A Parliamentary inquiry into European financial regulation has been told a Europe-wide consumer redress mechanism could be needed for people who are missold financial products.
Since the financial crisis, Europe has created or updated a raft of rules which deal with consumer protection during a transaction or in the event of a firm failing. However, misselling redress remains the responsibility of member states.
Giving evidence to the House of Lords EU sub-committee on Economic and Monetary Affairs this morning, University of Cambridge senior research fellow Kern Alexander said: “One area I feel has not been given enough attention is the consumer side, especially with respect to bank selling practices. Of course in the UK we have a massive misselling problem with the Ombudsman busy with thousand and thousands of claims, this is an ongoing problem.
“But I do not think enough regulatory reform has been put in place regarding how we should allow consumers at the retail end to get redress. Every country has its own framework. The UK has an ombudsman and you can sue if you like but that is very expensive and people don’t do it.
“There has been a debate as to how we might allow collective mechanisms for consumer redress against financial institutions for engaging in misselling. This is something there is no EU law on, there is a debate but I think not enough regulatory or legislative attention has been given to that. On the retail side there has been inadequate movement.”
Alexander is a member of the European Parliament’s expert panel on financial services and has been an adviser to the European Parliament’s Economic and Monetary Affairs committee.
He told peers that although the Econ committee largely helped contribute to better policies it should have “thought twice” over pressing for a 2:1 cap on bankers’ bonuses to be included in Capital Requirements Directive 4.
He said banks were changing the way they paid bonuses to get round the rule and the approach in the previous version of the rules, CRD3, made more sense.
“It adopted a rule that said half of your bonus can be cash, half can be in shares, 60 per cent can be paid in year one, but 40 per cent has to be paid over years three, four and five,” he said. “So you have an incentive to make sure you are being paid a bonus for the long-term benefits of the bank.”
The committee’s inquiry is looking into the impact of European financial regulation on the UK to establish whether the Government has defended the national interest.