On May 11, 2022, the European Commission adopted a proposal to reform the European regulatory framework governing financial services contracts concluded at a distance1 (Proposal). The proposal would strengthen consumer rights and promote cross-border provision of financial services in the single market.
In 2002, Directive 2002/65/EC on the distance marketing of consumer financial services2 (Directive on the Distance Marketing of Financial Services or DMFSD) was introduced with a view to ensuring the free movement of financial services in the single market by harmonizing certain consumer protection rules in this area, and to ensure a high level of consumer protection. It applies horizontally to any present or future service of a banking, credit, insurance, personal pension, investment or payment nature contracted by way of remote communication (i.e. without the presence of the professional and of the consumer), insofar as there is no product-specific European legislation or horizontal European rules covering the consumer financial service in question.
The European Commission recently carried out a comprehensive assessment of DMFSD and came to the following key overall conclusions:
- After its entry into force, the relevance and added value of the DMFSD subsequently declined, as a number of additional EU product-specific pieces of legislation (including the Consumer Credit Directive3 and the Mortgage Credit Directive)4 and horizontal EU legislation (including the General Data Protection Regulation)5 have been enacted.
- Nevertheless, the directive remains relevant in a number of areas, notably in the case of financial products which are not yet subject to any EU legislation (such as in the crypto-asset sector).
- Finally, a number of developments, such as the increasing digitization of services, have affected the effectiveness of the DMFSD in achieving its main objectives of ensuring a high level of consumer protection and facilitating the cross-border conclusion of financial services. sold remotely.
Some 20 years after the adoption of the DMFSD, the distance marketing of consumer financial services has evolved rapidly given the global digitization of the sector and the new types of financial services that have developed and new innovative players (such as fintechs ) that have emerged since the introduction of the rules in 2002. Similarly, consumers are now accustomed and eager to use digital tools and buy financial products and services online, leading established players to adapt their marketing practices and commercial, since financial service contracts are increasingly concluded electronically.
Modernization of the European framework
The proposal aims to simplify and modernize the legislative framework by repealing the existing DMFSD while including the relevant aspects of consumer rights relating to contracts for financial services concluded at a distance within the scope of the applicable Consumer Rights Directive horizontally.
The overall objective of the legislation remains unchanged: to promote the provision of financial services in the internal market while guaranteeing a high level of consumer protection. This is achieved through the strengthening of the following five key areas:
- Pre-contractual information: The proposal aims to regulate what, how and when pre-contractual information must be provided to consumers. New details have been added, such as the requirement for the merchant to provide an email address. The proposal also regulates how information must be provided with regard to electronic communication and lays down rules as to when information must be provided so that consumers have sufficient time to understand the pre-contractual information received and to be able assimilate them before concluding the contract. .
- Easy access to the right of withdrawal: As some products and services are complex and may be difficult for consumers to understand, the proposal aims to relax the 14-day right of withdrawal for distance contracts for financial services.
This right would be enhanced in two specific ways:
- a withdrawal button must be provided by the merchant for financial services contracts concluded at a distance, in order to facilitate the exercise of this right;
- a notification of the right of withdrawal must be provided by the professional if the pre-contractual information is received less than one day after the conclusion of the contract.
However, this right of withdrawal would not apply in certain cases, such as consumer financial services whose price depends on fluctuations in the financial market beyond the professional’s control, which may occur during the withdrawal period, such as related to crypto-assets.
- Online Equity: The proposal establishes special rules to protect consumers when concluding contracts for financial services electronically. First, it establishes rules regarding adequate explanations that take place remotely, including via online tools (e.g. robo-advisors or chatbots).
The rules establish the information requirements that the trader must provide to the consumer and the possibility for the consumer, if online tools are used, to request human intervention. Therefore, the consumer should always have the possibility to interact with a human being representing the trader. The proposal also aims to ensure that traders do not benefit from consumer bias. With this in mind, they are prohibited from configuring their online interfaces in a way likely to distort or alter the ability of consumers to make a free, autonomous and informed decision or choice.
- Enforcement: The proposal would also strengthen enforcement rules on the provision of financial services and provide for tougher penalties for widespread cross-border infringements, with a maximum penalty of at least 4% of annual turnover.
- Complete harmonization: the proposal would introduce full legal harmonisation, establishing similar rules for all providers in the Member States.
The Commission proposal will now be examined by the Council and the European Parliament. Once adopted, Member States should transpose the proposal into their national law and apply its provisions within 24 months of the adoption of the proposal.
1 Proposal for Directive 2022/0147 of 11 May 2022 of the European Parliament and of the Council amending Directive 2011/83/EU on financial services contracts concluded at a distance and repealing Directive 2002/65/EC, COM(2022) 204 final.
2 Directive 2002/65/EC of the European Parliament and of the Council of 23 September 2002 on the distance marketing of consumer financial services and amending Council Directive 90/619/EEC and Directives 97/7/EC and 98/27 /THIS, OJ L 271, October 9, 2002, p. 16.
3 Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on credit agreements for consumers and repealing Council Directive 87/102/EEC, OJ L 133 of 22 May 2008, p. 66.
4 Directive 2014/17/EU of the European Parliament and of the Council of 4 February 2014 on consumer credit agreements relating to residential property and amending Directives 2008/48/EC and 2013/36/EU and the Regulation (EU) No 1093/2010, OJ L 60, 28 February 2014, p. 34.
5 Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of individuals with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/ 46/EC, OJ L 119 4 May 2016, p. 1.