On 20 September 2017 the European Commission (EC) announced its proposal to improve the supervision of European financial services as well as its revision of the European Supervisory Authorities (ESAs). The prospect of such a key reform prompted BETTER FINANCE and other European user-side NGOs to form an alliance to ensure an ESAs reform that is positive for EU citizens as financial services users.
Whereas BETTER FINANCE agrees that the European System of Financial Supervision is in urgent need of reform, the proposal as it stands lacks positive changes with regards to consumer and investor protection and fails to give the ESAs teeth with which to enforce EU Law. As a result, the outlook for the public enforcement of conduct of financial business rules looks grim.
In our view, the proposal fails to provide for an adequate level of protection for end-users of financial services, as it completely omits the need to prevent minimising the risk of conflicts of objectives between investor and consumer protection objectives on the one hand and prudential ones on the other. Nor does the proposal grant the supervisory authorities a sufficiently strong mandate or the necessary governance and resources to effectively tackle mis-selling practices and decisively deal with toxic products that are sold to EU citizens.
With view on enhancing the transparency of performance and fees of long-term and pension savings products as outlined in the Capital Markets Union (CMU) Action Plan, the ESAS reform proposal is not consistent with the stated aims in terms of investor protection of the CMU initiative.
As pointed out many times by BETTER FINANCE, there is ample room for improvement in as far as effective supervision by the ESAs is concerned. This proposal still does not identify toxic financial products and products causing consumer detriment as targets for prohibition or suspension powers.
Furthermore, the EC proposal would further empower the industry by granting the ESAs Stakeholder Groups the right to withdraw guidelines issued by the ESAs in case of a two-third majority demand to do so. Since financial industry representatives by far outnumber consumer representatives in these groups, such an approach would be undemocratic and severely undermine investor and user protection.