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BackLast week, the Brussels offices of the Austrian Federal Chamber of Labour (AK EUROPA) and of the Austrian Trade Union Federation (ÖGB) organised a panel discussion on the subject of “Strengthening Consumer Protection in Financial Services”. During the financial and economic crisis ten thousands of investors in Austria alone lost part of their savings, some of them their entire life savings. Hence, the question was raised during the discussion whether sufficient measures would be taken at EU level to ensure that small investors would not suffer such losses again.
The panel consisted of Jean-Yves Muylle, Head of Unit, DG Internal Market and Services, European Commission, MEP Olle Schmidt of the European Liberals and rapporteur on the Directive proposal on Investor-compensation schemes, Jean-Francois Biernaux of BEUC, The European Consumers’ Association and Christian Prantner of the Austrian Federal Chamber of Labour. The moderator of the event was Detlef Fechtner of the German Börsen-Zeitung.
In her opening statement, Gabi Zgubic-Engleder, Head of Consumer Policy Department of the Austrian Federal Chamber of Labour, pointed out that many small investors had lost part or all of their entire life savings during the financial crisis. Furthermore, now consumers would even have to pay towards budget consolidation in their capacity as taxpayers. The crisis of confidence of the consumers had its origin with the collapse of Lehman Brothers; regulations to strengthen consumer rights were needed urgently.
AK financial expert Prantner: products have to become simpler and information significantly better
Christian Prantner, financial expert at the Austrian Federal Chamber of Labour and member of the Financial Services User Group set up by the European Commission, described a case from his advisory activities at the Chamber of Labour. In 1999, an investment advisor had held out the prospect to a small investor that a unit-linked life assurance would generate a rate of return of between 8 and 12 percent. This would be significantly more than the 4.5 percent for a savings plan with a building society (Bausparvertrag) or the 6 percent for bond certificates, explained the investment advisor. However, at the end of the 10-year term, in 2009, the consumer was confronted with a loss - instead of the 20,000 Euro she had paid in, she got less than 12,400 Euro back. A rate of return of 12 percent (the payout amount would have been 30,000 Euro) was not even mentioned.
Therefore, Prantner makes the following demands from the point of view of consumer protection: financial products had to become simpler so that everybody would be able understand them. However, bad advice by investment advisors was also responsible for the plight of small investors. Information on financial investments had to be improved significantly and the practice of financial institutions to pay financial advisors high commissions for financial products they had sold had to come to an end. These commissions only resulted in the fact that small investors would be sold products, which would not be suitable for them. Prantner supports high transparency standards in respect of costs. Any procedures relating to investor compensation, which sometimes would drag on for many years, had to be significantly reduced.
Muylle: consumer protection is often not given enough attention
Jean-Yves Muylle, Head of Unit, DG Internal Market and Services, European Commission praised that with regard to consumer protection the organisers had drawn attention to financial services, as the interests of consumers were particularly neglected in this sector. Many demands, which the Chamber of Labour had put forward, were already on the agenda of the Commission. Muylle gave a short overview of the next steps planned by the Commission, such as reviewing/altering mortgage loans, in particular concerning the pre-contract information for consumers. However, he pointed out that even the obligation to provide pre-contract information would not be able to make all consumers equally happy, as the request for information would vary from Member State to Member State. The Commission would try to find a solution regarding the early repayment of loans, as now any early loan repayment would prove to be very expensive for consumers. Muylle was also in favour of everybody having access to a basic bank account. He demanded more transparency with regard to bank charges. Muylle regards general financial knowledge as the key aspect to regain consumer trust. Finally Muylle remarked that one day, we also had to protect consumers on a global level.
MEP Olle Schmidt: “No need to regulate everything!”
The Swedish MEP Olle Schmidt left no doubt about views: “I am a convinced supporter of free markets!” said the lead of the Liberals in the European Parliament’s Committee on Economic and Monetary Affairs. “We should not regulate everything”, commented Schmidt, whose in-tray is filled with a number of key plans to regulate the financial markets every day. After all, he too had to make some compromises. The crisis had shown that the so-called financial experts were anything but experts. Schmidt’s remaining opinions were little surprising from a market liberal point of view: Instead of banning products, supervision should be improved; what was needed was a functioning financial system with innovation power; one should not over-egg in formulating new regulations; it would not be possible to avoid a new crisis, but this one would be different from the one we just experienced. However, in his capacity as a rapporteur on investor compensation schemes he came out in favour of increasing “the amount of compensation from 20.000 to 100,000 Euro”.
BEUC lawyer Biernaux: Focus must be on consumers
Jean-François Biernaux, lawyer representing BEUC (the European Consumers' Organisation), points out that it would be important to reduce the risk of a new financial crisis and to strengthen the trust of investors and consumers in the financial sector again. This would need a financial market supervisory authority like the one created by the Commission in the meantime. In order to focus on the interests of consumers, the conflict of interest of financial intermediaries, to provide clients with professional advice on the one hand and to sell high-risk products that entail incentives created by performance-oriented bonus system on the other, had to be solved. What would be needed were independent financial advisors. The focus had to be on consumers again. He does not regard banning products as a suitable measure. Instead, more information, for example through so-called KIIDs (Key Investor Information Documents, which set out key investment information/standardised information on key characteristics of a fund), should be made available. Information on a financial investment product had to be simple and standardised and the relevant information had to be made available by the advisor.
In the following discussion with the audience, criticism was aimed among others against foreign currency loans, which had been increasingly granted since the beginning of the 1990ies. One participant urged the Commission to improve consumer rights in the financial sector as the current measures were not sufficient. Other participants reiterated the demand for simple financial products. However, whether Commission, Council and European Parliament are really serious about strong consumer protection in the financial sector has yet to be proven by the EU institutions. In any case, the consumer protection organisations will continue to draw attention to existing problems and loopholes in the current EU legislation and push for strong consumer rights.
In her opening statement, Gabi Zgubic-Engleder, Head of Consumer Policy Department of the Austrian Federal Chamber of Labour, pointed out that many small investors had lost part or all of their entire life savings during the financial crisis. Furthermore, now consumers would even have to pay towards budget consolidation in their capacity as taxpayers. The crisis of confidence of the consumers had its origin with the collapse of Lehman Brothers; regulations to strengthen consumer rights were needed urgently.
AK financial expert Prantner: products have to become simpler and information significantly better
Christian Prantner, financial expert at the Austrian Federal Chamber of Labour and member of the Financial Services User Group set up by the European Commission, described a case from his advisory activities at the Chamber of Labour. In 1999, an investment advisor had held out the prospect to a small investor that a unit-linked life assurance would generate a rate of return of between 8 and 12 percent. This would be significantly more than the 4.5 percent for a savings plan with a building society (Bausparvertrag) or the 6 percent for bond certificates, explained the investment advisor. However, at the end of the 10-year term, in 2009, the consumer was confronted with a loss - instead of the 20,000 Euro she had paid in, she got less than 12,400 Euro back. A rate of return of 12 percent (the payout amount would have been 30,000 Euro) was not even mentioned.
Therefore, Prantner makes the following demands from the point of view of consumer protection: financial products had to become simpler so that everybody would be able understand them. However, bad advice by investment advisors was also responsible for the plight of small investors. Information on financial investments had to be improved significantly and the practice of financial institutions to pay financial advisors high commissions for financial products they had sold had to come to an end. These commissions only resulted in the fact that small investors would be sold products, which would not be suitable for them. Prantner supports high transparency standards in respect of costs. Any procedures relating to investor compensation, which sometimes would drag on for many years, had to be significantly reduced.
Muylle: consumer protection is often not given enough attention
Jean-Yves Muylle, Head of Unit, DG Internal Market and Services, European Commission praised that with regard to consumer protection the organisers had drawn attention to financial services, as the interests of consumers were particularly neglected in this sector. Many demands, which the Chamber of Labour had put forward, were already on the agenda of the Commission. Muylle gave a short overview of the next steps planned by the Commission, such as reviewing/altering mortgage loans, in particular concerning the pre-contract information for consumers. However, he pointed out that even the obligation to provide pre-contract information would not be able to make all consumers equally happy, as the request for information would vary from Member State to Member State. The Commission would try to find a solution regarding the early repayment of loans, as now any early loan repayment would prove to be very expensive for consumers. Muylle was also in favour of everybody having access to a basic bank account. He demanded more transparency with regard to bank charges. Muylle regards general financial knowledge as the key aspect to regain consumer trust. Finally Muylle remarked that one day, we also had to protect consumers on a global level.
MEP Olle Schmidt: “No need to regulate everything!”
The Swedish MEP Olle Schmidt left no doubt about views: “I am a convinced supporter of free markets!” said the lead of the Liberals in the European Parliament’s Committee on Economic and Monetary Affairs. “We should not regulate everything”, commented Schmidt, whose in-tray is filled with a number of key plans to regulate the financial markets every day. After all, he too had to make some compromises. The crisis had shown that the so-called financial experts were anything but experts. Schmidt’s remaining opinions were little surprising from a market liberal point of view: Instead of banning products, supervision should be improved; what was needed was a functioning financial system with innovation power; one should not over-egg in formulating new regulations; it would not be possible to avoid a new crisis, but this one would be different from the one we just experienced. However, in his capacity as a rapporteur on investor compensation schemes he came out in favour of increasing “the amount of compensation from 20.000 to 100,000 Euro”.
BEUC lawyer Biernaux: Focus must be on consumers
Jean-François Biernaux, lawyer representing BEUC (the European Consumers' Organisation), points out that it would be important to reduce the risk of a new financial crisis and to strengthen the trust of investors and consumers in the financial sector again. This would need a financial market supervisory authority like the one created by the Commission in the meantime. In order to focus on the interests of consumers, the conflict of interest of financial intermediaries, to provide clients with professional advice on the one hand and to sell high-risk products that entail incentives created by performance-oriented bonus system on the other, had to be solved. What would be needed were independent financial advisors. The focus had to be on consumers again. He does not regard banning products as a suitable measure. Instead, more information, for example through so-called KIIDs (Key Investor Information Documents, which set out key investment information/standardised information on key characteristics of a fund), should be made available. Information on a financial investment product had to be simple and standardised and the relevant information had to be made available by the advisor.
In the following discussion with the audience, criticism was aimed among others against foreign currency loans, which had been increasingly granted since the beginning of the 1990ies. One participant urged the Commission to improve consumer rights in the financial sector as the current measures were not sufficient. Other participants reiterated the demand for simple financial products. However, whether Commission, Council and European Parliament are really serious about strong consumer protection in the financial sector has yet to be proven by the EU institutions. In any case, the consumer protection organisations will continue to draw attention to existing problems and loopholes in the current EU legislation and push for strong consumer rights.