COFACE attends 11th Joint ESAs Consumer Protection Day 2024
The 11th edition of the Joint ESAs Consumer Protection Day (JECPD) took place on October 3, 2024, in Budapest. Martin Schmalzried attended the event, representing the interests of families from across Europe.
Organised by the three European Supervisory Authorities (EBA, EIOPA, and ESMA), the conference aimed to address critical issues affecting consumers in the financial sector. The focus areas this year were the implications of artificial intelligence (AI) in financial services, improving consumer access and experience, and the integration of sustainable finance.
AI and Its Role in Financial Services
The event began with a panel discussion on the increasing use of AI in financial services. AI, in its various forms, is already deeply integrated into devices and systems across the financial industry. Applications range from fraud detection, risk management (credit and operational risks), and process automation to personalized financial advice and instant translations.
However, Isabelle Buscke from VZBV (Federation of German Consumer Organisations) cautioned against using the term “artificial intelligence,” suggesting “algorithmic decision-making” instead. She highlighted that these systems are neither truly intelligent nor magical. She expressed concerns that if AI is deployed without sufficient control, it could disproportionately affect vulnerable consumers. Additionally, she raised the issue of transparency, questioning how consumers can challenge algorithmic decisions when they lack clarity.
Other points of concern included biased datasets, which could lead to discrimination in services like credit scoring, and the accuracy of large language models (LLMs) in generating text. Panellists agreed on the need for a robust approach that involves assessing risks, protecting fundamental rights, and determining AI liability. They emphasised that clear regulations, including liability on operators, would empower consumers to contest AI-driven decisions.
Points of reflection
- In order to serve the interests of consumers, AI should be developed open source, and used locally to process consumer data generated across all financial services, and downloaded onto the consumers’ device, under the right to data portability, in order to help consumers self-actualize, improve and learn from their behavior, as well as receive advice on their financial situation based on a neutral source (under the condition that the AI was trained open source, using quality data and configured to act in the best interest of consumers).
- Taking a look into the future, one should consider that by combining blockchain in order to ensure quality and authenticity of data (consumer financial data for instance), smart contracts, and open source AI, it could lead to a situation where consumers could self-insure or borrow money without the need to go through an insurance company or a bank, since all of these processes could be automated, leading to on-chain self-insurance or smart contract based loans.
Fair Access to Financial Services
Access to financial services remains a fundamental challenge, with cultural barriers, low financial literacy, and insufficient product awareness preventing consumers from obtaining basic services. Paul Fox of Finance Watch noted that many individuals still lack access to essential accounts and insurance, which is vital for social and economic inclusion.
The discussion highlighted that increasing insurance penetration is key to enhancing resilience. While there have been significant improvements in consumer protection across Eastern Europe in the past decade, product complexity continues to be a barrier. The panel argued for simplifying financial products and creating standardised services, such as European savings accounts and private pension products.
Despite the progress, the Financial Services User Group (FSUG) has been discussing these solutions for years, but implementation has stalled. Standardised products are seen as essential, yet they hinge on finalising the capital markets union and harmonising personal insolvency laws across member states.
Points of reflection
- The FSUG has already discussed creating basic standardised financial products such as car insurance, mortgage loan, consumer credit etc. These ideas have been around forever, and yet we are still discussing them. It is time to stop beating around the bush and implement these proposals, rather than going deeper and deeper into financial “education” which is always playing catch up against the growing complexification of financial products. One of the pre-condition for standardised financial products is to finalize the capital markets union, and one thing standing in the way, is harmonize personal insolvency laws.
- Open-source AI could play a role in financial education, and especially financial advice, helping consumers compare and understand complex products to make informed decisions. AI can process very long documents, and compare offers between several insurance products and their respective terms and conditions which can be dozens of pages long, highlighting the differences.
Keynote Address: Consumer-Centric Financial Solutions
Agustin Reyna, Director General of BEUC, delivered a keynote address stressing that financial products should work for all consumers, not just the majority. He cited a case where a deaf individual faced issues with banking services due to communication barriers, emphasizing the importance of inclusive design.
The ongoing cost-of-living crisis across Europe was another focal point. Many consumers rely on expensive credit options, such as overdrafts, which further strain their finances. While opening access to data for third parties aims to enhance competition and introduce new AI-powered services, it also raises concerns about privacy and personalised pricing, which could exclude certain groups.
Reyna highlighted the need for clear delineation by EIOPA regarding what data should be shared and how it can be used responsibly. With payment fraud becoming increasingly sophisticated, there were calls for a fair liability regime that ensures consumers are reimbursed for fraudulent transactions.
Point of reflection
- While opening up data access could introduce innovation, it risks leading to discriminatory practices if not handled carefully. A balanced approach is required, ensuring transparency and consumer protection. One possible avenue is to use cryptography and self-hosting of sensitive data, allowing consumers to grant access to process data, but never to access the raw data itself. For instance, a consumer could grant authorization to process his/her personal data for the purpose of creditworthiness (based on an agreed upon list of relevant data), which would return a number or report, but would never allow the financial service provider to access the raw data itself.
Sustainable Finance: Opportunities and Contradictions
The conference also featured a segment on sustainable finance, which is gaining interest among investors. Aleksandra Maczynska from Better Finance pointed out that while there is significant demand for sustainable products, trust and performance issues need addressing for these interests to translate into concrete investments. Investors showed a keen interest in understanding the impact of their investments and aligning them with sustainability goals.
The discussion emphasised that products labeled as “sustainable” must demonstrate a “meaningful” impact. However, the lack of clarity on what constitutes “meaningful” remains problematic. DG FISMA (Directorate-General for Financial Stability, Financial Services and Capital Markets Union) stated that the new Commission will prioritize monitoring the regulatory framework and ensuring compliance and transparency. The goal is to make more data available to investors so they can make informed decisions aligned with sustainability objectives.
Critical Point
- The concept of profiting from sustainability investments raises contradictions, as sustainability inherently involves decoupling from the traditional growth model. The focus on generating profit through investments might be at odds with long-term sustainability, especially if it continues to prioritize exponential growth. Reflecting on whether profit-driven motives align with sustainable development is crucial.
Conclusion: A Call for Action and Collaboration
The JECPD 2024 underscored the need for ongoing efforts to protect consumers and ensure fair access to financial services. Standardising and simplifying products is a priority, as is ensuring the careful and regulated rollout of AI technologies to avoid risks like discrimination. Sustainable finance presents opportunities but requires greater clarity and transparency.
The ESAs’ role in providing regulatory clarity, enforcement, and guidance remains central. As financial services evolve, the involvement of consumer organizations and civil society is essential to ensure that consumer interests are adequately represented and addressed. The conference highlighted the importance of collaboration, urging stakeholders to act swiftly to align financial services with consumer needs and sustainability goals.
