DISTANCE SELLING OF FINANCIAL SERVICES
Amended draft Directive on the distance marketing of consumer financial services.
||Articles 47(2), 55 and 95 EC; co-decision; qualified majority voting
|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 |
||Cleared; but request to be kept informed of progress
14.1 On 27 January 1999
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
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
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
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
"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
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
"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
"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.
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