The Integration Of Financial Services in Europe

Abstract

Changes over the last few decades in managing risk and investing money have been so radical that we can only describe them as being huge disruptions, maybe even revolutions. The boundaries that used to exist between the different financial activities have disappeared. Although things have accelerated rapidly over the last few decades, we should keep in mind that these developments are by no means new. The pawnbrokers and foreign exchange dealers of the Middle Ages, whose professions were separate and clearly identifiable, have seen their activities completely integrated into so-called universal banking services. More recently, merchant banks in France, who used to be the subject of specific regulation, have disappeared as separate legal entities. In the insurance field, it was barely 30 years ago, that some large businesses insured only against fire risks and others only casualty risks. The distinction between life and non-life, which is still maintained in the regulations, makes little sense in the everyday reality of insurance groups who transact these two activities together. However, when we talk of the integration of financial services, we have in mind an even more recent phenomenon. Financial integration incorporates two developments, known in French as bancassurance and assurfinance. Today, under extremely diverse legal guises but following the same economic logic, banks sell insurance products and insurance networks sell banking products. This movement can only be understood initially as the result of a need to diversify. Each one of these two large categories of financial intermediaries borrowed something from the other in order to increase its product range or bolster the know-how of its networks. It was simply about making sales organizations more cost effective by having them sell products outside of their traditional skills area, at more or less marginal cost. Today the expansion of offerings is done, approved, and even expounded on by theorists. And so now the next question is whether we should go further—turning our attention from distribution to manufacturing. This is where the current debate on the integration of financial services lies. Bluntly, if we allow banks to sell insurance policies and insurers to sell consumer credit, should we allow a joint organization to design such products and distribute them down both channels at the same time? More subtly, we might ask ourselves whether we should be exercising more specific control over these financial conglomerates that, while maintaining a formal legal separation between banking and insurance, constitute in fact a single decision-making center. This article sets out to portray what is perhaps not the state of the law, but at least the state of the art, on this topic in the European Union. In the first part, it will show that while sales integration is an undeniable fact, with the customer seeing fewer and fewer differences, it still remains that banks and insurance carriers are separate entities from a legal perspective and that the European Union remains totally committed to controlling financial conglomerates. In practice, integration of financial services takes different forms. In part two, we examine cases involving problems between entities doing the same job, and cooperation between design facilities without any apparent desire to go further. In the long run, this integration will succeed only if it receives the public�s approval. Part three addresses what consumers and investors want. We observe that after decades of exposure to specialized networks, consumers are not necessarily as enthusiastic as proponents of integration would have hoped. As adult consumers, they are not prepared to buy just any financial service anywhere they can, and they still largely place their trust in the brands they know.