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Distance marketing of Consumer financial services
The EU has taken measures to regulate and facilitate distance marketing of financial services, recognizing the importance of promoting consumer protection and cross-border financial transactions in the digital age.
The EU Measures
The EU has taken measures to regulate and facilitate distance marketing of financial services, recognizing the importance of promoting consumer protection and cross-border financial transactions in the digital age. Here are some key actions and regulations in this regard:
These initiatives collectively aimed to create a regulatory framework that fosters innovation, enhances consumer protection, and facilitates cross-border trade in financial services, including those delivered through distance marketing channels.
- Financial Services Contracts concluded at a distance. The related Directive 2002/65/EC, known as the Distance Marketing of Consumer Financial Services Directive (DMFSD), is designed to facilitate the free movement of financial services within the single market by harmonizing consumer protection rules and ensuring a high level of consumer safeguarding. It applies broadly to various consumer financial services of a banking, credit, insurance, personal pension, investment, or payment nature conducted through distance communication, where the trader and consumer are not physically present simultaneously. The directive outlines requirements for pre-contractual information, grants consumers a right of withdrawal for specific financial services, and establishes regulations related to unsolicited services and communication. In October 2023, the European Parliament gave its green light to the new Directive, which will be published soon.
- Consumer Credit Directive (CCD) 2008/48/EC: The Consumer Credit Directive, implemented in 2010, includes provisions related to distance marketing of financial services, particularly concerning credit agreements. It ensures that consumers receive clear and comprehensive information before concluding a credit agreement through distance communication channels. Go to the Page
- Payment Services Directive 2 (PSD2) (EC) 2015/2366: PSD2, which came into effect in 2018, regulates payment services within the EU, including those offered remotely or via electronic means. It promotes secure and innovative payment methods, enhances consumer rights, and mandates strong customer authentication for online transactions to ensure security. Go to Payment Services Page
- Insurance Distribution Directive (IDD) (EU) 2016/97: IDD, implemented in 2018, addresses the distribution of insurance products, including those marketed at a distance. It establishes requirements for transparency, disclosure, and suitability assessment when insurance products are sold remotely.
- E-Commerce Directive: The E-Commerce Directive 2003/31/EC, which predates many of the financial services-specific regulations, applies to the online provision of services, including financial services. It sets out a legal framework for electronic commerce, covering various aspects such as transparency, information provision, and liability.
- Digital Finance Strategy: The European Commission has been actively working on its Digital Finance Strategy, aiming to foster innovation in the financial sector, including distance marketing of financial services. This strategy seeks to create an enabling environment for digital financial services while maintaining consumer protection and financial stability.
- Consumer Financial Services Action Plan: As part of the Digital Finance Strategy, the EU introduced a Consumer Financial Services Action Plan, which focuses on ensuring that consumers can confidently access and use a wide range of digital financial services, including those offered remotely. The Plan is the background for the Directive 2022/65/EC.
- Cross-Border Financial Services Initiatives: The EU has been working to promote cross-border access to financial services by encouraging the development of a Single Market for financial products and services. This includes measures to reduce barriers for consumers who wish to access financial services from providers in other EU member states. A Proposal for a Directive COM(2022) 204 final was presented by the Commission on 11 May 2022 and discussed by EU legislators.
These initiatives collectively aimed to create a regulatory framework that fosters innovation, enhances consumer protection, and facilitates cross-border trade in financial services, including those delivered through distance marketing channels.
The new Directive on Distance Marketing of Consumer Financial Services
On 11 May 2022, the European Commission adopted a Proposal for a directive amending Directive 2011/83/EU concerning financial services contracts concluded at a distance, COM(2022) 204, aiming to enhance consumer rights and facilitate cross-border provision of financial services within the single market. These rules were originally introduced in 2002 but needed updating due to the digitalization of the financial sector and the emergence of new financial services. The COVID-19 pandemic further accelerated online financial transactions.
The proposed changes include easier access to the 14-day withdrawal right for distance contracts, clearer rules for providing pre-contractual information, special protections for consumers when concluding financial services contracts online, and stronger enforcement measures with penalties of up to 4% of annual turnover for cross-border infringements. The reform also seeks to establish full legal harmonization for all providers across Member States to ensure consistent consumer protection.
The modernization of these rules reflects the evolving landscape of financial services in a digital age, with a focus on enhancing consumer safety and ensuring that regulations are up to date. The next steps involve the implementation and enforcement of these updated rules across the European Union.
On 6 June 2023, after interinstitutional negotiations, the Parliament and the Council reached a provisional agreement.
The agreed text simplifies simplifies existing legislation, increases consumer protection, and creates a level playing field.
Where the trader uses online tools, such as robo-advice or chatbots, the consumer will have the right to request human intervention, in order to better understand the effects of the contract on his or her financial situation. Member states will have to take measures to limit the use of dark pattern marketing techniques to influence consumer’s choices.
On 28 June 2023, there has been the approval in committee of the text agreed at 1st reading interinstitutional negotiations.
On 2 October 2023, the European Parliament adopted the agreement.
The proposed changes include easier access to the 14-day withdrawal right for distance contracts, clearer rules for providing pre-contractual information, special protections for consumers when concluding financial services contracts online, and stronger enforcement measures with penalties of up to 4% of annual turnover for cross-border infringements. The reform also seeks to establish full legal harmonization for all providers across Member States to ensure consistent consumer protection.
The modernization of these rules reflects the evolving landscape of financial services in a digital age, with a focus on enhancing consumer safety and ensuring that regulations are up to date. The next steps involve the implementation and enforcement of these updated rules across the European Union.
On 6 June 2023, after interinstitutional negotiations, the Parliament and the Council reached a provisional agreement.
The agreed text simplifies simplifies existing legislation, increases consumer protection, and creates a level playing field.
Where the trader uses online tools, such as robo-advice or chatbots, the consumer will have the right to request human intervention, in order to better understand the effects of the contract on his or her financial situation. Member states will have to take measures to limit the use of dark pattern marketing techniques to influence consumer’s choices.
On 28 June 2023, there has been the approval in committee of the text agreed at 1st reading interinstitutional negotiations.
On 2 October 2023, the European Parliament adopted the agreement.
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