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The European Commission has adopted a reform of the current EU Rules on Distance Marketing of Consumer Financial Services, which govern distance selling.
The new proposal will strengthen consumer rights and foster the provision of cross-border financial services in the single market. According to the commission, the market has significantly evolved over recent years through the growing digitalisation of the sector and the new types of financial services that have been developed.
This digitalisation has been further accelerated by the impact of the coronavirus pandemic, leading to significant growth of online transactions across Europe, strengthening the case for amending rules, which were first introduced back in 2002.
“Consumers increasingly turn to online services, also when it comes to finances, and that is a good thing. But we also need to ensure that the rules of the game are up to speed with the latest developments,” said Věra Jourová, the commission’s vice-president for values and transparency.
“Consumers need clear information and a safety net in case something goes wrong.”
The impact assessment carried out by the commission found that rules set out by the directive in 2002 have in many cases been superseded by other legislation, including the Payment Services Directive.
Meanwhile, the directive’s safety net feature, which means that the rules apply when a new product enters the market (such as crypto-assets) was also analysed.
The conclusion reached was that member states have applied the safety net in various circumstances and financial services areas, such as certain gift cards, that are outside the scope of the revised Payment Services Directive (PSD2).
Full harmonisation to ensure the same high level of consumer protection across the internal market is one of the big ticket changes that the commission intends to make, shoring up standards among the EU’s 27 member states.
New consumer protections
The European Commission’s proposals will also offer national competent authorities more teeth in their enforcement decisions. Stronger penalties will apply to financial service contracts concluded at a distance in case of widespread cross-border infringements, with a maximum penalty of at least 4 percent of annual turnover.
To foster the provision of financial services in the internal market and to ensure a high level of consumer protection, the reforms propose to introduce special rules to protect consumers when concluding financial services contracts online.
It obliges traders to set up online systems which are fair and transparent and to provide an adequate explanation when using online tools, such as through artificial intelligence like robo-advice and/or chat boxes.
The rules also empower the consumer by introducing the option to request human intervention, if the interaction with such online tools is not fully satisfactory.
The proposed regulation also intends to make the EU’s 14-day withdrawal right for distance contracts more accessible.
For example, traders will have to provide a withdrawal button when selling through electronic means. Furthermore, the trader will be obliged to send a notification of the right of withdrawal if the pre-contractual information is received less than a day before the conclusion of the contract.
To modernise existing rules with regard to electronic communications, new obligations will be introduced requiring the seller to provide certain information upfront, including the email address of the trader, any potential hidden costs or the risk related to the financial service.
In addition, information must be displayed prominently on the screen and rules are to be introduced regarding the use of pop-ups or layered links to provide information. Consumers will also be given sufficient time to understand the information received, at least a day before the actual signature.
“As the world of financial services evolves, so must our rules, it is that simple,” said Didier Reynders, justice commissioner at the European Commission, in a statement, stating that a more efficient and up-to-date regulatory framework for distance financial services is more relevant than ever.
“Although the risks and challenges may vary, our spotlight is invariably set on the safety of consumers”.
