Thursday, 3 November 2011

G20 France: financial services rules in danger of getting interesting for consumers

Robin Simpson
CI’s Senior Policy Adviser, Robin Simpson, dissects the G20 meetings in France in relation to financial consumer protection.

While protesters gathered the world over and markets threatened to go into meltdown, what was our contribution to financial consumer protection during the Northern summer and autumn of 2011? What can we tell our grandchildren?

In August, Consumers International (CI) responded to the public draft of the “high level principles on financial consumer protection and education” that an OECD Task Force drafted under the mandate of the G20. On 14 October, those principles were discussed at the high-level seminar on financial consumer protection jointly hosted by the OECD and the French G20 presidency, and addressed by our President, Jim Guest, and consumer colleagues from Hong Kong, France and our Brussels-based colleagues, BEUC.

 I say ‘discussed’ because they were not actually delivered publicly until after the conference, being endorsed by the meeting of the G20 ministers of finance over the weekend of 14-15 October.

 Despite being in the bizarre position of discussing a set of principles that we were not allowed to see, we nevertheless expressed our disappointment. The language is weak, the principles are described as “voluntary”, and “non-binding”, there are multiple insertions of terms such as “as appropriate”, “where applicable and possible” etc to qualify each of them, and there is not a single reference to the financial crisis. There is no reference to product suitability, to minimum standards, and the language around bank deposit guarantees for consumers is very ambiguous, as is the language on international cooperation.

To our astonishment, the OECD Secretary General and the Deputy Secretary General indicated agreement with our criticisms of the weakness of the language, but indicated that this was the best they could get past the government members of the Task Force. Why were we astonished? Because the starting point of the conference was praise lavished onto the work of the Task Force by the Secretary General and by the French Minister of Finance Francois Baroin.

So, were the principles worth endorsing at all? Apart from reiteration of long-standing OECD policies on disclosure and education, there is some progress on issues of conflict of interest between service providers and their customers, some mention of opening up regulation, and some very thin commitments to equitable treatment of consumers, redress and competition. All of these need beefing up.

This is where it gets interesting. The actual terms of the endorsement on 15 October were as follows: The ministers “endorsed the FSB report and the common principles on financial consumer protection prepared by OECD with FSB and call for further work on implementation issues”. The Financial Stability Board report, Consumer finance protection with particular focus on credit, was not discussed at the 14 October conference, which was a pity as it does make reference to “product suitability”, to “benchmarks for financial products”, and most explicitly of all, to the need for “an international organization of regulators to take the lead on global financial consumer protection efforts”.

This does give us something to work on, as does the ministerial call for further work on implementation issues. One of the more encouraging presentations at the 14 October conference came from the Mexican Deputy Finance Minister Gerardo Rodrigues who, representing Mexico in its capacity as next president of the G20, committed to a practical programme of work on implementation. The closer to the practicalities, the more the endless qualifications will appear to signify lack of true commitment. We look to the G20 leaders meeting at the Cannes summit this week to strengthen the commitment to reform.

One thing is for sure – the industry is not going to reform itself. On 14 October, the President of the French banking federation told the OECD conference that consumers should become responsible and realise that there is no such thing as a ‘free lunch’ (his exact words in English). Only four days before, the Franco-Belgian Bank Dexia, faced with collapse, received a EUR90 billion government-funded guarantee. Quite a few free lunches there.

What do you think? Comment below.

1 comment:

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