Et ekko av Røeggen i Brussel

Bloggpostene fra finansgruppen i Forbrukerrådet publiseres heretter bare hos forbrukerradet.no

http://www.forbrukerradet.no/annet/blogg/finans

 

På hva vi trodde skulle være siste dag i Høyesteretts behandling av Røeggen-saken, 26. oktober, fant det sted en særs viktig avstemning i EU-parlamentet: Den vil ha betydning for norske små-sparere som ønsker å å plassere penger i finansielle instrumenter.

Paradoksalt nok er  de gode vedtakene i Brussel knyttet til hvordan man kan sikre god kvalitet på produktene som lanseres – altså noe om har vært Forbrukerrådets motivasjon for engasjementet i Røeggen-saken.

EU-parlamentet vedtok å øke forbrukervernet gjennom et krav til firmaene som selger investeringer: De plikter heretter  å evaluere kvaliteten på produktene først. I tillegg vedtok parlamentet at tilsynsmyndigheter skal kunne forby salg av finansielle instrumenter som ikke er egnet for forbrukere – men som tvertimot kan påføre dem store tap.

Mange har kanskje trodd at dette allerede er på plass, ettersom vi har sett slikt produktansvar i andre markeder hvor vi er forbrukere. Men nei. Produktregulering og produktgodkjenning i finans er ikke som i industrien. Så langt har forsvarsverket  av lover og regler, som skal ivareta forbrukernes, interesser vært tungt plassert på ryggen til selgerne. For selgerne som møter kundene og som gir sine anbefalinger,  har lenge hatt plikt til å ivareta kundenes interesser.

Det parlamentet nå går inn for, er å trekke forsvarsverket lengre inn i kjernen av virksomhetene, nemlig til miljøene som lager dissse instrumentene. Det er svært fornuftig. Vi har sett nok tilfeller av at selgere blir satt under press for utelukkende å ivareta arbeidsgiverens interesser.

Salget av warrants kan stå som et eksempel. Finanstilsynet nærmest beklager at de ikke kan forby salg av denne typen produkter til vanlige småsparere, men de mangler lovhjemlene. Warranter er høyrisikable plasseringer, som i realiteten er ulike former for veddemål. Normalt vil risikoen for at kunden taper alt, overskride sjansene for gevinst. Men for utstederne er det ingen risiko.

Hele Europa har hatt dårlige erfaringer med å ha finansregulering plassert så tungt på selgere. Forbrukere har elendig tillit til den delen av finansbransjen som beskjeftiger seg med sparing og investeringer. Norge er ikke noe unntak, selv ikke etter at råsalget av strukturerte produkter og eiendomsinvesteringer ble kneblet.

Men de som måtte mene at alt er brakt tilbake til sin orden i Norge, bør bruke litt tid på Finanstilsynets rapporter fra stedlige tilsyn. Etter et tilsyn hos Warren Securities AS (tildl. Warren Bank AS), konkluderer Finanstilsynet i år med selskapet hadde brutt sentrale bestemmelser om god forretningsskikk, i tillegg til andre viktige bestemmelser.

Rapporten viser blant annet at kundene hadde fått svært uriktige opplysninger om sannsynligheten for å tape alle pengene. Foretaket forklarte dette med en trykkfeil. Slike feil ville Warren Bank AS ha avdekket, hvis det hadde vært gjort god sikring av kvaliteten på produktet og prospektet de ga til kundene.

Forbrukerrådet, sammen med andre europeiske forbrukerorganisasjoner, hadde helst sett at EU-parlamentet i hadde gått for et forbud for finansielle selgere til å motta provisjoner fra andre enn kunden. Men parlamentet stemte for begrensninger for uavhengige investeringsrådgivere til å motta penger fra utstedere. Dette likner  på en måte det vi allerede har i Norge.

Men de grep som EU-instansene nå går, er derfor også høyst relevante for norske forbrukere i dag.  Vi får derfor håpe at  saksordføreren i EU-Parlamentet, tyske Markus Ferber (EPP), har rett når han fremholder at de reglene Parlamentet stemte fram ”guarantees that firms design products for their clients – and not to meet their own interests”.

Når Forbrukerrådet tok feil da vi trodde 26. oktober skulle bli den siste dagen i Høyesterett for Røeggen-saken, skyldes at dommerne har kalt partene tilbake til ytterligere forklaringer. Derfor skal vi stille på nytt fredag 16. november.

To MEPs in ECON: Two reasons to adopt a ban on commission in MiFID II

European Parliament’s Economic Affairs committee (ECON) needs to demonstrate sincere considerations to consumer interest in their efforts on the review of MiFID – the key EU law regulating investment services.

Earlier this fall ECON failed address the critical issue of incentives and commissions paid to financial intermediaries that would sort out conflicts of interest between sellers of investment products and investors. Instead of securing alignment of interest, ECON supported an inadequate system of disclosure of sales inducements which would do nothing to prevent intermediaries pushing their most self-serving product.

The EU Commission demonstrated as early as in November 2010 the uselessness of such disclosures in the study of Consumer Decision-Making in Retail Investment Services. This should be known for the committee.

If the Committee still insist on supporting a system of disclosure, it shouldn’t be due to the financial industry’s massive campaign where they claim layoff of thousands in the intermediations industry if a ban on commissions where to be adopted.

The general rule for financial intermediations is already a ban on commissions in e.g. Norway and yet the financial industry is doing very well.

ECON should be concerned about the distrust and scepticism consumers all over Europe holds towards the investment industry. Such attitudes have been demonstrated repeatedly in the EU Commissions consumer conditions scoreboard. If consumers turn their back to the investment market, ordinary industry would suffer from deficiency of venture capital leading to less innovation, less development and more unemployment.

ECON has a splendid chance to enhance consumer confidence to the financial system by introducing ban on commissions and at the same time assuring European corporations access to capital.

I therefore strongly urge MEP in ECON to vote in favour of a ban on commission.

Splendor and failure in the MiFID II draft proposed

Consumer organizations anticipate strengthen consumer protection in sales of retail investment as the ECON Committee in the EU Parliament progresses in its work with MiFID II. In the current stages consumer organizations has reason to be reassured – but also reason to be strongly concerned.

Good news first. The MiFID II proposal provides the anticipated measures to arm financial supervisory authorities with power to hinder introduction of harmful financial products. Rapporteur, the German Member of the European Parliament Markus Ferber (EPP), plans to provide the European Securities Markets Authority (ESMA) the right of intervene and prohibit financial products that could cause consumer detriment.

Doing so, Ferber follow up the ambitions of his colleague and fellow county man Sven Giegold – the consumer champ representing the Greens – who served as rapporteur in the negotiations on the European Financial Supervisory Authorities.

Ferber also aligns with the Norwegian Consumer Councils and the demands for the domestic financial authority which we first claimed in 2009. The Norwegian Confederation of Trade Unions (LO), and the Norwegian User Panel in the Financial Market (Bif, A panel of interest organizations and trade unions) has supported this demands.

Unsuitable financial products have causes consumer detriment throughout Europe. The effect of opaque financial products containing sub-prime loans on financial stability and civil society is globally well known.

The Norwegian financial market is no exception. In the early 2000s massive push-sale of loan financed investments in structured products. As the investment was loan financed, the probability of loss exceeded prospect of positive returns for the consumer when the contract was signed. The earning for the finance industry was of course far better.  They were guaranteed earnings from fees, loan margins and cheap funding as the bond element of the structured product was placed in the bank. Just like a kinder egg. In the mid 2000s we experienced massive push-sale of illiquid property investments often loan financed as well. In the 2010s we have experienced heavy push-sales of trading platforms to consumers who couldn’t have any need for it.

This brings us over to the less positive aspects of the MiFID II proposal from Ferber.

With his amendment 71, Ferber seems to settle for transparency requirement to replace the ban on inducements proposed by the European Commission under Article 24. This is simply not good enough. The commissions study from 2010 on how consumers decide on retail investments is a solid proof that transparency requirement will be insufficient. The study demonstrated that even clearly visible warnings about sellers conflict of interest doesn’t lead to sound skepticism or reflection. 

Our own behavioral economic study on purchase of mortgages supports the Commissions’ findings. We found that consumers submit them self in client meetings with financial sellers and adopted the sellers point of view and arguments. They allow sellers to define the set up and the progress of client meetings. This imbalance comes out of lack of knowledge, financial confidence and the ability to master the setting of a client meeting.

A ban on inducements will shield sellers from conflict of interest. Their focus should be to serve the clients interest. Not his / her own neither his / her employers interest. The presents of conflict of interest makes fertile ground for bad advice. This year we published our follow-up report on how investments are sold in the present. The report shows that providers still have a low threshold to offer loan financed investments when meeting with consumers without money available. In our sample of 30 mystery shoppers, 14 were recommended loan financed investments.  

Further we found that the proportion of sales procedures which meet the requirements of MiFID in our sample was equal to the proportion in the study conducted by DG Sanco: only 40 %. This comes five years after MiFID I. Not very impressive.

Bad advice related investments costs consumer in Europe a fortune. Our German sister organization, VZBV, has estimated damages from bad advice totals up to € 98 billion – annually in Germany alone.

A ban on inducements is the best way to secure neutral and objective investments advice. A ban should not only apply to sales of only third-party products, but also distribution of their own products or products from collaborating companies.

If any kind of inducement should be allowed, it should be connected to the client’s return on the same investment. This will stimulate the financial institution to act in alignment with the interest of the client – not the interest of the constructor of the investment product or the financial institution or bank itself. We miss such considerations in.

Sellers must be able to substantiate that they give neutral and objective investments advice. This is necessary both supervisors’ needs and for their handling of possible future consumer complaints. A great deal of selling process is based oral communication. Recordings of the oral communication shouldn’t be replaced by minutes, as it is suggested in amendment 53 relating to article 16 –7. Recordings have a disciplinary effect on the financial industry and the weight of a recording in case of a dispute will have a strong evidential effect, at least more than a minute could provide.

The Norwegian Consumer Council oppose to the introduction of “risk tolerance” done in amendment 75 relating to Article 25 and the role it’s intended for. If risk tolerance is to be considered as a criterion for recommendations, it must be based on an objective evaluation done by the professional part – not clients. As long as the professional seller has responsibility for recommendation given, the seller must also take responsibility for assessment of risk tolerance. That also includes the risk of misjudging risk tolerance, which is an incomprehensible concept for most consumers.

The seller must access to all necessary information about the client to make a sound recommendation. Information on the client’s current debt included. When information on debt is available, the seller must make an assessment on whether it is a financially sound decision to make investments or rather make down payments on mortgage and / or other credit. It is first when a seller is inclined to recommend no investment he or she becomes a real advisor rather than a seller.

The alliance of shadows in ECON has gone astray on CARRP – Directive on Credit Agreements Relating to Residential Property

In the coming weeks both the European Parliament and member state governments are expected to pave the way for Europe-wide mortgage rules for consumers buying or renovating a home. We call on EU Parliamentarians and national governments not to miss this unique chance to stop irresponsible lending practices and increase consumer protection.

On several occasions we have approached central persons in the alliance of shadows to the Directive on Credit Agreements Relating to Residential Property (CARRP) which is expected to be settled this summer in the EU parliament.

The alliance of shadows is Sven Giegold (the Greens), Alfredo Pallone (EPP) and Philippe De Backer (LibDems for Europe).

Together they have challenged the rapporteur on CARRP, Antolín Sánchez Presedo, on several consumer protective amendments and good consumer initiatives. When we confront the shadows on their stands, their response has been silence, and that is a democratic problem. They should come forward and express their opinions and meet our concerns with arguments. It is hard to understand why this motley crew advocates arrangements that imposes reduced transparency and hinder effective competition on Member States. It is especially disappointing that the alliance consists of one alleged consumer champ and national founder of Attac.

Our concerns are

– Compromise E on article 5.1 states that creditors and intermediaries should take “due account of the rights and interest of the consumers”. We really should expect that large, professional organisations – who’s practices are critical to society – should go beyond “taking due account” of their clients rights? We expect that MEPs in ECON would demand banks to respect and submit to clients statutory rights, and not settle for vague legal expressions such as “taking due account”. We urge MEPs to turn their back on the shadows posision on compromise E and assure that creditors and intermediaries are obligated by law to act in the best interest of consumers and respect consumer’s rights.

– In Compromise H the alliance of shadows propose another surprising disappointment. The alliance propose opening for tying practices. They seem to advocate tied products packages where mortgages also are combined with investments. Investments and savings are products consumers need when they have a financial surplus. Mortgages are products consumers need when they have financial deficits.

How could these products possibly be combined, even worse tied in a package, and at the same time serve consumers interest? Allowing illogical financial products packages would cause clients to sign on more debt that necessary. The cost of credit would increase immediately for the consumer. The final outcome could easily turn out to be overindebtness. An as for Annual Percentage Right of Charge (APRC), comparability can only be ensured when all costs directly or indirectly linked to the loan are included. MEPs in ECON must turn away from the alliance of shadows on this issue. Their proposal is hostile to consumers.

-The same goes for the enforced bundling practices on member states. On my domestic scene: no less than 25 banks are under investigations due to their bundled practices. Bundled practise causes consumers to engage in financial products they initially don’t need – to a higher price. This is made possible by incomprehensible complex pricing that is a natural consequence of bundling practices. MEPs must turn away from the alliance on the matter of bundled practices, preferable vote against permission of bundling practices or as a viable minimum vote in favour of the Rapporteurs amendment 490.

– In order to improve or moderate the alliance’s proposal of CARRP, we finally suggest that the part of compromise Q relating to Recital 31 should open for EBA to clarify how the suitability of credit product for consumers should be addressed. Doing so, CARRP would catch up with MiFID and provide EBA with the same tools and responsibilities in the mortgage market, as ESMA holds in securities market.

Other consensual opinions that the European Consumer Organisations (BEUC) is expressed today when we jointly calls on EU Parliamentarians and national governments  to

– Stop ‘locking in’ consumers to long and opaque contracts and make early repayment a right for every borrower. This would allow borrowers to profit from better offers when market conditions change;

– Ensure the Annual Percentage Rate of Charge (APRC) includes the cost of all additional services linked to the loan to fully inform the borrower about the real cost and allow easier mortgage comparison;

– Ban foreign currency loans

– Give a clear mandate to national regulators to stand up for consumers and more effectively punish malpractices such as misleading advertising, unfair commercial practices and superficial assessment of people’s financial means.

Bundled practices corrupts efficient competition, a call to MEPs in ECON voting on CARRP:

The treatment of bundled practices in the proposal for a directive on credit agreements relating to residential property (CARRP) came in the later stages of compromises and is found under Article 8a.

The proposed Article 8a is an important article and consumer organisations in Europe are strongly in favour of the proposed prohibitions of tying practices.

As a consumer organisation we have legitimate opinion and experience on how bundled practises work.  Bundled practices serve as an obstacle for transparency and effective competition. If member states should allow bundled practices, it must – as a minimum – be conditional.

Rapporteur Sanchez Presedo has proposed an amendment (#490) that deals with our concerns. The amendment opens for bundled practices as long as the bundled practices provide overall fiscal befits to the end-user which would not otherwise be available.

Bundled practices create a climate of opaque consumer contracts. It will make it difficult for consumers to recognise prices and conditions and by that hinder rational choices. 

In our domestic bank market, 46 percent of consumers are member of a customer program. At the same time only 5 percent of all consumers say they have changed bank last year.

Scarcity of migration of bank customers has traditionally been higher among consumers inside a customer programs compared to those outside.

The annual survey of the FNO tells us that only 21 percent of the members of customer program find any great benefits of their membership in the program. Knowing this, one should expect a massive withdrawal from these types of programs. But no. The proportion of consumers inside a customer program has only varied been between 50 percent and 46 percent for the past four years.

Figures above are provided by the annual survey of the FNO – the trade organisation for banks, insurance companies and other financial institutions in Norway.  

Customer programs are the prime example of bundled practices. Having several products bundled increases moving barriers.

This leads to a secondary argument for conditional acceptance of bundled practises. Bundled practices harm sound business development and the growth of new businesses and niche industry. The biggest challenge for newly established financial companies is obtaining a levelled playing field in competitions with well-established competitors. Various strategies are made in new establishments to obtain competitive advantage. The most desired strategy of consumers and society in general, is a strategy simply based on providing better products hopefully to a lower rate. Bundling practises puts pressure on new establishments to provide a broad range of products. This is of course more difficult and more capital intensive. The end result would probably be less industrial development.

Our national regulation on bundled practises is quite close to the proposed amendment to article 8a in CARRP. It showed its usefulness when the Financial Supervisory Authority of Norway decided to refuse DnBs sale of one of its most common customer program in the summer of 2011. DnB is probably best known among European Financial Supervisory Authorities for its push sale of unsuitable loan financed structural products in the Baltic region and in Scandinavia, which national authorities finally prohibited. DnBs ban on sale of the distinct customer program was announced as “a general principle and will also include all other parties”. Today, almost a year later, the Financial Supervisory Authority is pursuing no less than 25 banks due to the composition of their customer program. The extensive supervision measures were taken after initiative from the Norwegian Consumer Council.

Our experience could be useful for MEPs in ECON when voting on CARRP. Allowing bundled practises has a risk of consumer detriment as well as less effective markets. In order to minimise these risks, members of the European Parliament should vote in favour of the restricting amendment in article 8a. Voting against is incommensurable with consumer protection and improved bank market functionality.

In general when voting on draft on CARRP, MEPs should learn from the experience of past years and finally regulate the financial sector in a comprehensive way.

CARRP – Late call to MEPs in the ECON Committee

Consumer organizations throughout Europe are waiting with great expectation on the coming vote in the ECON committee on the credit agreements relating to residential property (CARRP). Scandinavian Consumer Organizations, such as the Norwegian Consumer Council is no exception.

We have joint our efforts and advocated on a wide range of topics earlier in fruitful dialog with several EU bodies, especially the rapporteur, shadow rapporteurs and designated Members of the European Parliament.

Even in these late stages we urge all members of the ECON committee in the European Parliament to support and contribute to improved consumer conditions and consumer aspects for the directive.

Focus on consumer interests must be in the midpoint when voting on Compromise E on Article 5(1). The final provision must include an independent professional responsibility to banks and intermediates to act in the best interests of their consumer client. It is not possible to combine consumer interests and at the same time vote in favour of amendments 353, 354, 355 and 358 to this article. We urge you to vote against them and vote in favour of amendment 73.

We strongly urge each MEP in ECON to support a conditional documentable end-user benefit as a criterion for sales of bundled product packages. The amendment 490, debated as Compromise H concerning Article 8a1, gives a viable solution.

It is with upmost importance to have consumer interest in mind also when voting on compromised amendment on Article 17 (Compromise Q). The outcome concerning standards of advisory services must commit providers to conduct credit and suitability assessment prior to his or hers recommendation. The outcome must also commit the providers to act in the best interests of the consumer when recommending credit agreements.

Responsible Banks and providers would have no problems with such provisions . It would not require alteration of their business conduct as their market behaviour is already in alignment to such a provision. On the other hand less responsible providers would be forced to alternate their practice.

To assure proper correction of unwanted market behaviour we acknowledge that sanctions must be dealt with. Such sanctions should be provided in Compromise E on Article 5(1) and include

“Member States shall ensure that in case of non compliance with these requirements, provisions are set to allow for compulsory adjustment of the contract in the interest of the affected consumer and at no charge for him or, at the choice of consumer, the ability to cancel the contract in a way that leaves no damages to him”

Finally we also urge you to vote in favour of amendment 635 concerning the right to use terms such as “advice”, “advisor”, «independent advice» or «independent advisor». We urge you to take a stand together with the consumer organizations on this issue when voting on Article 17 (Compromise Q). Doing so will contribute to more transparent and sincere presentation of roles where providers meets consumers.