Distance selling of financial services
On 14th October, the Commission finally adopted a
proposal for a directive on the distance selling of financial
services. There are a number of changes from the earlier draft of
the directives which will impact upon those who provide financial
services covered by the directive.
For the purposes of the directive, a 'distance
contract' is any contract concerning financial services (this
definition broadly equates to business regulated under the FSAct)
concluded between a supplier and consumer under an organised
distance sale or service provision scheme run by the supplier who
makes exclusive use of means of distance communication up to and
including the moment of which the contract is concluded.
In any such contract, the consumer is to be given
either a 'warming up' period or a 'cooling down' period. This means
that the supplier will either have to communicate all the
contractual terms and conditions to the consumer, and give them a
period of reflection of 14 days prior to the contract becoming
operative (a 'warming up' period), or, if the contract is signed
prior to the supply of all the contractual terms to the customer,
the customer will be given a right of withdrawal of 14 days (a
'cooling down' period), which is extended to 30 days in the case of
mortgage contracts. The contractual terms must be transmitted in
writing or in a durable medium and at the customer's disposal.
If the customer exercises his 'cooling off' rights,
he may be required to pay the price of the financial service
effectively provided by the supplier before conclusion of the
contract, and the part of the total price of the financial service
covered by the contract on a pro-rata basis.
The use by a supplier of automated calling systems
without human intervention, or faxes, requires the prior consent of
Member states are required to bring the directive
into force within two years.
This directive will be very important in shaping
the future of 'cooling off' rights, in particular given the
introduction of 'warming up' rights which will undoubtedly require
amendments to the rule books.
The need for a directive has been questioned by the
BBA in its response to the proposal, arguing that financial markets
are already sufficiently regulated so as not to need special
protection in relation to the distance selling of financial
products. In particular, the feasibility of allowing a 'warming up'
period is questioned as it will be difficult for the price of many
financial products to remain the same over this period.