Council and Parliament reach provisional political agreement on financial services contracts concluded at a distance, including insurance contracts

On the 6th June 2023, a provisional trilogue agreement was reached between the European Parliament (EP) and the Council on the revised rules concerning the Directive 2002/65/EC on Distance Marketing of Consumer Financial Services (the DMFSD), which also applies to insurance contracts concluded at a distance.

It is expected that the revised rules ensure the prevalence of sectoral rules over the rules laid down in the DMFSD. This means that the revised provisions will apply to the insurance (distribution) sector only to a limited extent, that is only in those cases when the IDD, MiFID II, PEPP, Solvency II and other existing EU text applying to the insurance sector do not contain similar rules to the revised ones.

In its press release the Commission noted that “the rules introduced in the directive will serve as a safety net for the financial services that are not covered by sector specific legislation. They include actions ensuring that withdrawing from a contract is as easy as signing it, that any consumer can have the right to talk to a real person instead of a machine when the explanation provided via online tools like chatboxes is not clear enough, clear guidelines for providing information before signing a contract, and special rules to protect consumers from being manipulated, when concluding financial services contracts online”.

The main takeaways of the trilogue are the following:

  1. The political agreement clarifies the scope of application and the safety net-feature in the DMFSD, in particular for financial services that are excluded from other sectoral legislation or only partially covered by it.
  2. The agreement improves the rules on information disclosure and aims to modernise pre-contractual information obligations and keeps the possibility for member states to impose stricter national rules in this area, thus avoiding any risk of lowering the level of protection for consumers.
  3. Where the trader uses online tools, such as robo-advice or chatbots, the consumer will have the right to request human intervention, in order to better understand the effects of the contract on his or her financial situation.
  4. The agreement facilitates exercise of the right of withdrawal from contracts concluded at distance through the inclusion in the service provider’s interface of a ‘withdrawal function’ which is easy to find. The objective of this withdrawal function is to raise consumers’ awareness of their rights of withdrawal and ensure that to withdraw from a contract is not more burdensome than to enter it. Since this is important for all kinds of distance selling the withdrawal function is applied to all contracts concluded at a distance, not only financial services contracts.
  5. The new text introduces additional protection for consumers from dark patterns. Once the agreed text is in force, member states will have to take measures to limit the use of dark pattern marketing techniques to influence consumer’s choices.
  6. The political agreement also adds further provisions from the CRD to financial services contracts concluded at a distance. These include provisions on inertia selling (the sending of unsolicited goods or services to potential customers to make a sale).

The agreement needs to be formally endorsed and formalized by the EP and the Council.