New provisions on conflicts of interest, changes to the Directive’s scope and a loosening of restrictions on the charging of commissions are just some of the significant amendments in the May 2014 draft of IMD2. There is, therefore, plenty to consider in the revised draft Directive, and the following is a selection of some of the most noteworthy changes:
- Changes to Scope: Claims managers and loss adjusters will welcome the fact that they are not within the scope of this draft of IMD2. Those that operate websites will also welcome the more specific definition of what websites will be within the scope of IMD2.
- Removal of Ban on Commission: The ban on commission in previous drafts of IMD2 had caused significant discussion within the industry. While each country is still free to impose such a ban, the latest draft exhibits a less prescriptive approach to commission-based payments.
- Protection against Insolvency: Countries have various options to protect customers from a (re)insurance intermediary’s insolvency, including an option to require the intermediary to permanently maintain a financial capacity amounting to 4% of the sum of annual premiums received (subject to a minimum of €18,750).
- Bundling and Tying Practices: The prohibition on bundling or tying products has been removed from the most recent draft, though certain disclosures will still be required where bundling or tying of products occurs.
- Conflicts of Interest: A specific obligation to maintain and operate effective organisational and administrative arrangements to protect conflicts of interest from adversely affecting customers has been introduced. On this point, EIOPA’s paper on the subject should be noted (that paper being open for comment until 22 July 2014).
- Co-ordination with MiFID II: The revised paper now specifically connects a number of requirements for insurance policies with an investment element with equivalent requirements in the latest draft of MiFID II. While the Commission has acknowledged products sold as insurance policies compete with products sold under MiFID II, it was felt that those products are sufficiently different to warrant their sales channels being the subject of separate regulations.
Industry will welcome many of the changes in the latest draft of IMD2. The trilogue discussions on IMD2 have not yet concluded, and the revisions also leave considerable room for national discretion. Plenty of twists may therefore remain during IMD2’s journey to the national statute-books.