Views on Council General Approach to Distance Marketing of Financial Services

10 March 2023

Position paper

Finance Watch dives into the details of the Council of the European Union’s general approach to the Distance Marketing of Consumer Financial Services Directive (DMFSD), published on 2 March. While happy that the Council has maintained the future-orientated nature of the Directive, there are several points of concern.

DMFSD is now midway through the legislative process. In May 2022, the Commission issued legislative proposals reforming the Distance Marketing of Consumer Financial Services Directive (DMFSD). The European Parliament’s Committee on Internal Market and Consumer Protection (IMCO) is currently establishing their position on the file. Once they have reached a position, trilogue negotiations will begin.

Following an in-depth review of the Council text, Finance Watch has the following key take-aways:

Positives:

Overall, Finance Watch welcomes that the final Council text preserves the safety net feature of the DMFS, i.e. the application of the Directive when new products appear on the market and are not yet subject to specific regulation and when existing product-specific legislation does not cover, or does not cover sufficiently, the rules established by the DMFSD. We also welcome that the final Council text explicitly clarifies that the scope should also include products that are unregulated because they have been excluded by product-specific legislation.

Further details:

  • Welcome that the Council text, unlike the EC proposal, allows for Member States to go beyond the DMFSD with regards to pre-contractual information.
  • Very much welcome that the Council upholds the Commission proposal to introduce a withdrawal button to facilitate the withdrawal from products for consumers and extend it to the whole Consumer Rights Directive (CRD).
  • Agree with the Council position to extend the right for human intervention to apply not only during the pre-contractual stage but at every stage of the negotiation process and contractual relationship.
  • Welcome that the Council text stipulates that where another Union act governing specific financial services does not contain rules on information about the right of withdrawal, the trader shall inform the consumer about the existence or absence of such a right in accordance with the DMFSD.

Negatives:

Overall, given the challenges consumers face in the increasingly digitalized retail financial services market, more ambition than what is proposed in the final Council text is needed to ensure that consumers are adequately protected. In our opinion, additional measures are needed, in particular with regards to the regulation of promotions by social media influencers, advertisements of risky products, and the use of personal data.

Further details:

  • Regret that the Council text deleted the Commission proposal on introducing rules on regulating online interfaces (dark patterns).
  • Disagree with the Council position to abolish the requirement in the Commission position to impose fines of a maximum amount of at least 4 % of the trader’s annual turnover in the event of a serious cross-border infringement.
  • Disagree with the Council position to delete the inclusion of the provision of information about the risk and reward profile of the product in the pre-contractual information.
  • Regret that the Council is proposing to allow Member States to adapt the manner and the extent to which adequate explanations are offered to the circumstances of the situation in which the financial service is offered, the person to whom it is offered and the nature of the financial service offered.
  • Regret that the Council position allows the trader to provide the pre-contractual information only after the contract has been concluded, if the contract has been concluded at the consumer’s request using a means of distance communication which does not enable providing the information in good time before the consumer is bound by the distance contract.