6 Financial services: key information
for retail investors and insurance mediation
| (a)
(34087)
12402/12
+ ADDs 1-2
COM(12) 352
(b)
(34089)
12407/12
+ ADDs 1-2
COM(12) 360
|
Draft Regulation on key information for investment products
Draft Directive on insurance mediation (recast)
|
| Legal base | (a) Article 114 TFEU; co-decision; QMV
(b) Articles 53(1) and 62 TFEU; co-decision; QMV
|
| Department | HM Treasury
|
| Basis of consideration | Minister's letter of 11 January 2013
|
| Previous Committee Reports | (a) HC 86-xii (2012-13), chapter 9 (12 September 2012); HC 86-xvi (2012-13), chapter 13 (24 October 2012); HC 86-xxv (2012-13), chapter 20 (19 December 2012);
(b) HC 86-xvi (2012-13), chapter 14 (24 October 2012)
|
| Discussion in Council | Not known
|
| Committee's assessment | Legally and politically important
|
| Committee's decision | (a) Cleared on 19 December 2012, but further information now requested
(b) Not cleared; further information requested
|
Background
6.1 Packaged Retail Investment Products (PRIPs) allow retail
customers exposure to a range of securities without requiring
a direct holding in these securities. Examples of such products
include investment funds, investment life insurance and structured
products issued by banks. EU legislation already exists to protect
those who invest in these products. But legal requirements on
product transparency, sales and advice differ according to the
legal form of the product and the distribution channel, making
effective comparisons difficult for consumers.
6.2 In July 2012 the Commission presented this
draft Regulation, document (a), to improve transparency in the
investment market for retail investors. Currently disclosures
for PRIPs vary according to the legal form a product takes, making
effective comparisons difficult for consumers. The draft Regulation
would ensure that retail investors receive short, comparable and
standardised disclosures, termed Key Information Documents (KIDs),
whatever the investment product they were considering.
6.3 The draft Regulation has a number of specific
aims. These are to:
- define what constitutes a PRIP
so as to ensure all relevant products are captured — the
proposal includes personal pensions, but not workplace or occupational
pensions, simple deposits or pure insurance;
- place responsibility for producing a KID on the
investment product 'manufacturer';
- set out the form and content of KIDs so they
are as harmonised as possible — it is proposed that a KID
should use the principles introduced for the Key Investor Information
Document for undertakings for collective investment in transferable
securities (UCITS), which have been compulsory for UCITS since
1 July 2012;
- oblige the distributor to provide a KID before
the sale;
- ensure Member States have effective complaints
procedures for PRIPs investors, including alternative dispute
resolution (ADR);
- introduce harmonised sanctions for breaches of
the PRIPs rules;
- provide a transition period for UCITS of five
years — the Key Investor Information Document has been introduced
only recently and it would be disproportionate and disruptive
to subject these providers to the proposed PRIPs Regulation at
this stage; and
- complement, rather than replace, existing disclosures
set out in the Prospectus Directive (applying to securities offered
to the public or admitted to trading on a regulated market) and
the Solvency II legislation (applying to insurance).
6.4 We considered this proposal on a number of
occasions and cleared it from scrutiny in December 2012 on the
basis of a number of assurances we had received from the Government,
including that "… we no longer have any doubts about
the legal base of the proposals so the opt-in does not apply …".[38]
6.5 Insurance mediation is the activity of advising
on, or proposing or carrying out other work preparatory to, the
conclusion of contracts of insurance, concluding such contracts,
assisting in the administration and performance of such contracts,
in particular in the event of a claim, and professional management
of claims and loss adjusting.
6.6 In 2002, the Insurance Mediation Directive,
Directive 2002/92/EC, was adopted. It aims to achieve a market
throughout the EU for insurance intermediaries. Member States
were required to implement the Directive by January 2005. The
Directive required the Council and the European Parliament to
assess some of its provisions every five years after its implementation.
The review was greatly delayed as a result of the financial crisis.
6.7 This draft Directive, document (b), presented
in July 2012, would recast (consolidate and amend) the Insurance
Mediation Directive. The proposed Directive has a number of specific
aims. These are to:
- ensure the same level of consumer
protection will apply, regardless of the channel through which
consumers purchase an insurance product, with an extension of
the scope of the existing Directive to cover the direct sale of
insurance ¯
whether purchasing a product directly from an insurance undertaking
or from an intermediary, the consumer would receive the same level
of protection;
- ensure consumers are provided with clear information,
in advance, about the professional status of the person selling
the insurance product ¯
rules would be introduced to address more
effectively the risks of conflicts of interest, including disclosure
of the remuneration received by sellers of insurance products;
and
- make it easier for intermediaries to operate
across borders of Member States, thus promoting the emergence
of a real internal market in insurance services.
6.8 One specific proposal is related to ADR,
which would impose requirements on the operation of the UK's civil
justice system, in terms of the operation of limitation and prescription
periods and the availability of interim remedies
6.9 When we considered this draft Directive,
in October 2012, we said that whilst efforts to improve the protection
of customers of the insurance industry were to be welcomed, we
noted the reservations the Government had about some aspects of
the proposal. So we asked to hear, before considering the draft
Directive again, about progress in addressing these points in
the Council's consideration of the issues. Meanwhile the document
remained under scrutiny.
6.10 As for the matter of a JHA opt-in in relation
to the ADR provisions we reminded the Government of our view that
its insistence on applying the opt-in protocol in the absence
of a Title V legal basis is without legal basis in the Treaties.
Nonetheless, we presumed that it was the Government's firm intention
to opt into the draft Directive and, therefore, that this intention
would be formally notified to Parliament in accordance with the
procedure promised by the Minister for Europe (Mr David Lidington)
in his Written Ministerial Statement of 20 January 2011.[39]
6.11 These two proposals were presented as part
of the Commission's retail package that also included a draft
Directive to amend the UCITS Directive.[40]
The Minister's letter
6.12 The Economic Secretary to the Treasury (Sajid
Javid) writes now to tell us that "the UK formally opted
in to this Directive and Regulation in accordance with Article
3 of Protocol 21 to the Treaty on the Functioning of the European
Union (TFEU) on 16 October [2012]".[41]
6.13 The Minister explains that:
- the draft Directive and the
draft Regulation contain proposals on ADR procedures, out-of-court
procedures for resolving disputes;
- common forms of ADR are conciliation, mediation,
adjudication and arbitration;
- the Financial Ombudsman Service is one of the
largest consumer ADR providers in the UK;
- the provisions in question would oblige firms
to participate in national ADR procedures, provided the procedure
conformed to certain criteria;
- although the Government supports the obligation
to participate, it does not agree with the specific criteria imposed;
- in addition, some of the criteria required in
order to make participation by firms in ADR procedures mandatory,
namely restrictions on the operation of limitation periods and
the requirements for the availability of interim measures, give
rise to questions about the legal base of the provisions;
- these criteria would require that any limitation
or prescription period for bringing a civil claim would need to
be suspended until the ADR was completed and consumers would have
to be able to apply for interim measures to preserve their position
in exceptional cases;
- because these criteria would impose requirements
on the operation of the UK's civil justice system, the Government
believes they should be brought forward pursuant to Title V, and
more specifically Article 81, TFEU;
- the Government's policy is to insist on a Title
V legal base for any measure containing JHA obligations, but if
it is unsuccessful, to record its position by means of a minute
statement;
- the Government's preferred legal outcome is either
to negotiate the JHA obligations out of the instrument, or to
split it so that the JHA obligations are contained in a separate
measure with an Article 81 legal base, to which the opt-in would
clearly apply;
- many other Member States have supported the UK
in arguing for the removal of the criteria that raise JHA issues;
and
- at this stage of the negotiations the Government
is optimistic that it will succeed in doing so.
Conclusion
6.14 We note the Minister's information about
the UK's opt-in to the draft Directive and the draft Regulation
and the reasons for it. However, we are astonished that the House
only heard about this matter three months after the event (and
we note also that the Minister's letter was only sent to us 11
days after he signed it). This hardly meets the spirit of the
procedure promised by the Minister for Europe (Mr David Lidington)
in his Written Ministerial Statement of 20 January 2011.
6.15 Moreover, we are confused by the present
statement that the UK opted into the draft Regulation in October
2012 and the Minister's statement to us in December 2012 that
"… we no longer have any doubts about the legal base
of the proposals so the opt-in does not apply …".
6.16 We should be grateful for an early explanation
from the Minister of both the inordinate delay in notification
of the opt-in and the apparent inaccuracy of the statement about
the opt-in to the draft Regulation.
6.17 Additionally, we remind the Minister
that we wish to hear, before we consider the draft Directive again,
about progress in the negotiations in addressing the points (including
the ADR issue) drawn to our attention previously. Meanwhile that
document remains under scrutiny.
38 See headnote. Back
39
Ibid. Back
40
(34086) 12397/12 + ADDs 1-2: see HC 86-xii (2012-13), chapter
8 (12 September 2012), HC 86-xvi (2012-13), chapter 12 (24 October
2012) and HC 86-xxv (2012-13), chapter 19 (19 December 2012). Back
41
This decision was announced to the House on 15 January 2013:
see HC Deb, col. 29WS. Back
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