The Guidelines aim at strengthening market confidence - an objective EBF considers a priority.
EBF welcomes the opportunity to respond to the EBA’s consultation paper on draft guidelines on product oversight and governance arrangements for retail banking products published on 10 November 2014.
At the same time the EBF would like to highlight that this objective has to be well balanced with the need to preserve financial stability; the right balance between these two needs (which are both for consumers benefit) it is of paramount importance for the EBF and it is the only way to allow Banks and Financial institutions to contribute as far as possible to the economic growth and to financial inclusion.
Indeed, the EBF members are convinced that it is vital to strengthen and increase consumers trust in the retail financial market and to ensure that consumers have access to financial services products they need.
Particular consideration should be given to preserve innovation and consumers’ access to financial services products within the Internal Market.
To meet those objectives the EBF considers it be of paramount importance to underline the following key challenges which could result from the draft EBA guidelines:
The EBF would like to emphasise that a number of sources of EU legislation (recently adopted, reviewed or implemented) currently provide notably standards for the design and the distribution of retail banking products as well as extensive requirements relating to the conduct of business: such as Markets in Financial Instruments Directive II (MIFID 2), the Payment Accounts Directive (PAD), the Payment Services Directive (PSD), the Proposal for a Regulation on interchange fees for card-based payment transactions (agreement reached in December 2014), Consumer Credit Directive (CCD), Mortgage Credit Directive (MCD) and several European Supervisory Authorities’ regulations and guidelines (internal governance, remuneration, operational risk etc.). Against this background, we do not necessarily see the added-value to introduce further standards for all retail products especially when no need has been identified in the different directives to take into consideration the complexity of the products. Importantly, we think that consistency should be ensured between the work of the Authority and “level 1” regulation as well as the proportionality of standards with regard to product complexity and risks.
The EBF considers that “the stretching” of the investment product regulation to all retail banking products is not appropriate (e.g the concept of “target market” designed for investment products will not be appropriate for the typology of basic products and the wording “if it is applicable” should be included).
The obligation for the manufacturer to identify interests, objectives and characteristics of target market might create many difficulties in practice and notably restrict the access of consumers to banking products within the internal market with a risk of discrimination which as an unintended consequence could generate financial exclusion. Indeed, if a consumer is not in the “target market” and asks for the product, banks will be obliged to deny the access to the product. This obligation should not result in a prohibition for the bank to sell the product to a consumer who is not part of the target market. Consumers should be able to define which product corresponds to their needs.
Ultimately, the responsibility of contracting a financial agreement also lies with the consumer and we believe a balance should be found between the responsibility of manufacturers and distributors on one hand and of consumers on the other to make the right choice adapted to their needs. Also, sufficient flexibility should be provided for manufacturers to adapt to changing consumer needs and expectations.
Through evaluations and assessments on objectives and characteristics of the identified target market for each product, the guidelines introduce a sort of personal/individual suitability assessment on the adequacy of the retail financial services products, even for simple products which is not appropriate. The issue was analysed in depth by the EU Parliament, the Council and the Commission which rejected the suitability assessment since it was considered not appropriate for products such as mortgage and consumer credit. This is even more true for payment accounts and any other payment service that are considered y European legislation as a fundamental prerequisite for financial inclusion, and whose offer is mandatory according to Directive 92/2014. The words “interests, objectives and characteristics” is therefore not appropriate. It should be more opportune to use expression “product is appropriate for the target market”.
As ascertained in the EBA Impact assessment, this approach would create high organisational costs for manufacturers and distributors (especially when establishing and maintaining suitability/appropriateness assessment for all retail banking products) which will negatively impact on the capability of banks to finance growth, the access of consumers to the banking and financial services products and therefore have questionable benefit for consumers.
In addition, some of the new requirements set by the Guidelines could have a negative impact on product innovation, as well as have an adverse effect on competition in the market. A diverse product offering, in fact generates benefits for the whole economy with higher price differentiation, boosting competitiveness.
The proportionality of requirements is central. National Competent Authorities (NCAs) and/or obliged entities should therefore be given sufficient discretion with regard to the application of products oversight and governance standards.
It is also important to ensure that the industry has sufficient time to implement those guidelines, notably because it will require the review and adoption of IT systems.
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