I NEW DIRECTIVE ON INSURANCE DISTRIBUTION
The Directive (EU) 2016/97 of the European Parliament and of the Council, of 20 January 2016, on insurance distribution (IDD II) has entered into force on 23 February 2016, with the main purpose of harmonizing the national provisions concerning insurance and reinsurance distribution.
Aimed at ensuring effective consumer protection, IDD II entails a new paradigm whilst extending its scope in order to cover all sales of insurance products, despite the differences between distribution channels, and therefore applying not only to insurance undertakings or intermediaries, but also to other market participants who sell insurance products on an ancillary basis, such as travel agents and car rental companies, unless they meet the conditions for exemption.
Insurance and reinsurance intermediaries play a central role in the distribution of insurance and reinsurance products in the Union, by helping not only insurers (e.g. facilitating entry into the market, helping new insurers reach a wide client base without having to incur the costs of building a distribution network; assisting with claims-related services and policy administration), but also insurance costumers (e.g., identifying the risks customers face; ensuring that customers take informed decisions about the risks they wish to insure; designing new and innovative solutions; reducing customers’ search costs; providing personalized advice; assisting customers with claims-related services and policy administration).
Despite the above mentioned, insurance products are also sold directly by some insurance companies and bank-assurance (through the intermediation of credit institutions and investment companies). In addition, some sellers of insurance products, such as car rentals and travel agents, exercise this business activity on ancillary basis.
Considering the differences between the different distribution channels, the IDD II undertakes as its main purpose to ensure that the same level of consumer protection applies and that all consumers can benefit from comparable standards in the UE territory, whilst promoting a level playing field and competition on equal terms between intermediaries, whether or not they are tied to an insurance undertaking. This Directive is also aimed at coordinating national rules concerning access to the activities of insurance and reinsurance distribution.
IDD II updates previous legislation in the area, replacing the Directive 2002/92/EC of the European Parliament and of the Council, of 9 December 2002, on insurance mediation (Insurance Mediation Directive 2002)2, which (exception made to its Chapter III-A,
1 JO L 26, de 2.2.2016 p. 19
2 OJ L 9 of 15.1.2003, p. 3
deleted with effect from 23 February 2016) will be repealed with effect from 23 February 2018, which is the date until which the Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with IDD II.
The obligation to transpose IDD II into national law shall be confined to those provisions which represent an amendment of the substance of the Insurance Mediation Directive 2002, whilst the obligation to transpose the provisions which are unchanged arises directly from the Insurance Mediation Directive 2002.
Regarding insurance-based investment products, IDD II complements other rules on the sale of investment products contained in MiFID II3 and the Regulation (EU) No. 1286/2014 of the European Parliament and of the Council of 26 November 2014 on key in formation documents for packaged retail and insurance-based investment products (PRIIPs)4.
Significant changes enacted by the IDD II
- New minimum professional and organisational requirements
Insurance and reinsurance intermediaries and employees of insurance and reinsurance undertakings and employees of insurance and reinsurance intermediaries must comply with continuing professional training and development requirements in order to maintain an adequate level of performance corresponding to the role they perform and the relevant market.
To that end, home Member States shall have in place and publish mechanisms to control effectively and assess the knowledge and competence of insurance and reinsurance intermediaries and employees of insurance and reinsurance undertakings and employees of insurance and reinsurance intermediaries, based on at least 15 hours of professional training or development per year, taking into account the nature of the products sold, the type of distributor, the role they perform, and the activity carried out within the insurance or reinsurance distributor.
Home Member States may require that the successful completion of the training and development requirements is proven by obtaining a certificate.
In addition, natural persons working in an insurance or reinsurance undertaking, or insurance or reinsurance intermediary, who pursue insurance or reinsurance distribution shall be of good repute. As a minimum, they shall have a clean criminal record or any other national equivalent in relation to serious criminal offences linked to crimes against property
3 Directive 2014/65/EU of the European Parliament and of the Council, of 15 May 2014, on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU, OJ L 173 of 12.06.2014, p. 349
4 OJ L 352, of 9.12.2014, p. 1
or other crimes related to financial activities and they shall not have previously been declared bankrupt, unless they have been rehabilitated in accordance with nati onal law.
- New rules on professional indemnity insurance
Insurance and reinsurance intermediaries shall hold professional indemnity insurance covering the whole territory of the Union or some other comparable guarantee against liability arising from professional negligence, for at least EUR 1 250 000 applying to each claim and in aggregate EUR 1 850 000 per year for all claims, unless such insurance or comparable guarantee is already provided by an insurance undertaking, reinsurance undertaking or other undertaking on whose behalf the insurance or reinsurance intermediary is acting or for which the insurance or reinsurance intermediary is empowered to act or such undertaking has taken on full responsibility for the intermediary’s actions.
Ancillary insurance intermediaries must also hold professional indemnity insurance or comparable guarantees at a level established by Member States taking into account the nature of the products sold and the activity carried out.
- More Transparency
When carrying out insurance distribution, insurance distributors must always act honestly, fairly and professionally in accordance with the best interests of their customers and all information provided, including marketing communications, addressed by the insurance distributor to customers or potential customers shall be fair, clear and not misleading. Marketing communications shall always be clearly identifiable as such.
- More and more reliable information
Prior to the conclusion of a contract, including in the case of non-advised sales, the customer should be given the relevant information about the insurance product to allow the customer to make an informed decision.
An insurance product information document should provide standardised information about non-life insurance products. It should be drawn up by the relevant insurance undertaking or, in the Member States concerned, by the insurance intermediary that manufactures the insurance product.
The insurance intermediary should explain to the customer the key features of the insurance products it sells, and its staff should therefore be given appropriate resources and time to do so.
There is, however, less of a need to require that such information be disclosed when the customer is seeking reinsurance or insurance cover for commercial and industrial risks, or
solely for the purposes of distributing insurance-based investment products, when the customer is a professional client.
- Adequacy of the insurance to the customer
In order to avoid cases of mis-selling, the sale of insurance products should always be accompanied by a demands- and-needs test on the basis of information obtained from the customer. Any insurance product proposed to the customer should always be consistent with the customer’s demands and needs and be presented in a comprehensible form to allow that customer to make an informed decision.
Where advice is provided prior to the sale of an insurance product, in addition to the duty to specify the customers’ demands and needs, a personalised recommendation should be provided to the customer explaining why a particular product best meets the customer’s insurance demands and needs.
When providing advice on an insurance-based investment product, the insurance intermediary or insurance undertaking shall also obtain the ne cessary information regarding the customer’s or potential customer’s knowledge and experience in the investment field relevant to the specific type of product or service, that person’s financial situation including that person’s ability to bear losses, and that person’s investment objectives, including that person’s risk tolerance, so as to enable the insurance intermediary or the insurance undertaking to recommend to the customer or potential customer the insurance-based investment products that are suitable for that person and that, in particular, are in accordance with that person’s risk tolerance and ability to bear losses..
- Conflicts of Interests
The expanding range of activities that many insurance intermediaries and undertakings carry on simultaneously has increased potential for conflicts of interest between those different activities and the interests of their customers. Therefore, the IDD II sets forth rules to ensure that customers are provided in advance, not only by the insurance intermediaries but also by the insurance companies, with clear information about the status of the persons who sell insurance products and about the type of remuneration which they receive.
On the other hand, insurance distributors are not remunerated or do not remunerate or assess the performance of their employees in a way that conflicts with their duty to act in accordance with the best interests of their customers. In particular, an insurance distributor shall not make any arrangement by way of remuneration, sales targ ets or otherwise that could provide an incentive to itself or its employees to recommend a particular insurance product to a customer when the insurance distributor could offer a different insurance product which would better meet the customer’s needs.
The rules aimed at preventing conflicts of interests under the IDD II are particularly important whenever insurance-based investment products are at stake.
- New rules regarding cross-seling
When an insurance product is offered together with an ancillary prod uct or service which is not insurance, as part of a package or the same agreement, the insurance distributor shall inform the customer whether it is possible to buy the different components separately and, if so, shall provide an adequate description of the different components of the agreement or package as well as separate evidence of the costs and charges of each component.
- New sanctions regime
In order to ensure compliance with the provisions of this Directive by insurance undertakings and persons who pursue insurance distribution, and to ensure that they are subject to similar treatment across the Union, Member States should be required to provide for administrative sanctions and other measures which are effective, proportionate and dissuasive. In particular, the competent authorities should be empowered to impose pecuniary sanctions which are sufficiently high to offset the actual or potential profits, and to be dissuasive even for larger institutions and their managers.
- Easy public access to details pf registered insurance and reinsurance intermediaries
Member States should establish a single information point which gives access to their registers for insurance, reinsurance and ancillary insurance intermediaries (as already happens in Portugal with the information made available at the website of the Portuguese Insurance and Pension Funds Authority – Autoridade de Supervisão de Seguros e Fundos de Pensões). That single information point should also provide a hyperlink to each relevant competent authority in each Member State.
In order to enhance transparency and facilitate cross- border trade, the European Insurance and Occupational Pensions Authority (EIOPA) should establish, publish and keep up-to-date a single electronic database containing a record of each insurance, reinsurance and ancillary insurance intermediary which has notified an intention to exercise its freedom of establishment or to provide services. Member States should provide relevant information to EIOPA promptly to enable it to do this.
- Appropriate and effective alternative dispute resolution procedures
IDD II also highlights the need for appropriate and effective out-of-court complaint and redress procedures in the Member States in order to settle disputes between insurance distributors and customers using, where appropriate, existing procedures. Such out-of-court complaint and redress procedures should seek to achieve a quicker and less expensive settlement of disputes between insurance distributors and customers.
A. Banking Law: Institutional and Material
Commission Implementing Regulation (EU) 2016/99 of 16 October 2015
Laying down implementing technical standards with regard to determining the operational functioning of the colleges of supervisors according to Directive 2013/36/EU of the European Parliament and of the Council.
Commission Implementing Regulation (EU) 2016/100 of 16 October 2015
Laying down implementing technical standards specifying the joint decision process with regard to the application for certain prudential permissions pursuant to Reg ulation (EU) No 575/2013 of the European Parliament and of the Council.
Commission Delegated Regulation (EU) 2016/101 of 26 October 2015 Supplementing Regulation (EU) No 575/2013 of the European Parliament and of the Council with regard to regulatory technical standards for prudent valuation under Article 105(14).
Commission Delegated Regulation (EU) 2016/451 of 16 December 2015
Laying down general principles and criteria for the investment strategy and rules for the administration of the Single Resolution Fund.
Commission Implementing Regulation (EU) 2016/428 of 23 March 2016 Amending Implementing Regulation (EU) No 680/2014 laying down implementing technical standards with regard to supervisory reporting of institutions as regards the reporting of the Leverage Ratio.
Commission Implementing Regulation (EU) 2016/200 of 15 February 2016 Laying down implementing technical standards with regard to disclosure of the leverage ratio for institutions, according to Regulation (EU) No 575/2013 of the European Parliament and of the Council.
Commission Implementing Regulation (EU) 2016/313 of 1 March 2016
Amending Implementing Regulation (EU) No 680/2014 with regard to additional monitoring metrics for liquidity reporting.
Corrigendum to Commission Implementing Regulation (EU) 2016/322 of 10 February 2016
Amending Implementing Regulation (EU) No 680/2014 laying down implementing technical
standards with regard to supervisory reporting of institutions of the liquidity coverage requirement.
Decision (EU) 2016/3 of the European Central Bank of 18 November 2015
Laying down the principles for providing feedback on the performance of national competent authorities' sub-coordinators in the joint supervisory teams of the Single Supervisory Mechanism (ECB/2015/36).
Guideline (EU) 2016/64 of the European Central Bank of 18 November 2015 Amending Guideline (EU) 2015/510 on the implementation of the Eurosystem monetary policy framework (General Documentation Guideline) (ECB/2015/34).
Decision (EU) 2016/187 of the European Central Bank of 11 December 2015 Amending Decision ECB/2013/1 laying down the framework for a public key infrastructure for the European System of Central Banks (ECB/2015/46).
Decision (EU) 2016/188 of the European Central Bank of 11 December 2015
On the access and use of SSM electronic applications, systems, platforms and services by the European Central Bank and the national competent authorities of the Single Supervisory Mechanism (ECB/2015/47).
Guideline (EU) 2016/65 of the European Central Bank of 18 November 2015
On the valuation haircuts applied in the implementation of the Eurosystem monetary policy framework (ECB/2015/35).
Guideline (EU) 2016/66 of the European Central Bank of 26 November 2015 Amending Guideline ECB/2013/24 on the statistical reporting requirements of the European Central Bank in the field of quarterly financial accounts (ECB/2015/40) .
Council Decision (EU) 2016/228 of 14 July 2015
On the resolution procedure.
European Systemic Risk Board
Recommendation of the European Systemic Risk Board of 11 December 2015 on recognising and setting countercyclical buffer rates for exposures to third countries.
European Systemic Risk Board
Recommendation of the European Systemic Risk Board of 15 December 2015 on the assessment of cross-border effects of and voluntary reciprocity for macroprudential policy measures.
European Systemic Risk Board
Decision of the European Systemic Risk Board of 11 December 2015 on the assessment of materiality of third countries for the Union’s banking system in relation to the recognition and setting of countercyclical buffer rates.
Order no. 866/2016 – Official Gazette no. 12/2016, Series II of January 19, 2016
Personal guarantee of the State to Mutual Counterguarantee Fund.
Order no. 867/2016 - Official Gazette no. 12/2016, Series II of January 19, 2016
Personal guarantee of the State to Resolution Fund.
Bank of Portugal Notices
Notice no. 1/2016, which has entered into force on March 19, 2016, defines the procedures for the presentation, review and maintenance of recovery plans, establishes the regulatory regime applicable to exposures related to the real estate market, adapting to the current prudential framework, and repealing Instruction no. 120/96, August 16, with the exception of subparagraph b) of paragraph 2, which remains in force until December 31, 2017, pursuant to article 11 of the notice no. 6/2013, of 27 December.
Bank of Portugal Instructions
Instruction no. 16/2015, which has entered into force on October 2, 2015, on the framework of the implementation of monetary policy of the Eurosystem.
Instruction no. 2/2016, which has entered into force on February 29, 2016, features and regulates the Auctions Information System (“SITENDER”).
Instruction no. 3/2016, which has entered into force on April 1, 2016, discloses, for the 2nd quarter 2016, the maximum rates on credit agreements for consumers under Decree - Law No. 133/2009, of 2 June.
Instruction no. 4/2016, which has entered into force on March 22, 2016, approves the models of communication of information referred to in paragraph 2 of article 3, and the model of extension requests referred to in paragraph 1 of article 6 of the Bank of Portugal notice no. 1/2016 of 18 March, which adapted the regulatory framework relating to real estate risk.
Bank of Portugal Circular Letters
Circular Letter no. 6/2016/DES, of February 4, 2016, requests information, complementing the application of Circular Letter no. 107/2015 / DSC, of 28 December, in particular on the collateral and the borrower's income associated with the contracts in force on 31 December 2015, as defined in Article 1 of Decree-Law no. 51/2007, of March 7.
Circular Letter no. 7/2016/DES, of February 5, 2016, discloses the reporting models of the Finance and Capital Plans, the description of the macroeconomic and financial environment and other necessary guidelines to carry out the exercise and provision of information, in compliance with paragraph 9 of Instruction No. 18/2015, published in BO No 1/2016.
B. Insurance Law: Institutional and Material
Commission Implementing Regulation (EU) 2016/165 of 5 February 2016
Laying down technical information for the calculation of technical provisions and basic own funds for reporting with reference dates from 1 January until 30 March 2016 in accordance with Directive 2009/138/EC of the European Parliament and of the Council (Solvency II).
Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016
On insurance distribution (recast). Please see opening text.
Ministerial Order no. 74-B/2016 – Official Gazette no. 59/2016, 1st Supplement, Series II of March 24, 2016
Supervision fees - ASF.
C. Securities and Capital Markets
Commission Implementing Regulation (EU) 2016/378 of 11 March 2016
Laying down implementing technical standards with regard to the timing, format and template of the submission of notifications to competent authorities according to Regulation (EU) No 596/2014 of the European Parliament and of the Council .
Commission Delegated Regulation (EU) 2016/98 of 16 October 2015 Supplementing Directive 2013/36/EU of the European Parliament and of the Council with regard to regulatory technical standards for specifying the general conditions for the functioning of colleges of supervisors.
Commission Implementing Decision (EU) 2016/230 of 17 February 2016 Amending Implementing Decision 2014/908/EU as regards the lists of third countries and territories whose supervisory and regulatory requirements are considered equivalent for the purposes of the treatment of exposures according to Regulation (EU) No 575/2013 of the European Parliament and of the Council.
Commission Implementing Decision (EU) 2016/377 of 15 March 2016
On the equivalence of the regulatory framework of the United States of America for central counterparties that are authorised and supervised by the Commodity Futures Trading Commission to the requirements of Regulation (EU) No 648/2012 of the European Parliament and of the Council.
Corrigendum to Directive 2014/91/EU of the European Parliament and of the Council of 23 July 2014
Amending Directive 2009/65/EC on the coordination of laws, regulations and
administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) as regards depositary functions, remuneration policies and sanctions.
European Economic and Social Committee
Opinion of the European Economic and Social Committee on the Proposal for a Regulation of the European Parliament and of the Council laying down common rules on securitisation and creating a European framework for simple, transparent and standardised securitisation and amending Directives 2009/65/EC, 2009/138/EC, 2011/61/EU and Regulations (EC) No 1060/2009 and (EU) No 648/2012 and the proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 575/2013 on prudential requirements for credit institutions and investment firms .
Ministerial Order no. 74-C/2016 – Official Gazette no. 59/2016, 1st Supplement, Series II of March 24, 2016
Supervision fees – CMVM.
Regulation no. 4/2015 – (Securities Market Commission) – Official Gazette no. 17/2016, Series II of January 26, 2016
Regulation no. 4/2015 (Securities Market Commission) – Audit Supervision.
Notice no. 3251/2016 – Official Gazette no. 49/2016, Series II of March 10, 2016 Portuguese Treasury and Debt Management Agency – General conditions of the series Treasury Bond 2,875% - July, 2026.
III. Relevant Court Decisions
Supreme Court of Justice, Decision of March 17, 2016, Procedure no. 70/13.1
It was decided by the Court that whenever financial products are traded with a misleading information that the capital investment is guaranteed, the responsibility for such misleading information shall be attributed not only to the issuer of the products but also to the financial intermediary, whenever in the business relationship developed with the customer it also ensures to the client the repayment of the invested capital.
Supreme Court of Justice, Decision of January 26, 2016, Procedure no. 540/14.4 If, within two interest rate swaps underlying the financing agreements concluded with, respectively, a Dutch bank and an Italian bank, subject to a standard contract called ISDA Master Agreement, the parties, both domiciled in a Member State of the European Union, under clause 13 (b) (i), appoint the English courts as competent to settle disputes arising in connection thereto, it must be understood that said clause corresponds to an agreement conferring jurisdiction to the English courts, entered into in compliance with Article 23 of Regulation (EC) No 44/2001 of 22.12.2000, which takes precedence over the Portuguese national law (Article 8, paragraph 4 of the Portuguese Constitution).
According to CJEU, the requirements for the validity of a jurisdiction convention are only those listed in Article 23 of Regulation 44/2001, and the law of the Member States cannot add others. In addition, so that the choice of jurisdiction is valid it is not necessary that there is any connection between the dispute and the court designated, not considering, therefore, hypothetical inconvenience to a party (in this case, to the appellant), arising from the location of the agreed forum.
Supreme Court of Justice, Decision of March 10, 2016, Procedure no. 137/11.0 The insurer is not prevented from opposing to policyholders and beneficiaries a n exclusion provision in the event the failure of the duty to provide information and clarification being exclusively attributed to the policyholder.
The exclusion provision setting forth "acts or omissions by the insured person when it has been detected a degree of alcohol in the blood exceeding 0.5 gr./liter" must be interpreted as defined in its scope by reference to the volume of alcohol detected in the insured when the accident occurs, and not by any reference to a causal link.
Supreme Court of Justice, Decision of January 26, 2016, Procedure no. 876/12.9 The change in the interest rate, as far as it integrates the typical alea assumed by the contracting parties at the time of execution of the contract, does not constitute an abnormal change of circumstances leading to the cancellation of a swap transaction.
The unfavorable performance of the contract to one of the parties, since any of them had an unfavorable alea, or favorable, depending of the fluctuations in the index of interest rates, does not justify the qualification of the conduct of one of the contra cting parties as bad faith and violating the rules in accordance with the law, and therefore does not entitle the counterparty to argue an abuse of rights.
Lisbon Court of Appeal, Decision of March 10, 2016, Procedure no. 13644/12.9 A bank guarantee payable on first demand is automatic and requires immediate compliance, and the guarantor cannot refuse its enforcement on grounds relating to the secured obligation.
Although it is understood that there might be some grounds to refuse compliance with the guarantee in exceptional situations where its enforcement violates the rules of good faith or corresponds to an abuse of rights, the guarantor would always be required to prove such abusive behavior on a prompt and unequivocal way.
Hence, the enforcement of a bank guarantee payable on first demand, cannot be precluded by the opposition to enforcement claimed by the guarantor whenever such opposition is based on the existence of an interim measure regarding which no final decision has yet been issued aimed at inhibiting the enforcement of the guarantee based on the exception that the debtor was not required to comply with its payment obligations because the creditor had not complied with his own obligations. From the existence of this interim measure only results the pendency of a court dispute over the enforceability of a contractual provision, insufficient to demonstrate a clear violation of the rules of good faith and/or an abuse of rights.
Lisbon Court of Appeal, Decision of March 10, 2016, Procedure no. 3358/15.3 The provision contained in standard (not negotiated) loan agreement entered into between a bank and a person according to which in case the bank cannot debit the account used for the repayment of the loan, it will be entitled to withdraw the funds deposited in other accounts held by the customer jointly with other persons in the same bank, shall
be deemed as null and void. Otherwise, such a clause would allow the bank to debit monies deposited in accounts held jointly by the borrower and other people, with no relation whatsoever with the loan, and so enable the bank to set-off through third-party credits.
The joint or several nature of a bank account with several co-owners, concerns the account handling system and not a joint or several liability of the co-owners to the bank.
Lisbon Court of Appeal, Decision of March 8, 2016, Procedure no. 1100/13.2 The article 20 of Decree-Law No. 133/2009, of June 3, merely provides a new opportunity to the consumer to avoid the loss of benefit of the term or grants to the creditor the right to terminate the agreement, provided the requirements set forth therein are met. It does not grant, whether explicitly or implicitly, to the creditor the right to, after the notification provided for in the clause, consider himself entitled to all the interest that he would be entitled to until the term of the contract. Article 20 did not contemplate or leaned on these matters.
Hence, the doctrine of the unifying judgment no. 7/2009, of March 25, according to which "in loan agreements reimbursable through installments, the acceleration thereto under Article 781 of the Civil Code does not imply the obligation to pay the compensatory interest applicable to the installments not yet due" must be maintained.