Select Committee on European Scrutiny Eighth Report


DISTANCE SELLING OF FINANCIAL SERVICES


(20397)
10505/99
COM(99) 385

Amended draft Directive on the distance marketing of consumer financial services.


Legal base: Articles 47(2), 55 and 95 EC; co-decision; qualified majority voting
Department: HM Treasury
Basis of consideration: Minister's letter of 26 February 2001
Previous Committee Report: HC 34-xxviii (1998-99), paragraph 6 (20 October 1999)
Discussed in Council: 12 March 2001
Committee's assessment: Politically important
Committee's decision: Cleared; but request to be kept informed of progress

Background

  14.1  On 27 January 1999[34] we reported on a Commission proposal for a financial services directive, covering the distance marketing of banking, insurance and investment services. The proposal would require Member States to adopt uniform consumer protection rules in the areas covered. It would define the maximum level of consumer protection in the sense that Member States would not be able to apply higher standards. We noted that the Government welcomed the proposal in principle as enhancing the single market in financial services, and promoting consumer choice and protection. However, the Government was concerned to ensure a balanced and proportionate approach, compatibility with other relevant legislation, and that neither UK sellers nor consumers would be disadvantaged. We listed a number of the Government's concerns and left the document uncleared pending receipt of a Regulatory Impact Assessment. We also asked the Government to answer some specific questions. Our sister Committee in the Lords raised similar questions.

  14.2  In July 1999 the Commission produced an amended text in the light of amendments proposed by the European Parliament. We reported in October 1999 on this amended proposal and the Minister's response to the concerns we had raised, leaving the document uncleared and requesting further information. The revised proposal seemed to meet a number of our concerns, in particular through the introduction of the consumer's right of withdrawal and the supplier's obligation to notify that right, but we remained uncertain about how far the Government considered its specific concerns, including the level of consumer protection, had been met by the amended text. Also, we had not received a Regulatory Impact Assessment.

Minister's letter of 26 February 2001

  14.3  We have now received from the Economic Secretary to the Treasury (Miss Melanie Johnson) a letter of 26 February 2001 informing us about progress since 1999 and responding to our questions. The Minister tells us that there has been little progress since the July 1999 text was produced. However, in January 2001, the new Swedish Presidency produced a revised draft, which will be discussed at the Internal Market Council on 12 March. The Minister reports that progress is unlikely since the distance marketing directive mirrors the e-commerce directive and progress on that has been impossible since Member States remain divided on whether the laws of the host country or the country of origin should apply when different jurisdictions are involved. The Minister says that the Swedish Presidency is seeking to use the 12 March meeting to assess the level of political agreement on the distance marketing directive.

  14.4  The Minister adds:

    "The Government intends to support the text. ... as the Chancellor set out in his strategy paper last July on completing the single European financial services market, the Government regards home state... regulation as the key to successful progress in this field. The text is broadly acceptable and, we believe, presents the best solution that is likely to be obtained in the foreseeable future".

The Minister then responds to our specific questions.

  14.5  Whether periods of reflection are a substitute for existing rights of withdrawal, for example in life assurance.

The Minister reports that the period of reflection is no longer in the amended proposal, though there continues to be provision for a right of withdrawal, which the Government supports.

  14.6  Whether the requirement to provide contractual terms and conditions would undermine the UK approach on the provision of information about key features of the contract.

The Government believes it would not. The Minister states that:

    "Article 3a(1) calls for 'a description of the main characteristics of the financial service' to be provided to consumers 'in good time before the conclusion of the contract'. Along with the other elements of Article 3.1, this covers the ground currently set out in the UK's 'key features'. Therefore this will be able to continue. Consequently we do not share the concerns of British Insurers' International Committee (BIIC), ...and have not sought further amendments to the proposal in this area."

  14.7  Whether uniform marketing rules would be flexible enough to cover a very diverse sector and diverse information requirements.

The Minister states that:

    "Although the amended proposal envisaged uniform rules, the Government does not now believe such a regime will be agreed. In December 1999, the European Commission started a review of what information requirements member states currently required for specific types of financial services. The review, which the Commission published in July 2000, showed that while there was uniformity of standards with regard to what general information should be given to consumers, this was not the case for information on specific products.

    "Recent suggested revisions to the proposal by the current and former presidencies have both adopted the idea that the information given to consumers should consist of:

    "—  the general information contained in the proposal;

    "—  the product specific information contained in the other directives covering financial services including the e-commerce directive; and

    "—  other information that Member States believe is required, providing these comply with EC law, and subject to review by the Commission that these requirements are appropriate consumer measures and not barriers to external suppliers.

    "If this approach is agreed by Member States then the information provided to consumers will be tailored to the specific financial product."

The Minister adds that this answer also applies in the case of consumer protection in the provision of credit.

  14.8  Whether the Directive would disadvantage distance selling.

    "The Government believes it does not. Distance selling will not flourish without consumer confidence. This Directive should help enhance consumer confidence by introducing a regulatory framework which contains high levels of consumer protection and suitable means of redress if things go wrong. Additionally an advancement in the single market should reduce the costs of doing business cross-border."

  14.9  Whether the amended proposal provides for adequate redress.

    "... the Government believes the new Article 12a on out of court redress in conjunction with Article 12 on financial and administrative redress should meet the needs of consumers."

In terms of the impact Article 12 would have upon the civil justice systems in the United Kingdom, the Minister informs us:

    "Article 12 of this proposal is consistent with other recently agreed EC directives. The Injunctions Directive (98/27/EC), which the UK will shortly implement, will give consumer bodies the power to seek injunctions to stop traders infringing the interests of consumers under nine existing consumer protection directives. The proposals in Article 12 are based on similar provisions contained in two of those directives, i.e. Unfair Contract Terms in Consumer Contracts (93/13/EC) and Protection of Consumers in respect of Distance Contracts (97/7/EC).

    "Additionally the Lord Chancellor's Department issued on 1 February 2001 a consultation paper on representative claims, setting out proposals which would widen the circumstances in which one person or organisation may act as a representative of other persons in litigation in England and Wales."

  14.10  The Minister says that she intends to submit a full Explanatory Memorandum and a Regulatory Impact Assessment when it is clear that there will be further progress on this measure. The Government's present assessment is that the regulatory impact is likely to be minimal since most of the information the Directive requires to be given to consumers is already part of normal industry practice.

Conclusion

  14.11  It has been 16 months since we asked specific questions about the Government's view of the amended proposal. The Minister has now replied and reports that during that time there has been very little progress on the Directive. The Swedish Presidency is seeking to use the Internal Market Council of 12 March to establish the level of political agreement for the draft compromise text and the Government intends to support the draft. However, a number of Member States remain deeply concerned about the home State basis of the e-commerce Directive and, since the distance marketing Directive mirrors that Directive, there is unlikely to be much progress on either. However, should progress be made, the Minister intends to submit a full Explanatory Memorandum and a Regulatory Impact Assessment. According to the Minister the revised text is broadly acceptable and presents the best solution that is likely to be obtained in the foreseeable future. On the basis that the Government is satisfied by the changes proposed by the draft compromise text we are content to clear the document, but we request to be kept informed if progress is made.



34  (19602) 13097/98; see HC 34-vii (1998-99), paragraph 5. Back


 
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