Over the last 20 years, distance marketing of consumer financial services has changed rapidly. New players (such as fintech companies) with new business models and new distribution channels have emerged. In addition, the impact of the COVID-19 pandemic and related lockdowns has accelerated the use of online shopping in general. The European Commission also mentions that existing legislation refers to out of date technology such as fax machines.
Therefore, the Commission has adopted a reform of the current EU rules governing financial services sold at a distance. The proposal aims to improve consumer rights and foster the cross-border provision of financial services in the single market. This market has significantly evolved in light of the overall digitalisation of the sector and the new types of financial services that have been developed since the existing rules were first introduced in 2002.
The proposal introduces the following changes:
- Making it easier for consumers to cancel distance contracts for financial services: traders will be required to provide a withdrawal button when selling through electronic means. The trader will also be obliged to send a notification of the right of withdrawal if the pre-contractual information is received less than a day before the contract is concluded between the parties.
- Clear rules on what, how and when pre-contractual information is to be provided: the proposed changes would modernise the rules, for example regarding electronic communication, imposing obligations on the seller to provide certain information upfront, including for instance the e-mail address of the trader, any potential hidden costs or the risk related to the financial service. Information must also be displayed prominently in the screen, and rules will be introduced regarding the use of pop-ups or layered links to provide information. The new rules will also ensure that the consumer is given sufficient time to understand the information received, at least a day before the actual signature.
- Rules to protect consumers when concluding financial services contracts online: financial services contracts can be complex to understand, especially if negotiated at a distance. The proposed law would oblige traders to set up online systems which are fair and transparent and to provide an adequate explanation when using online tools (eg roboadvice or chat boxes). The rules would also introduce the option to request human intervention, if the interaction with such online tools is not fully satisfactory.
- Improvements to enforcement: stricter penalties are planned for financial service contracts concluded at a distance where there are widespread cross-border infringements, with a maximum penalty of at least 4% of annual turnover.
- Full harmonisation: the proposal will establish similar rules for all providers across member states.
The Commission's proposal will now be discussed by the Council and the European Parliament.
Digitisation and the multiplication of new financial products have fundamentally changed this sector in the past twenty years, and the recent lockdowns brought by the Covid crisis have evidenced that a more efficient and up-to-date regulatory framework for distance financial services is more relevant than ever.