27 September 2007

Financial Ombudsman Service Conference: EU Retail Financial Services

Introduction

1. It's a real pleasure to be here this afternoon, and to be able to speak to you. I'm very grateful to the Financial Ombudsman Service for the invitation, and I'd like to start by congratulating them on their important work.

2. They deal with over half a million enquiries a year, and settle 100,000 disputes. I know many of you here today perform a similar role in countries across the world, and will know how much it matters to those involved that their complaints are listened to, and dealt with impartially, quickly and with the minimum of formality.

3. That is at the heart of the way our ombudsman scheme in the UK works. A few years ago, we had different ombudsman schemes covering different sectors - some statutory, others voluntary. That was confusing for consumers, and so today we have a much clearer system: a single, statutory scheme that is free to the consumer, and independent of us in Government.

4. That system's working well. The Financial Ombudsman Service's role has expanded - most recently to cover consumer credit complaints - and it is performing a crucial job in protecting consumers, allowing them to be confident in their financial services products.

5. And it's worth reminding ourselves of the importance of the financial services sector to the UK economy. It generated about 8.5% of the UK's GDP in 2005, and employs over a million people. That's mainly in London - but there are also big financial centres elsewhere in the UK, like Edinburgh and Leeds.

6. So this is a crucial industry - and by underpinning consumers' confidence the Financial Ombudsman Service makes a really important contribution to its success.

7. To continue doing that, the Service - like those of you performing the same role elsewhere - will need to keep up with the sector as it changes. And one change that I know you recognise - because it's reflected in the international nature of today's conference - is the sector's increasing internationalism.

8. If we've learnt anything from the events of recent weeks, it is the interdependent nature of the global economy. Who could have imagined just a generation ago that a householder defaulting on a mortgage in Florida could cause someone in the North East of England to take time out of work to queue outside their local bank?

Internationalisation

9. Clearly, the wholesale financial services market has always been global - but we can also see that internationalism in the decisions of firms to move between countries, or outsource their back office functions around the globe. 10. And in retail financial services too, we're seeing integration in a number of ways - from mergers and acquisitions, to alliances between financial institutions in different countries, and the sale of financial services products themselves across borders.

11. This is clearly a global process - and I know that this is a global audience, with people here from Asia, Africa, the Americas and Australasia. So I would like to offer an apology to some of you that what I want to talk about particularly today is the way that we integrate financial services in the EU.

Strengthening the single market in financial services

12. Because I do believe that this is an important issue - in fact, I believe that strengthening the single market in financial services should be at the core of economic reform in the EU.

13. And I believe that it can bring a number of advantages:

- more jobs and investment; - reduced costs, and better allocation of capital; - increased access for firms to markets in other member states; - and a wider choice of products, and more competitive prices, for retail customers.

14. We've made real progress over the last ten years, with the EU Financial Services Action Plan as the legislative framework. The Markets in Financial Instruments Directive, MiFID, which will take effect shortly, for example, will facilitate business across EU borders.

EU retail financial services

15. But there are some big policy questions left, particularly in relation to financial services in the retail sector.

16. We're seeing increasing integration here - which for some of you will mean cooperating more across borders to resolve consumer disputes.

17. Of course, it's true that there is still far less cross border retail selling than in wholesale markets - and some people have argued that only 1% of EU customers buying cross border financial services is a sign of failure.

18. I disagree with that, because the challenges here are different. Language barriers, different social welfare systems and different patterns of spending, saving and borrowing all encourage consumers to favour their home markets. So we need to be realistic, and recognise that retail markets are likely to remain far more nationally focused than the wholesale sector.

19. That isn't necessarily a bad thing - as long as the markets are open. But it's here that I think we can do more - and it's here that I want to do more.

20. When I started in this post, a little under three months ago, I said that I would be the City's ambassador to Government, and representative in Europe.

21. And one way that I will do that is by putting a new focus on opening up Europe's retail market, and the opportunities it can offer. So, over the summer, I asked my officials to listen to the views of those involved - banks and representative bodies - on how we should move forwards. And today, I want to set out my approach, informed by those views.

22. But I want to say first that my priority here isn't just the City - the industry above individuals. It isn't an either-or choice. Because an open, competitive market can have benefits for consumers as well as firms - increasing the range of products and providers that Europe's 500 million citizens can choose from, and making prices more competitive.

The UK's approach to Europe

23. So, how can we get those benefits for consumers, and create those opportunities for the sector? How should we go about opening up the retail market?

24. I believe that the way to do it is to build on the approach that the UK has followed in the wholesale markets, and elsewhere in Europe - a 'hard-headed pro-Europeanism'. Hard-headed, because we have the confidence to put our national interest first, and say no where we have to. But pro-European because we know that we are stronger if we co-operate with our EU partners, and that we can only win arguments - like we have on MiFID - by being at the table.

25. And as ever with Europe, I'll argue that the EU should only act when there are clear benefits to it doing so - clear, additional benefits from collective action, rather than action by individual Member States. And when it does act, EU action should be proportionate and flexible, and use non-legislative tools where possible.

26. So, we believe that one size doesn't always fit all - especially when you're trying to integrate twenty-seven different financial services markets.

27. We believe that legislation should be a last resort, not a first choice - and we've been pleased to see the Barroso Commission move towards a better regulation agenda.

Principles for EU retail financial services

28. That's our approach to Europe, and to EU action - and it's that approach that I'll apply to the question of how to effectively open Europe's retail financial services market.

29. So you won't be surprised to hear that I don't think the way to do this is through more legislation - and that I don't think the aim should be harmonisation, or one size fits all.

30. Instead, I want to set out today five principles, which I would urge the industry, regulators, Member States and the Commission to follow, for the way in which we ensure the openness of the EU retail market.

31. First, our approach must be centred on the EU's consumers. It should aim to give them access to competitively priced products, as well as effective consumer protection and access to comprehensive redress arrangements when things go wrong - which is of course where many of you come in.

32. Second, we'll need to allow firms effective access to the retail financial services markets in all member states. Of course, not all will want to take advantage of that access - but without the barriers being removed, and the opportunity being made available, markets can't be fully competitive.

33. Third, creating that access for firms will require consistent implementation and enforcement of existing EU legislation in this area. Cross border access won't be possible if firms can't be confident that the rules will be properly enforced, and that additional barriers won't be put in their way.

34. Fourth, instead of new legislation, a sort of Financial Services Action Plan Part Two, we'll need to use a more flexible range of tools. As the Commission suggested itself in its 2005 White Paper, that should include better use of national and EU level competition policy; of market-led solutions; and of national initiatives.

35. And fifth, all of these principles will need to be underpinned by consistently applying better regulation techniques to proposed new measures - ensuring that costs and benefits are properly assessed, and that those who they would affect are fully consulted.

36. So, five principles for taking forward the opening of Europe's retail financial services markets: focussing on consumers; giving firms access to markets across Europe; implementing and enforcing existing legislation; using flexible, non-legislative tools; and emphasising better regulation.

37. I believe that following these principles can open Europe's retail financial services markets, and give consumers more choice, and more competitive prices - as well as creating real opportunities for the financial services sector, including in the UK. This can be a win-win.

Specific actions

38. And alongside those principles, I want to give a few more specific examples of what I believe can and should be done.

39. So, for example, I spoke about focussing on the consumer - and ensuring effective protection and access to redress. To help achieve that, I'd like to see the Commission do more to make Fin-Net's existence better known to consumers across the EU. While it's still the exception for consumers to buy cross-border financial services products, we shouldn't ignore those who do - or who spend time in a country other than the one they were brought up in.

40. I'd also like to encourage all Member States to make sure that they have alternative dispute resolution mechanisms in place - and that they are comprehensive, effective, accessible and transparent. That can really make a difference to consumers' confidence in cross-border products. I'm not calling for standardisation here - but I do think it's an area in which we can share best practice, and today's conference is an ideal opportunity to do that.

41. We can also share best practice on making sure that customers can change bank account providers freely - if they want to take advantage of a better offer, for example. In the UK, the voluntary Banking Code contains specific rules aimed at improving the speed and ease with which consumers can switch account providers, and steps to promote mobility have also been taken elsewhere in Europe - other countries might be able to learn from those experiences, and improve the options for their consumers.

42. I mentioned earlier that a better use of national and EU level competition policy should be one of the flexible tools that we use to open up the retail market effectively. The Commission completed a major enquiry into retail banking this year, and called for follow up action on payment systems, credit registers, cooperation between banks and product tying. These are also areas that should be pursued.

Financial capability and inclusion

43. And finally, if we're to get all of the possible benefits from opening up the financial services retail market in Europe, I think that Member States and the Commission should think carefully about ways in which we can increase financial capability, and financial inclusion.

44. Because however we open up that market in Europe, those who are financially excluded, and don't have access to the products on offer, won't be able to gain - and those who don't have the capability to make the most of the opportunities will also lose out.

45. I'm not suggesting that these are issues we need to tackle at an EU level - in fact, we have resisted standardised products aimed at tackling financial exclusion. But I do think it's another area where we can share best practice, and learn from each other.

46. The UK is already working hard to improve both financial capability and inclusion, and leading the way in Europe. On capability, we've made financial education part of the school curriculum, and we've asked Otto Thoresen to report on how we can make it easier for people to get personalised help in understanding their financial choices.

47. And on inclusion, amongst other things, we are making real progress towards our target, shared with the banks, of halving the number of people in households without access to a bank account - in fact, the latest figures show that we're sixty per cent of the way there. That's making a real difference in allowing people the opportunity to make the most of their money.

Conclusion

48. And of course, as I've said this afternoon, giving people that opportunity - the chance to use their money as effectively as possible - is why we need to think carefully about how we open the EU retail financial services market.

49. I think there's agreement that this is something we should do - because of the benefits for consumers, for firms and for the wider economy. The question now is how.

50. I've set out today five principles that I believe we should follow - and a number of specific actions that I believe should be taken. I believe that approach - consumer-focussed, using flexible, non-legislative tools and existing law to remove barriers, and remembering the better regulation principles - can allow Europe's consumers to see the benefits of the internal market in retail financial services: more choice, and more competitive prices.

51. So there's a great opportunity here, and a great deal to gain. To make the most of it, governments, regulators, the Commission and the industry will need to work together - not to create a single, harmonised regime, but to find flexible solutions to the problems facing consumers.

52. And of course we'll also have to work with ombudsmen and dispute resolution services like those that many of you here today represent. Because as the European retail market integrates, your role will become increasingly important.

53. I began by talking about how important it is to the UK's financial services industry that the Financial Ombudsman Service can give customers the confidence to know that their disputes will be considered impartially.

54. As retail financial services become increasingly internationalised, and increasingly integrated, it will be important for consumers everywhere to have that same confidence. That's clearly something that you have all recognised - and you've realised that you can help to achieve that by working together at events like this conference.

55. So it's a pleasure to see so many of you here; I hope that some real benefits come from the sessions you've had today and that are still to come tomorrow, and I know that will help you continue to fulfil your important role in international financial services over the years to come.

56. Thank you.