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Brussels, 14 October 1998

Financial services: Commission proposes regulatory framework for distance selling

A proposal for a Directive to establish a clear regulatory framework for the marketing of financial services at a distance within the Single Market has been agreed by the European Commission. The aim of the proposal is to ensure a high level of protection for consumers of retail financial services (e.g. insurance, banking and investment services) marketed by telephone, by electronic means such as the Internet or by mail, so as to encourage consumer confidence in such services and provide financial service suppliers with a clearly defined legal framework valid for distance selling throughout the Single Market without hindrance. The proposal should facilitate the development of innovative forms of trade in financial services within the EU and make it easier for consumers to buy financial services in other Member States.

"The use of innovative methods of selling financial services at a distance, including the Internet, is growing rapidly, bringing new opportunities for consumers and service providers, but also potential risks," stated Financial Services Commissioner Mario Monti. "By creating legal certainty for these methods of selling financial services at a distance, this proposal will encourage cross-border trade of financial services, boost competition and facilitate market integration. The expected widespread use of distance selling methods will be complemented by the introduction of the euro. This proposal marks an important step towards improving the Single Market for Financial Services, and will complement other initiatives to eliminate existing obstacles which are currently being examined in the framework of the major review requested by the Cardiff European Council which will be considered by the Commission at the end of October."

"This proposal" commented Consumers' Commissioner Emma Bonino "will safeguard the interests of consumers at a high level of consumer protection, and so help to build confidence in the use of these new techniques, while encouraging new market entrants, so that consumers should enjoy greater choice and more competitive prices"

The proposal for a Directive covers distance contracts concerning financial services (e.g. banking, insurance, investment) concluded under an organised distance sales or services-provision scheme, for which the supplier and the consumer make exclusive use of communication at a distance (such as by telephone, by electronic means such as the Internet or by mail) up to and including the moment at which the contract is concluded. The proposal would fully harmonise Member States' rules on distance selling of financial services, thus ensuring identical standards throughout the Single Market. In particular, the Directive would lay down rules concerning:

  • the consumer's right to a period of reflection ("warming up") before agreeing to a contract (consumers would have to be informed 'a priori' of the contractual terms and conditions proposed by the supplier, who would have to maintain these terms for a 14 day period); this would allow consumers to compare various offers and examine the contract adequately before giving their consent;
  • the consumer's right of withdrawal, i.e. the right during a "cooling-off" period of 14 days (30 days for consumer mortgages, life insurance and pensions) to withdraw from the contact without penalty and without giving any reason which would exist only if:
    • the contract was signed before the consumer had received its full terms and conditions or
    • the consumer was put under unfair pressure during the reflection period
  • basic consumer rights in cases where financial services ordered were partially or totally unavailable (e.g. right to be refunded)
  • the supplier's right to be compensated if the consumer decided to withdraw once performance of the service had already begun
  • a prohibition on so-called "inertia selling" (i.e. a prohibition on providing distance services which have not been requested)
  • limitations on and conditions for the use by the supplier of certain means of distance communications (such as limitations on so-called "cold calling", where a consumer is contacted without his prior consent)
  • complaints and redress procedures for the settlement of disputes between a consumer and a supplier.

The proposed Directive would complement Directive 97/7/EEC, which establishes distance selling rules for goods and services other than financial services. The proposal fulfils the commitment made by the Commission in its follow-up to the June 1997 Communication on "Financial Services: Enhancing Consumer Confidence" (see IP/97/566), to come forward with a proposal for an appropriate legal framework for distance selling of financial services. The proposal is also in line with the Cardiff European Council request to the Commission to improve the Single Market in financial services.

The proposal will be submitted to the EU's Council of Ministers and the European Parliament for adoption under the co-decision procedure.

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