Key points

The European Banking Federation (EBF) welcomes the opportunity to respond to European Supervisory authorities’ joint committee consultation paper on guidelines for cross-selling practices published on 22 December 2014.

 The EBF members are convinced that it is vital to ensure high level consumers trust in the retail financial market and that consumers have access to financial services products they need. Particular consideration should also be given to preserve innovation and consumer choice.
 Importantly, we think that consistency should be ensured between the work of the Supervisory Authorities and the “level 1” legislations which respond to a strict legislative process involving the three EU institutions.
 We understand that the ESAs has to comply with the third sub-paragraph of Article 24 (11) of MiFID II which requires ESMA, in cooperation with EBA and EIOPA, to develop guidelines for the assessment and the supervision of cross-selling practices. However, it is important to clarify that this requirement has not been included by the EU institutions in the other legislative instruments referring to cross-selling such as the Directive on credit agreements for consumers relating to residential immovable property (MCD) or the Payment Accounts Directive (PAD) . By adopting a single set of guidelines, the ESAs “stretch” the investment product regulation to all retail products which is not appropriate.
 In accordance with the objective of article 16.1 of the Regulation (EU) no 1093/2010, the guidelines should not go beyond the level 1 provisions and should respect the scope of application of the different sectorial legislations (e.g the prerogatives in MiFID II allocated by the EU institutions and the fact that the MCD and the PAD concern natural persons’ rights acting for purposes which are outside their trade, business, craft or profession).
 The approach of the ESA’s could appear premature due to on-going legislative negotiations on texts targeted by those guidelines, such as the Insurance Mediation Directive Recast (IMD II) and the Payment Services Directives (PSD) under review. Those texts have not been adopted yet and are still subject to discussion.
 In addition this approach should also comply with the European principle of proportionality and the European Commission’s objective of better regulation".
- Indeed it is important to note that the existing Unfair Commercial Practices Directive already sets a common framework against misleading and aggressive practices within the EU. The Article 4 of the UCPD, known as the ‘Internal Market clause’, embodies the full harmonisation effect of the Directive and prevents Member States from deviating from its rules. This general clause enables the directive to adapt to specific sectors (including the financial services sector) and represent a flexible tool to adapt to changing market reality. As stressed by the European Commission in its first report on the application of the UCPD this feature was confirmed by the Court of Justice of the EU in the ‘Total Belgium’ case and in the context of other preliminary rulings .
- More specifically for financial services, Member States have put in place national rules that provide consumers with safeguards which add to and complement those laid down in the UCPD.
- The European Commission in its communication on the application of the UCPD published in 2013 mentioned that “the results of the investigation reveal that it would not be appropriate, for the time being, to remove the ability, accommodated in the Directive, for Member States to go beyond the level of harmonisation set by it in financial services and immovable property”. In this context, the European Commission – to ensure that the Directive is applied in an appropriate and consistent manner – has developed a “Guidance on the implementation/application of the Directive” which is periodically updated to take into account the emergence of new practices and the development of EU and national case law.


 In the EBF’s view it is of paramount importance to remind that cross-selling practices are not per se detrimental to consumers and/or competitors in the retail financial services market. Indeed a clear distinction should be made between:
i. aggressive commercial practices, misleading information and anti-competitive product-tying practices which are clearly not in the interest of consumers and are prohibited (it is notably aligned with the article 5 of the Directive on Unfair Commercial Practices ); and
ii. tying or bundling products that are common practices in many sectors, including financial services, which are intended to provide customers with better offers (more accessible, cost-saving for the customer). They are also commonly used by banks to compete against each other and differentiate their products by making them more attractive to customer segments.
 Particular attention should be given to the principle of proportionality with regard to product complexity and potential risks. A one-size fits all approach will indeed not allow a distinction between product characteristics and could be to detrimental to the “tailored made” approach in favour of consumer needs. Only a case-by-case approach can allow a correct assessment of unfairness vis-à-vis consumers and overload of information should be avoided.
 We believe that the ESAs’ focus should be directed towards correct and swift enforcement of the existing frameworks, and efforts to aid consumers’ understanding of the products.

Footnotes
First Report on the application of Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market – COM(2013) 139 final 14.03.2013 - See notably part 3 page 6 on the application of the directive.
Joined Cases C-261/07 and C-299/07 VTB-VAB NV v Total Belgium, and Galatea BVBA v Sanoma Magazines Belgium NV, 23 April 2009; C-304/08 Zentrale zur Bekämpfung unlauteren Wettbewerbs eV v Plus Warenhandelsgesellschaft mbH, 14 January 2010; C-288/10 Wamo BVBA v JBC NV and Modemakers Fashion NV, order of 30 June 2011; C-126/11 Inno NV v Unizo and others, order of 15 December 2011.
See EC report COM (2013) 139 final 14.03.2013 which acknowledges page 4 that” The Internal Market clause has required substantial adaptation of national legal systems to the provisions of the Directive. In particular, the Member States had to carry out extensive screening of their national legislation and repeal any provisions which were incompatible with the Directive. Such provisions had to do mainly with bans on specific commercial practices which were not included in Annex I to the Directive (the ‘Black List’ of practices prohibited in all circumstances), especially in the area of sales promotions. The Internal Market clause has resulted in a major simplification of the rules on misleading advertising and unfair commercial practices in business-to-consumer transactions across the EU, by replacing the 27 national regimes with one set of rules, whilst maintaining a high level of consumer protection.”
http://ec.europa.eu/justice/consumer-marketing/files/ucpd_communication_en.pdf

Question 1: Do you agree with the general description of what constitutes the practice of cross-selling?

 The EBF agrees with the following description of cross-selling practices proposed:
- Bundled package is a package of products and/or services where each of the products offered to the customer is available separately and where the customer retains the choice to purchase each component of the package separately.
- Tied package is a package of products and/or services where at least one of the products offered in the package is not available separately to the customer from the provider.
- Component product is the separate product and/or service which constitute part of the bundled or tied package.
However, to avoid confusion, and to provide certainty – because consumers could understand the term “cross-selling” to mean the practice of selling additional products of services to a customer at the point where a customer purchases, or intends to purchase, a core product - the EBF suggests that references to “tying”, “bundling”, and “cross-selling” should be used as separate and distinct terms.
 The EBF welcomes the clarification mentioned in the guidelines that “Nothing in the guidelines is intended to prevent the offering of products which constitute an inherent or indivisible package (sectoral legislation permitting) which cannot by its nature be offered or sold separately because the components are a fully integrated part of the package”. For example, certain multi-risk insurance policies or a secured overdraft facility together with a current account.
However, in some cases, the proposed description of “cross-selling” practices could appear too broad and is capable of capturing situations where the customer acquires two or more “connected” products from the same firm, but where there is no intent of the firm to sell these products as a package (e.g. products that are in some way connected and sold through different sale channels, or/and sold at different times, the client has acquired connected products upon its own initiative, without the firm actually marketing the products as a distinct package, loyalty bonus for customers). The only fact that the customer acquires two or more connected financial products from the same firm should not be seen as a sufficient proof of existing practices falling within the scope of proposed guideline.
 Furthermore, the EBF would like to point out that the definition of ‘customer’ mentioned in the guideline is unclear and should therefore be clarified. The executive summary refers to “customers” as “natural or legal persons to whom bundled or tied packages, as defined in the guidelines, are proposed” but according to the wording used, it seems to be more consumer oriented.
For example: page 10 describes “Potential consumer benefits”, pages 11-12 3b “they are unable to ‘effectively process the information given to them by firms’ 3d. “reluctant to spend the necessary time and cost to shop-around for alternative components”; page.13 “Consumer detriment”; experiencing barriers such as limited mobility which “can be incompatible both with fair competition and with other consumer rights such as rights to switch payment accounts or other products and services”; page.17 footnote 6: pursuant to ‘consumer behavior evidence’ not having ‘the confidence to de-select a pre-ticked option’ and they ‘are reluctant to override the perceived ‘authority’ of a firm’
Using indifferently “consumer” and “customer” can lead to uncertainties in the application of the guidelines especially where a cross-selling occurs with one component covered by one piece of sectoral legislation adapted to “customers” while another one is covered by a different piece of sectoral legislation adapted to “consumers”. It could therefore add more confusion in practice.
 In addition, the EBF believes that the term “product” should be further defined and be consistent with existing legislations.
For example a bank currently offers a mortgage product. A variation on that mortgage product (a reduced interest rate mortgage “discount mortgage”) is available when purchasing a current account. If the generic mortgage product is defined as the “product”, then activities carried out by the bank fall within the definition of bundling. If the “discount mortgage” is defined as the “product” then activities carried out by the bank fall within the definition of conditional offering but with clear benefit, in terms of cost-saving, for the informed consumer .
 Furthermore, the EBF considers that the description of “components” as “products/services constituting the tied or bundled package” risks to create unintended consequences.
For example, the EBF anticipates that a regular ‘free in credit’ current account is not intended to be considered a package of products/services made up of components such as internet banking, cheque processing, direct debits). It would be extremely difficult for firms to cost out and allocate a price to such banking services, and there is no apparent benefit to the customer, although the risk of causing confusion is high.
 We suggest specifying definition of “tied or conditional offering”. The provided wording covers all kinds of “tied package”, saying that such package exists when at least one of the products/services offered in the package is not available separately to the customer from the provider. We propose to state that cases when the “core” (primary) product may not technically or legally exist without having other “additional” (secondary) product are not considered as tied package.

For example, there might be some cases in some Member States where in order to get a loan from credit institution the customer might be obliged to have an account with this credit institution otherwise the loan cannot be provided and there is no technical option how to repay the loan. Such co-existing of products should not be considered as tying of products.
 It should be expressly mentioned in the guidelines that the definition of “package or “packaged should not be understood as “Packaged retail and insurance-based investment products” (PRIIPs) (as suggested by footnote 4 of the consultation) to avoid confusion and overlap with the definition of PRIIPs under Regulation (EU) No 1286/2014.
 The guidelines should also expressly exclude structured finance products. Indeed, the underlying assets of a structured product are not bought by the client: they do not constitute a package and should therefore not fall under the definition of cross-selling.
 More flexibility should also be provided to allow “optional/extra structures”
 The competences of the ESAs is limited to financial services, therefore the legal basis used by the ESAs to include requirements on non-financial services is unclear. The following sentence should therefore be deleted: “firms should not cross-sell packages of products which include non-financial services or products for the purpose of circumventing these guidelines”."