Memorandum by the Office of Fair Trading
QUESTIONS ON
FINANCIAL SERVICES
1. The Office of Fair Trading (OFT) has
not been involved in the consideration of integration of financial
services in the wider European context and its consequences apart
from participation in organisations such as the European Competition
Authorities (ECA) and the European Competition Network (ECN).
Acquisition of information by OFT in relation to EU-wide integration
is usually at best only partial. The FSA does, however, contribute
to policy development and enhanced supervisory co-operation in
the EU and international context so as to identify, monitor, prioritise
and mitigate risk, including improving the oversight of firms
operating on a cross-border basis. There is a well developed European
system of regulation for financial services, based on the Lamfalussy
Committees, in which the FSA plays an active role, and which operates
on a different basis from the ECN. OFT and the FSA have largely
separate remits, and coordinate where there is potential for overlap
of interests or responsibilities.[25]
OFT is aware that the FSA has responded to questions from the
Select Committee on such issues and OFT has no further points
to make on them.
2. However, from its work in and with the
ECA and ECN, the OFT can respond to the following questions from
the Select Committee.
Question 4. To what extent have UK customers
benefited due to the integration of the EU financial services
sector? Which types of customer have benefited most?
3. This will become more apparent as full
integration of the EU financial services sector takes full effect;
this has not yet, of course, happened, although the market for
financial services has become more cross-border as companies involved
in the market have developed their activities across Europe.
4. Integration of the financial services
sector in the context of the draft Payment Services Directive
(PSD) relating to the operation of the single market in payment
services will, the EC anticipates, facilitate "a modern and
coherent legal framework for payment services, ... should ensure
the coordination of national provisions on prudential requirements,
the access of new payment service providers to the market, information
requirements, and the respective rights and obligations of payment
services users". In essence, the Directive will ensure that
cross-border payments are as easy and cheap for users (business
as well as private customers) as those made within a Member State;
the main beneficiaries of the improved service will thus be users
of payment systems throughout the EU. This should result increasing
competition for UK consumers (and, of course, other national consumers
within their own countries) leading to lower prices, increased
quality and greater innovation within the market.
Question 5. To what extent is the objective
of increasing competition in the EU financial services sector
better served by competition policy initiatives as opposed to
EU regulatory developments?
5. OFT's remit is to help produce successful
market outcomes—that requires that Government does not unduly
restrict competition, that firms compete vigorously and behave
honestly towards their customers, and that informed consumers
actively drive competitive business behaviour.
6. Regulation and legislation can set minimum
standards, but governments can not legislate to provide the best
market outcomes in terms of efficiency and consumer welfare. Effective
market competition and active informed consumers drive firms to
meet consumer needs, and competition authorities (whether NCAs
or at EU level) should seek to facilitate and incentivise behaviour
that makes markets work well. Regulation should, wherever possible,
seek to enhance existing levels of competition rather than
substituting for it, but even when it achieves that aim,
it should not result in ossifying competition through the creation
of inertia in the market. Increasingly competitive behaviour together
with enhancing regulation should, in turn, secure compliance with
the minimum standards set out in law, and facilitate the market
process which achieve even better outcomes—competitive,
efficient, innovative markets, high standards of consumer care,
consumer choice, empowered and confident consumers, high compliance
but not disproportionate burdens from regulations or harm from
market abuse.
7. Competition usually serves to create
a level playing field and low barriers to entry and works best
when they exist. With specific regard to cross border EU financial
services, different regulatory requirements operate in different
countries. As a result companies can find it difficult to achieve
economies of scale across borders and there are barriers to entry
from having to learn about and overcome the specifics of each
market that favour domestic companies. In this context, regulatory
developments will have a greater role to play in helping competitive
forces create the level playing fields that will allow competition
to flourish if they focus on reducing variation and lowering barriers
to entry.
8. The PSD and subsequent developments under
the Single Euro Payments Area (SEPA) will bring some degree of
harmonisation in specific areas.
Question 6. In light of the increasing focus
on competition policy, is there sufficient coordination between
regulators and competition authorities, and between national competition
authorities?
European Competition Network
9. The OFT considers that that there is
excellent communication and co-ordination within the European
Competition Network (ECN). The ECN comprises the European Commission
and EU National Competition Authorities (in the UK, these are
the OFT and the sectoral regulators with concurrent competition
powers: the CAA, OFCOM, OFGEM, ORR, and OFWAT). The ECN was created
in parallel with the implementation of EU Regulation 1/2003, the
EU Competition Law Modernisation Regulation, which entered into
force on 1 May 2004.
10. In terms of communication and co-ordination,
at the formal level, there is the ECN Interactive database of
cases. This allows National Competition Authorities to be aware
of formal investigations under Articles 81 and 82 EC Treaty that
are being conducted by their counterparts within the ECN. Any
member can contact another member to discuss a listed case in
more detail. This can even be with a view of case allocation or
enforcement co-ordination, both of which are envisaged in the
European Commission Notice on Co-operation within the Network
of Competition Authorities. The European Commission also hosts
plenary meetings of the ECN in Brussels. National Competition
Authorities take an active part in these meetings and often make
presentations or give frank expression to their concerns and which
can allow, where appropriate, for co-ordinated policy development.
The European Commission will also alert ECN members to its own
proposed initiatives at such meetings. In addition to these meetings,
there are sectoral sub-group meetings in Brussels, in which competition
issues relating to specific industries are discussed and know-how
is shared. There are also working group meetings, which undertake
certain projects, such as those addressing co-operation between
members. Working groups are chaired by representatives of National
Competition Authorities and include representatives of both the
European Commission and a wide range of National Competition Authorities.
For example, the OFT co-chaired the Working Group on Leniency
Issues, which was responsible for the development of the highly
influential model leniency programme. This has led to co-ordination
of cartel enforcement leniency programmes within the EU.
11. The UK also has a designated contact
within the European Commission, with whom we have frequent, sometimes
daily, contact. In these contacts, we discuss anything from high-level
policy and strategy issues to very focused practical queries.
Case handlers within the OFT also have specific discussions on
issues of mutual interest (for example, approaches to certain
cases) with their counterparts in the European Commission. OFT
officials also attend European Commission Advisory Committee meetings
on specific cases (both anti-trust and mergers) and which relate
to Commission policy initiatives (for example, new Commission
notices). We share our views with the European Commission in such
venues and they appreciate our feedback.
12. In our experience, prior to the ECN,
although there were contacts between National Competition Authorities,
they are now far more frequent, streamlined and more effective.
Owing in no small measure to the Network meetings in Brussels
referred to above, members of National Competition Authorities
tend to know each other and certainly enjoy good working relations.
This has encouraged more frequent informal contacts between such
authorities, which in turn assists in the dissemination of information
and best-practice knowledge among the authorities. If the OFT
needs to speak to a person in another competition authority on
specific issue, it is now simply a matter of getting on to the
phone to the contact at the other authority, who can then point
us in the right direction. As a practical matter, it was simply
not this efficient, or as effective, prior to the establishment
of the ECN.
13. High level formal contacts have continued
through the ECN and the annual meeting of directors general of
competition hosted by the Commission. The BERR (as successor to
the DTI) and the OFT, are represented at the latter. NCAs also
take it in turn to host an annual meeting of the heads of competition
authorities of the EU and EFTA Member States, a meeting to which
the Commission is invited. This informal association known as
the ECA (European Competition Authorities) has generated a number
of working groups which address topical issues. Current work is
focused on fining practices across the EU and the prioritisation
of NCA activities.
14. In addition, participation by the Commission
and a number of its Member States, including the UK, in wider
international competition fora, provides the opportunity to discuss
relevant topics with a broader group of peers. EU discussions
are informed by discussions in International fora such as the
OECD's Competition Committee, where the Commission and Member
States' National Competition Authorities and Ministries benefit
from the views and experiences of leading non-EU competition authorities.
European Competition Authorities
15. The OFT, with the Swedish, Dutch and
Irish competition authorities, took part in a study set up by
the ECN in 2005-06 into Competition Issues in Retail Banking and
Payments Systems Markets in the EU. The Report, published in May
2006, looked particularly at the issues as perceived by the National
Competition Authorities. The report was based on qualitative research
and on the opinions and experiences of National Competition Authorities.
It considered issues especially relating to customer mobility
in relation to retail banking, and access and governance arrangements
of payment systems schemes. The Report addressed a number of recommendations
to National Competition Authorities about switching costs for
consumers, creating more open and transparent payment systems
markets, and perceived competition issues with the access and
governance arrangements of the Single Euro Payments Area. The
latter issue is currently the subject of further work being carried
out by the European Commission and the ECA, in which the OFT is
taking a major part.
UK regulators
16. In the UK, we have good lines of communication
and co-ordination between both concurrent regulators (listed above)
and non-concurrent regulators (those without competition law powers).
With respect to concurrency, OFT chairs the Concurrency Working
Party (CWP), which meets bi-monthly to discuss key policy issues.
Senior staff members from OFT also meet their counterparts from
the UK economic regulators at meetings of the Joint Regulators
Group (JRG). As a means of enhancing co-ordination between the
CWP and the JRG, the OFT will be reporting to JRG in September
on the application of competition law by CWP members.
17. On the non-concurrent side, OFT has
good working relations with economic regulators such as Postcomm
and, in particular, the FSA .The OFT and the FSA have different,
but complementary, powers and statutory objectives. Given the
overlapping of interests and jointly regulated businesses, it
is important both organisations work well together in order to
maximise effectiveness in dealing with consumers and businesses.
18. The OFT has been working closely with
the FSA, and will continue doing so, on specific issues such as
payment protection insurance and across a broader range of mutual
interests. A joint action plan[26],
published in April 2006, sets out in detail how we intend to:
— reduce the administrative burdens
on jointly authorised firms by streamlining processes where possible;
— join up work to promote consistency
in approach, resulting in more efficient investigations and improved
outcomes for markets. This will help improve regulatory certainty
for business;
— ensure better communication and advice
for business and consumers by joining forces to target messages,
including relevant signposting on websites and at contact centres;
and
— ensure consumer education initiatives
are coordinated and complementary.
19. Further updates, summarising progress
of each of the work streams, were published in November 2006 and
July 2007.[27]
20. Both the OFT and the FSA have powers
in relation to unfair contract terms under The Unfair Terms in
Consumer Contracts Regulations 1999 (the UTCCRs), and co-ordinate
enforcement action and co-operation to ensure the effective and
consistent delivery of consumer protection in this area. A revised
framework for this co-ordination is set out in a new concordat
which came into effect on 31 July 2006.
21. Under the concordat the OFT and the
FSA consult and liaise to reduce duplication of effort and to
promote appropriate action by the body better placed to lead on
an issue.
22. The concordat provides that the FSA
will consider the fairness under the UTCCRs of standard terms
in financial services contracts issued by authorised firms or
their appointed representatives for regulated activities. This
will include contracts for, and the selling of, mortgages; insurance
and the selling of insurance; bank, building society and credit
union savings accounts; pensions; investments; and long term savings.
Question 7. To what extent is the integration
of the EU financial services sector better achieved by market-led
initiatives as opposed regulatory developments (eg Code of Conduct
for Clearing and Settlement instead of the proposed framework
clearing and settlement directive)?
23. Similar considerations to those in the
answer to Q.5 above will apply.
20 July 2007
25 Further information on the roles and responsibilities
of the OFT and FSA can be found here http://www.oft.gov.uk/shared_oft/about_oft/oft941.pdf Back
26
A copy can be found here http://www.oft.gov.uk/shared_oft/about_oft/oft838.pdf Back
27
Copies can be found here http://www.oft.gov.uk/shared_oft/about_oft/oft940.pdf Back
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