally robust and well-regulated, some smaller banks have been resolved outside the established framework, sometimes using taxpayer funds rather than industry-funded safety nets like deposit guarantee schemes and resolution funds.

The proposal aims to:

1. Preserve financial stability and protect taxpayers by enabling the use of deposit guarantee schemes to safeguard depositors in crisis situations, but only after a bank has exhausted its internal resources for absorbing losses.

2. Shield the real economy from the disruption caused by bank failures by emphasizing the benefits of resolution over liquidation. Clients will maintain access to their accounts, and critical bank functions will be preserved.

3. Improve depositor protection by harmonizing standards across the EU, extending coverage to public entities and certain types of client funds, and addressing specific life events with temporary high balances.

This proposal is now discussed in the European Parliament and Council, with the goal of strengthening the EU's crisis management and deposit insurance framework and completing legislative work during this institutional cycle. It aligns with the ongoing efforts to advance the Banking Union and enhance the functioning of the financial sector.

Legislative proposals and related documents
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Other measures to increase the level of consumer protection

1. Key information documents for packaged retail and insurance-based investment products (PRIIPs)

Packaged retail investment and insurance products (PRIIPs) are integral to the retail investment market, offering consumers options for saving toward specific goals like buying a home or funding a child's education. The European PRIIPs market is substantial, with an estimated value of up to €10 trillion.

Despite their potential benefits, PRIIPs are frequently complex and lack transparency. The information provided by institutions selling these products can be convoluted, filled with technical jargon, and challenging to use when comparing different investment options. Moreover, because these institutions often serve as both sellers and advisors, conflicts of interest can arise, potentially leading to advice that may not align with the best interests of investors.

To address these issues, the EU has introduced a Regulation on PRIIPs, requiring producers and sellers of investment products to furnish investors with concise key information documents (KIDs). These KIDs are limited to a maximum of three pages and are designed to provide transparent information about investment products.

KIDs include details such as:

1. Product name and producer identification.
2. Targeted investor categories.
3. Risk and reward assessment, featuring a summary risk indicator, potential maximum capital loss, and relevant performance scenarios.
4. Information regarding the costs associated with investing in the product.
5. Guidance on how and to whom investors can file complaints in case of product or service issues.

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2. Mortage Credit

The European Union's mortgage credit market exhibits fragmentation, posing challenges to cross-border service provision.

Furthermore, the financial crisis significantly impacted EU citizens, eroding their trust in the financial sector. This crisis demonstrated that reckless lending in one country can reverberate across borders, necessitating action at the European level.

In response, the EU is actively pursuing initiatives to:

1. Foster the integration of the mortgage credit market.
2. Advocate for the implementation of common standards.
3. Safeguard consumers across the EU.
The EU Mortgage Credit Directive represents a significant stride towards establishing a European-wide mortgage credit market characterized by robust consumer protection.

This directive is applicable to all loans extended to consumers for the purpose of purchasing residential property and encompasses the following key provisions:

1. Mandating lenders to furnish consumers with clear and comprehensive information regarding loan terms.

2. Requiring lenders to evaluate consumer creditworthiness based on standardized EU criteria.

3. Establishing uniform quality standards and ethical business conduct principles for all lenders operating within the EU.

4. Granting consumers the ability to repay credit ahead of the predetermined contract schedule.

5. Introducing an EU passport scheme that enables credit intermediaries authorized in any EU member state to offer services throughout the EU.
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