What has changed?
On 12 May 2020, the Belgian Financial Services and Markets Authority (FSMA) published guidance on the rules on distance marketing for financial services. In light of the COVID-19 pandemic, the FSMA expects that more financial services firms are or will be relying on distance marketing methods to market their insurance distribution and investment services to consumers, for example by marketing their products digitally or through call centers.
With this communication, the FSMA brings some important points to the attention of the sector when providing investment and insurance services remotely. The communication is addressed to firms that market investment and insurance distribution services remotely to consumers and that are subject to the supervision of the FSMA.
More specifically, the communication addresses:
- credit institutions
- investment firms
- insurance undertakings
- intermediaries in banking and investment services
- insurance and ancillary insurance distributors
- UCITS and AIF management companies, when providing investment services
The communication relates to distance contracts in connection with financial services, in particular investment services and insurance distribution activities.
In a distance contract, the financial services firm and the consumer are not physically present at any time up to and including the conclusion of the contract. During the entire distribution process (negotiation, offer and conclusion of the contract), techniques for distance communication are used, such as the internet, email, telephone, SMS, fax, mail, etc.
What does it mean?
Current rules on distance marketing continue to apply in full
If financial services are offered remotely, the laws applicable to these financial services continue to apply in full, such as:
- the conduct of business rules based on MIFID II and the EU’s Insurance Distribution Directive
- Book VI of the Belgian Code of Economic Law (CEL) in relation to market practices and consumer protection, when services are marketed to consumers
Book VI of the CEL also contains specific regulations on distance marketing, and for insurances there are specific rules on distance marketing in the Belgian Act of 4 April 2014 on insurances (Insurance Act). These rules also continue to apply in full during the COVID-19 crisis and the FSMA expects firms to pay special attention to these provisions, which it aims to clarify in its new communication.
New or adapted procedures must be customer-centric
Companies that already worked remotely before the COVID-19 crisis should already have the necessary procedures in place in relation to distance selling. For the customers of these companies who were already used to working digitally, there will normally be few additional problems. However, existing procedures may need to be adapted for new customers, such as in relation to how new customers are on boarded and how customers’ prior permission is to be obtained to work remotely.
Firms that worked exclusively face-to-face before the COVID-19 crisis and that started providing remote services during the COVID-19 crisis should develop alternative procedures. The FSMA is aware that, taking into account the combined application of different regulations and the time pressure, this is not an easy process. When supervising the implementation of these alternative procedures, the FSMA will verify whether the interests of the customer were duly taken into account when establishing such alternative procedures. Particular attention must be paid to customers in a difficult situation, for example those without an internet connection.
A re-evaluation of products or their distribution method may be required
Financial services firms that are subject to regulations on the product approval process as product manufacturers should consider whether their products should be re-evaluated following the COVID-19 crisis.
Insurance distributors that are not insurance manufacturers themselves should consider whether their product distribution arrangements need to be modified following the COVID-19 crisis.
The FSMA provides the following examples:
- If a financial product is suddenly distributed remotely, this may affect the customer. If the customer may suffer damages due to this new distribution method, mitigating actions must be taken.
- Due to the COVID-19 crisis, there are, for example, more hospitalizations, more cancellations of vacations, etc. For which insurance risks is the customer covered and which risks are not covered? Does the target market need to be adjusted?
- The underlying assets of a branch 23 insurance contract must be monitored properly.
- The crisis has had an impact on the credit risk of issuers of debt instruments and on the volatility of financial assets. These aspects, which strongly determine the risk and return profile of a structured product, must be closely monitored so that it can be ensured that the product meets the needs of the target market.
The financial services firm must inform the customer correctly, clearly, objectively and completely
a) The obligation to provide information that is correct, clear and not misleading
All information provided by the financial services firm must be correct, clear and not misleading. In addition to information about the financial service provider or intermediary, the characteristics of the financial service and the possible out-of-court dispute procedures, explicit information must also be provided on the right of withdrawal or the absence thereof.
In a remote context, the provision of information can sometimes be more difficult, for example in the case of a remote telephone sale of a financial product. It is then more difficult to communicate the pre-contractual information to the customer and it may also be less obvious for the customer to ask additional questions or to consider the cooling-off period.
It is therefore even more important than usual that the financial services firm provides very clear, objective and complete information to the customer, for example by also communicating information on important insurance exclusions on its own initiative. In the case of telephonic distance selling, the company must also confirm the information on paper or via another durable medium.
b) The customer must consent to receiving information digitally
For financial services distance contracts, certain information, such as the terms and conditions of the contract, must be provided on paper or via another durable medium. To provide information on a medium other than paper, additional conditions sometimes apply, including the prior, express consent of the customer. Therefore, if the financial services provider works remotely due to the COVID-19 crisis, it is important that the customer’s express permission is asked for the provision of information on a durable medium other than paper, and that the financial firm also asks the customer to confirm this consent.
c) The customer must receive the information in a timely fashion
The financial undertaking should actively draw the customer’s attention to important information such as, for example, its own identity, the main characteristics and risks of the financial product or financial service and the full cost price, whether or not a right of withdrawal exists and the possibility of out-of-court dispute resolution. The FSMA also considers that the person selling or advising on an insurance product or investment product should provide this information as soon as possible during their contact with the customer and that the customer should have sufficient time to take knowledge of the information before being bound by an agreement or offer related to that product.
In certain exceptional situations, the pre-contractual information may also be provided to the customer immediately after the distance contract has been concluded. This option is usually tied to specific conditions and sometimes limited to sales by phone. According to the FSMA, these exceptions must be interpreted strictly.
There is sometimes a right of withdrawal
a) Right of withdrawal under the CEL
If a consumer concludes a distance contract, they have a period of at least 14 calendar days to withdraw from the contract. The consumer can exercise their right free of charge and without giving any reason.
As part of its pre-contractual information obligations, the financial service provider must inform the customer of whether or not there is a right of withdrawal. During the cooling-off period, performance of the contract may only commence after the consent of the consumer has been obtained. If the consumer exercises the right of withdrawal, they are only obliged to pay for the service actually provided by the provider.
b) Exceptions to the right of withdrawal
The right of withdrawal does not apply to:
- financial services whose price is subject to fluctuations in the financial market over which the provider has no control and which may arise during the withdrawal period (e.g., services related to foreign exchange transactions, money market instruments, transferable securities, units in collective investment undertakings, forward financial contracts (“futures”), etc.).
- contracts that have been fully executed by both parties at the express request of the consumer before the consumer exercises their right of withdrawal.
c) Specific rules apply to insurances
For distance marketing of insurances, a specific regime applies under the Insurance Act. Each distance insurance contract is deemed to be concluded as soon as the insurer receives acceptance from the policyholder. For life insurances, the term to exercise the right of withdrawal is 30 calendar days, instead of the usual 14 calendar days, which is still the default rule for other types of insurances.
The right of cancellation does not apply to:
- travel and luggage insurance policies or similar short-term insurance policies with a term of less than one month.
- life insurance contracts that are linked to an investment fund.
The exception where there is no longer the right of withdrawal for contracts that have been fully executed by both parties at the explicit request of the consumer before the consumer exercises their right of withdrawal, applies in principle to insurance contracts as well. However, in many cases, it will be difficult for insurers to invoke this exception. For example, the fact that a consumer submits a claim for compensation to an insurer during the withdrawal period in connection with a claim covered by the insurance contract is, in principle, not sufficient to state that the consumer cannot exercise their right of withdrawal.
A specific burden of proof applies to distance contracts
The financial services firm must provide proof that it has complied with its information obligations, with all relevant time periods under the law, that the consumer has consented to the conclusion of the contract and, if applicable, that the consumer has consented to execute the contract during the withdrawal period.
A specific right of termination applies to distance contracts
Under certain circumstances, the consumer has a right to terminate their distance contract. For example, this is the case if the customer is not correctly informed about the financial service or about their right of withdrawal. This is also the case if the financial services firm did not provide the required minimum information in the case of telephonic communication, or if there is no written confirmation of such minimum information or of the terms and conditions of the contract itself.
Retention of data requires special attention
Financial services firms should pay particular attention to the retention of data, to be able to provide evidence that certain documents have effectively been provided to the customer.
In this respect, the FSMA also refers to the guidelines published by the European Securities and Markets Authority on the recording of telephone conversations within the context of the COVID-19 crisis, which can be consulted here.
As to digital signatures, the FSMA reminds financial services firms that, in principle, only a qualified electronic signature is equated with a handwritten signature. Although the FSMA understands the challenges this brings for firms and customers who are confronted with these new ways of signing, it is eventually up to the courts and tribunals to decide on the evidentiary value of the various forms of signatures (other than qualified signatures), such as scanned signatures or signatures with a PIN.
Complaints must always be handled diligently
During this period, the number of complaints could increase due to the uncertainties arising from the COVID-19 crisis. The quality and speed of complaint handling represent challenges for financial services firms and will be an important point of attention for the FSMA during inspections.
What is next?
The FSMA’s communication on distance marketing for financial services contracts provides useful and practical guidance for financial services firms that use remote sales techniques when marketing their products or services in Belgium. Firms should duly consider these guidelines — regardless of the COVID-19 context — and they may wish to revisit their current organizational framework in relation to distance selling to ensure full compliance with the various rules and regulations that are in play. The full text of the FSMA’s communication can be found here.