The European Commission has announced its proposals to reform the Directive on Distance Marketing of Consumer Financial Services (DMD), which was transposed into Irish law in 2004.

The Commission’s recent evaluation of the DMD indicated that its relevance and value had decreased given the volume of subsequent product-specific measures which contain protective provisions for consumers (e.g. the Consumer Credit Directive, the Mortgage Credit Directive and the GDPR). However, the Commission noted the ongoing relevance of the DMD in areas where financial products are not yet subject to product-specific EU legislation (e.g. crypto-assets).

With the rapid pace of technological innovation, the development of new products and distribution channels (including the increased use of digital on-boarding of new customers during the COVID-19 pandemic), and new market entrants (principally in the FinTech space), the Commission’s view is that it’s time for reform.

The Commission proposes to repeal the DMD and, in respect of those provisions which remain relevant, include simplified and modernised versions of them in the 2011 Consumer Rights Directive (CRD) (which does not, at the moment, apply to financial services).  A full-harmonisation approach will be taken, meaning that the rules will be similar for all financial services providers and consumers across the EU. 

The following are the key provisions which the Commission has suggested adding to the CRD in respect of the distance marketing of consumer financial services:

Pre-contractual information

  • Updated provisions regarding how and when pre-contractual information is to be provided, and what that information must consist of (e.g. provisions regarding electronic communication will be added).

Right of withdrawal

  • A requirement for a withdrawal button to facilitate consumers’ exercise of the withdrawal right.
  • That providers be required to send a notification regarding the withdrawal right if the pre-contractual information is received by the consumer less than a day from the conclusion of the contract.

Online fairness

  • That providers set up online systems which are fair and transparent, and that they provide adequate explanations to consumers in relation to the use of online tools such as roboadvice or chat boxes.
  • That consumers be able to request human intervention if not satisfied with the use of such online tools.

Enforcement 

  • That the CRD rules on enforcement and penalties be extended to cover financial services contracts concluded at a distance, with a maximum penalty of at least 4% of annual turnover. 

The proposal may evolve when it is considered by the EU Council and European Parliament, and we will keep clients and contacts up-to-date as developments occur.