Response to consultation on draft Guidelines for cross-selling practices
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The accompanying product can in many cases also help to minimalize the customer’s financial risks (for instance a consumer credit in package with an unemployment insurance; a credit on real estate in a package with default risk insurance).
ESBG doubts that a customer’s focus on a main primary product has any impact on his/her willingness to purchase an additional product. The decisive point for the customer is whether the costs are reduced in the end. Even if products in bundles are not easily comparable, customers choose products based on their needs as well as the overall costs.
The JCs’ analysis regarding the decision making of the customers does also not yet reflect adequately that customers in the normal selling process receive detailed and transparent information regarding the products they are interested in. Thus, customers already can make informed decisions and at the same time act as ‘responsible consumers’. If, however, customers do not base their buying decision on the information they have been provided with, any risk resulting from their product choice lies in their own area of responsibility (as long as the information is generally understandable).
Example 1:
ESBG seriously doubts that this example reflects the practice of the European savings and retail banks. Therefore, ESBG would appreciate that the JC carefully reviews this example.
Example 2:
ESBG considers this example of action to be an unfair commercial practice which is clearly prohibited by law.
Example 3:
Please note, that generally the insurance in such a package is not a product to be pre-paid. In cases where actually a proportional part of a pre-paid premium of an insurance component would not be returned to the customer who cancelled the main product, such a measure would have been put down in the agreement between customer and the savings and retail bank (including respective methods of calculation). Thus, a responsible customer would know in advance what impact a later cancellation could have.
Example 4:
ESBG likes to point out that an early termination does not result in ‘disproportionate charges’. The charges that a customer needs to pay are determined by recognised actuarial calculation methods. Also, it should be taken into account that before the purchase the customer receives clear and transparent information regarding any early termination charges. Finally, ESBG would like the JC to note that this example is not relevant for card and account products. For instance, if a customer purchases a credit card ‘Gold’ in a package with special insurance the customer has the possibility to withdrawal if he/she recognises after the purchase that he/she has no need for the respective insurance. In this case the customer will instead receive a ‘normal’ credit card and will also receive the related fees pro rata.
Overall, it should be taken into account that, depending on the economic conditions negotiated between the firm and the providers of the different components of the package, the firm that cross-sells could be obliged to apply an additional charge in the case of an undone package by the client.
Example 5:
Firstly, ESBG would like to mention that no customer needs to re-buy a product just to be able to purchase another product. Secondly, guidelines for sales employees as well as restrictions in the system prevent the sale of products that are not suitable for the customer.
ESBG likes the JC to clarify that the Guidelines do not refer to cases in which products are inseparable and where consequently the price of tied/bundled packages and the price of their component products cannot be determined.
Regarding Guideline 5, it is unclear what exactly is included in the scope of ‘non-price features and risks’. The terminology of ‘non-price features’ is rather vague and very wide. ESBG thinks that an information obligation regarding ‘price and risks’ is clearer and sufficient to enable the customer to take an informed buying decision.
Additionally, it should be clarified whether the terms “cost” and “price” have the same meaning or not. In this sense, cost and price seems to be used as synonyms in paragraph 7, but paragraph 8 refers to “information on price and cost”. In this context, ESBG would like to point out that con-sistency should be ensured between the terms referred to in the Guidelines and those used in “Level 1” legislation. Therefore, ESBG urges the JC to use the same terms referred in “Level 1” regulations (e.g. MiFID), in the meaning and scope of each regulation; especially regarding the “transcation costs”.
Guideline 1:
ESBG welcomes the Guideline which ensures that the firms distributing tied or bundled packages are able to provide the customer with all necessary information on the products.
ESBG likes to stress that the delivery of pre-contractual information has already been addressed in various directives such as MiFID, prospectus, UCiTS KiiD and PriiPs KiD. Against this back-ground ESBG does not see a need for further regulations in that respect.
As already mentioned above, the terminology ‘key non-price information is blurry and should be clarified or be replaced by the term ‘risks’.
Guideline 3:
Again the Guideline overlaps with MiFID provisions and regulations on advertising as well as pre-contractual information on credits.
Furthermore, would like the JC to recognize that technical terms may be required by law. In practice technical and legal jargon cannot always be avoided or simplified. Additionally, ESBG thinks that the terminology ‘in a simplified or jargon-free language’ might lead to different interpretations in the Members States. The Guidelines lack consistency with the existing European regulatory framework. For instance, regulation 1286/2014 on Key Information Documents (KID) for Pack-aged Retail and Insurance-based Investment Products (PRIIPs) refers in this respect to ‘clear’ and ‘succinct’ information. ESBG would welcome the JC to follow a consistent approach and to standarise the used terminology whenever possible.
Regarding the way of communication ESBG would welcome that firms are able to, firstly, simply present the major features of a product and then as a second step add a more detailed explanation.
Guidelines 3 and 6:
Although there is no reference in the summary, the proposed Guidelines require distributors of products to provide customers with information ‘in a simplified or jargon-free language’ (paragraphs 16 and 20). ESBG believes that this expression is unclear and could lead to different interpretations in the Members States. Furthermore, the Guidelines lack consistency with the European regulatory framework. For instance, regulation 1286/2014 on Key Information Documents (KID) for Pack-aged Retail and Insurance-based Investment Products (PRIIPs) states in this respect:
‘It shall: […] be clearly expressed and written in language and a style that communicate in a way that facilitates the understanding of the information, in particular, in language that is clear, succinct and comprehensible’
To avoid confusion during the implementation process and to promote consistency between the Guidelines and the existing European regulatory framework ESBG supposes to replace ‘jargon-free’ and ‘simplified’ by ‘clear’ and/or ‘succinct’ information.
Guideline 4:
Generally, savings and retail banks already follow this approach. However, there are scenarios where certain costs are depending on third parties, in these cases a comparison is not always possible.
Guideline 6:
The Guideline lacks a definition of ‘non-price features and risks’. Thus, it is unclear what this re-quirement means for financial institutions.
Furthermore, the scope of the Guideline is unclear. In the Summary of the Guidelines it says under 17:
‘This guideline requires competent authorities to monitor that, where firms are subject to such requirements through sectorial legislation, the demands and needs of customers or suitabil-ity/appropriateness are adequately assessed by firms which distribute tied and bundled packages and that these cross-sold packages of financial products are placed in the interests of customers.’
Guideline 8 (paragraph 25) does not refer to sectorial legislation but to ‘any applicable require-ments to meet the demands and needs to the customer or to assess suitability or appropriate-ness’ (which describes an even wider scope). Additionally, the examples in Guideline 8 seem to indicate the need for a sheer unlimited individual assessment before the sale of a product:
‘1) […] Regardless of the nature of the service offered (i.e. whether or not advice is being provided), firms need to consider the potential for costumers to actually benefit from the tied or bundled products that they offer. So, a firm should not cross-sell a product to an individual customer where the firm is (or should be) reasonably aware that the costumer is not able to benefit from the additional product […]’
ESBG asks the JC to clarify this point. A reference to the sectorial legislation makes sense from a practical point of view. It is not possible, though, to take into account for each product sale every customers’ individual preferences and their situational circumstances. Moreover, an assessment of the individual benefits of a product for a consumer would be a standard which is in contrast to the requirements of directives such as MiFID II, MCD or Consumer Credit Directive where the neces-sary assessment varies depending on the type of product (solvency, suitability or appropriateness; assessments for investment, banking or insurance; complex or simple products etc.).
To conclude, ESBG would like the JC to note that in practice tools such as overviews of product features as well as socio-demographic and behavioural characteristics of customers are used.
The ESBG acknowledges that adequate training of staff is extremely important. However, to ensure that the staff is able to communicate along the lines of a vague criteria such as plain and non-technical language would require an assessment of each employee’s individual communication skills which is an almost impossible task in large entities. Against this background, ESBG is critical of the ’obligation to train the staffs’ communication skills and doubts the necessity of this provision. In any case, ESBG would like the JC to ensure that such communication training is required by any directive or regulations referred to.
Furthermore, the reference to ‘plain language’ (Guideline 9, paragraph 26) is ambiguous and could lead to different interpretations in the Members States. Furthermore, there is a lack consistency in wording between the Guidelines and the already existing European regulatory framework. [For more details see above under question 6.]
Furthermore, it is possible that if the customers exercises his/her cancellation right the savings and retail bank that cross-sales the package needs to pay charges to another firm that had provided one or more products of the package. In such cases, the customer is informed in advance that the cancellation would lead to charges. The customer is then free to take an informed decision and to decide whether to accept possible penalties in exchange for a better price.
Question 2: Do you agree with the identified potential benefits of cross-selling practices?
ESBG agrees with the identified potential benefits of cross-selling practices. Most advantageous for customers are the one-stop-shop approach and reduced prices for products in packages. Generally, cross-selling practices help to enable banks to supply the customer with tailor-made products, adapted to the customers’ current living conditions.The accompanying product can in many cases also help to minimalize the customer’s financial risks (for instance a consumer credit in package with an unemployment insurance; a credit on real estate in a package with default risk insurance).
Question 3: Do you agree with the identified potential detriment associated with cross-selling practices?
As a general remark ESBG would like the JC to note that, though, potential risks for consumers are existing, on regulated markets these risks have decreased significantly. ESBG thinks that the requirements regarding information and transparency which are existing are already well suited to protect consumers. For instance the ‘European Standardised Information Sheet’ (ESIS) informs about the general conditions of related agreements.ESBG doubts that a customer’s focus on a main primary product has any impact on his/her willingness to purchase an additional product. The decisive point for the customer is whether the costs are reduced in the end. Even if products in bundles are not easily comparable, customers choose products based on their needs as well as the overall costs.
The JCs’ analysis regarding the decision making of the customers does also not yet reflect adequately that customers in the normal selling process receive detailed and transparent information regarding the products they are interested in. Thus, customers already can make informed decisions and at the same time act as ‘responsible consumers’. If, however, customers do not base their buying decision on the information they have been provided with, any risk resulting from their product choice lies in their own area of responsibility (as long as the information is generally understandable).
Question 4: Please comment on each of the five examples in paragraph 13, clearly indicating the number of the example to which your comment(s) relate.
ESBG has several comments regarding the examples of detrimental cross-selling practices:Example 1:
ESBG seriously doubts that this example reflects the practice of the European savings and retail banks. Therefore, ESBG would appreciate that the JC carefully reviews this example.
Example 2:
ESBG considers this example of action to be an unfair commercial practice which is clearly prohibited by law.
Example 3:
Please note, that generally the insurance in such a package is not a product to be pre-paid. In cases where actually a proportional part of a pre-paid premium of an insurance component would not be returned to the customer who cancelled the main product, such a measure would have been put down in the agreement between customer and the savings and retail bank (including respective methods of calculation). Thus, a responsible customer would know in advance what impact a later cancellation could have.
Example 4:
ESBG likes to point out that an early termination does not result in ‘disproportionate charges’. The charges that a customer needs to pay are determined by recognised actuarial calculation methods. Also, it should be taken into account that before the purchase the customer receives clear and transparent information regarding any early termination charges. Finally, ESBG would like the JC to note that this example is not relevant for card and account products. For instance, if a customer purchases a credit card ‘Gold’ in a package with special insurance the customer has the possibility to withdrawal if he/she recognises after the purchase that he/she has no need for the respective insurance. In this case the customer will instead receive a ‘normal’ credit card and will also receive the related fees pro rata.
Overall, it should be taken into account that, depending on the economic conditions negotiated between the firm and the providers of the different components of the package, the firm that cross-sells could be obliged to apply an additional charge in the case of an undone package by the client.
Example 5:
Firstly, ESBG would like to mention that no customer needs to re-buy a product just to be able to purchase another product. Secondly, guidelines for sales employees as well as restrictions in the system prevent the sale of products that are not suitable for the customer.
Question 5: Please comment on the proposed guidelines 1 and 5 as well as the corresponding examples, stating clearly in your response the guideline paragraph number to which your comment relates.
Generally, ESBG thinks that customers need to receive information on product features and pric-ing which enables them to individually select the offer that is most suitable for them. In this respect, existing and forthcoming legislations already contain various information obligations for the consumers’ benefit (Consumer Credit Directive, Mortgage Credit Directive and Payment Accounts Directive).ESBG likes the JC to clarify that the Guidelines do not refer to cases in which products are inseparable and where consequently the price of tied/bundled packages and the price of their component products cannot be determined.
Regarding Guideline 5, it is unclear what exactly is included in the scope of ‘non-price features and risks’. The terminology of ‘non-price features’ is rather vague and very wide. ESBG thinks that an information obligation regarding ‘price and risks’ is clearer and sufficient to enable the customer to take an informed buying decision.
Additionally, it should be clarified whether the terms “cost” and “price” have the same meaning or not. In this sense, cost and price seems to be used as synonyms in paragraph 7, but paragraph 8 refers to “information on price and cost”. In this context, ESBG would like to point out that con-sistency should be ensured between the terms referred to in the Guidelines and those used in “Level 1” legislation. Therefore, ESBG urges the JC to use the same terms referred in “Level 1” regulations (e.g. MiFID), in the meaning and scope of each regulation; especially regarding the “transcation costs”.
Guideline 1:
ESBG welcomes the Guideline which ensures that the firms distributing tied or bundled packages are able to provide the customer with all necessary information on the products.
Question 6: Please comment on the proposed guidelines 2, 3, 4 and 6 as well as the corresponding examples, stating clearly in your response the guideline paragraph number to which your comment relates.
Guideline 2:ESBG likes to stress that the delivery of pre-contractual information has already been addressed in various directives such as MiFID, prospectus, UCiTS KiiD and PriiPs KiD. Against this back-ground ESBG does not see a need for further regulations in that respect.
As already mentioned above, the terminology ‘key non-price information is blurry and should be clarified or be replaced by the term ‘risks’.
Guideline 3:
Again the Guideline overlaps with MiFID provisions and regulations on advertising as well as pre-contractual information on credits.
Furthermore, would like the JC to recognize that technical terms may be required by law. In practice technical and legal jargon cannot always be avoided or simplified. Additionally, ESBG thinks that the terminology ‘in a simplified or jargon-free language’ might lead to different interpretations in the Members States. The Guidelines lack consistency with the existing European regulatory framework. For instance, regulation 1286/2014 on Key Information Documents (KID) for Pack-aged Retail and Insurance-based Investment Products (PRIIPs) refers in this respect to ‘clear’ and ‘succinct’ information. ESBG would welcome the JC to follow a consistent approach and to standarise the used terminology whenever possible.
Regarding the way of communication ESBG would welcome that firms are able to, firstly, simply present the major features of a product and then as a second step add a more detailed explanation.
Guidelines 3 and 6:
Although there is no reference in the summary, the proposed Guidelines require distributors of products to provide customers with information ‘in a simplified or jargon-free language’ (paragraphs 16 and 20). ESBG believes that this expression is unclear and could lead to different interpretations in the Members States. Furthermore, the Guidelines lack consistency with the European regulatory framework. For instance, regulation 1286/2014 on Key Information Documents (KID) for Pack-aged Retail and Insurance-based Investment Products (PRIIPs) states in this respect:
‘It shall: […] be clearly expressed and written in language and a style that communicate in a way that facilitates the understanding of the information, in particular, in language that is clear, succinct and comprehensible’
To avoid confusion during the implementation process and to promote consistency between the Guidelines and the existing European regulatory framework ESBG supposes to replace ‘jargon-free’ and ‘simplified’ by ‘clear’ and/or ‘succinct’ information.
Guideline 4:
Generally, savings and retail banks already follow this approach. However, there are scenarios where certain costs are depending on third parties, in these cases a comparison is not always possible.
Guideline 6:
The Guideline lacks a definition of ‘non-price features and risks’. Thus, it is unclear what this re-quirement means for financial institutions.
Question 7: Please comment on the proposed guideline 7 as well as the corresponding examples, stating clearly in your response the guideline paragraph number to which your comment relates.
It is essential that the concept of the responsible customer needs to be properly included in the Guidelines. Meaning that after the customer received the respective product information it is him/her who makes the final decision upon which option to take and which product to buy.Question 8: Please comment on the proposed guideline 8 as well as the corresponding examples, stating clearly in your response the guideline paragraph number to which your comment relates.
Please note that with MiFID similar regulations are already existing. ESBG hopes that overlaps and discrepancies in the provisions will be avoided.Furthermore, the scope of the Guideline is unclear. In the Summary of the Guidelines it says under 17:
‘This guideline requires competent authorities to monitor that, where firms are subject to such requirements through sectorial legislation, the demands and needs of customers or suitabil-ity/appropriateness are adequately assessed by firms which distribute tied and bundled packages and that these cross-sold packages of financial products are placed in the interests of customers.’
Guideline 8 (paragraph 25) does not refer to sectorial legislation but to ‘any applicable require-ments to meet the demands and needs to the customer or to assess suitability or appropriate-ness’ (which describes an even wider scope). Additionally, the examples in Guideline 8 seem to indicate the need for a sheer unlimited individual assessment before the sale of a product:
‘1) […] Regardless of the nature of the service offered (i.e. whether or not advice is being provided), firms need to consider the potential for costumers to actually benefit from the tied or bundled products that they offer. So, a firm should not cross-sell a product to an individual customer where the firm is (or should be) reasonably aware that the costumer is not able to benefit from the additional product […]’
ESBG asks the JC to clarify this point. A reference to the sectorial legislation makes sense from a practical point of view. It is not possible, though, to take into account for each product sale every customers’ individual preferences and their situational circumstances. Moreover, an assessment of the individual benefits of a product for a consumer would be a standard which is in contrast to the requirements of directives such as MiFID II, MCD or Consumer Credit Directive where the neces-sary assessment varies depending on the type of product (solvency, suitability or appropriateness; assessments for investment, banking or insurance; complex or simple products etc.).
To conclude, ESBG would like the JC to note that in practice tools such as overviews of product features as well as socio-demographic and behavioural characteristics of customers are used.
Question 9: Please comment on the proposed guidelines 9 and 10 as well as the corresponding examples, stating clearly in your response the guideline paragraph number to which your comment relates.
Guideline 9:The ESBG acknowledges that adequate training of staff is extremely important. However, to ensure that the staff is able to communicate along the lines of a vague criteria such as plain and non-technical language would require an assessment of each employee’s individual communication skills which is an almost impossible task in large entities. Against this background, ESBG is critical of the ’obligation to train the staffs’ communication skills and doubts the necessity of this provision. In any case, ESBG would like the JC to ensure that such communication training is required by any directive or regulations referred to.
Furthermore, the reference to ‘plain language’ (Guideline 9, paragraph 26) is ambiguous and could lead to different interpretations in the Members States. Furthermore, there is a lack consistency in wording between the Guidelines and the already existing European regulatory framework. [For more details see above under question 6.]
Question 10: Please comment on the proposed guideline 11 as well as the corresponding examples, stating clearly in your response the guideline paragraph number to which your comment relates.
ESBG would like the JC to reflect in the Guidelines that, naturally, whenever a savings and retail bank offers a bundle/tied packaged with the benefit of reduced costs to the customers this is based the expectation to make a higher profit themselves due to the sale of more products. If the customer now makes use of her/her cancellation right, they must be able to compensate that loss. Such a ‘give and take’ which is in the nature of the markets should not be forbidden.Furthermore, it is possible that if the customers exercises his/her cancellation right the savings and retail bank that cross-sales the package needs to pay charges to another firm that had provided one or more products of the package. In such cases, the customer is informed in advance that the cancellation would lead to charges. The customer is then free to take an informed decision and to decide whether to accept possible penalties in exchange for a better price.