Communication from the Commission to the Council and the European Parliament - Review of the distance marketing of consumer financial services Directive (2002/65/EC)
Date: 2009-11-20
Institutions: European Commission
Subjects: Internet, consumer information, consumer protection, distance selling, financial services, intra-EU trade, marketing

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 20.11.2009 
COM(2009) 626 final 

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND THE 
EUROPEAN PARLIAMENT 

REVIEW OF THE DISTANCE MARKETING OF CONSUMER FINANCIAL 
SERVICES DIRECTIVE (2002/65/EC) 

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INTRODUCTION  

Article  20  of  the  Distance  Marketing  of  Consumer  Financial  Services  Directive 
2002/65/EC (the Directive) provides for a Commission review on the functioning of 
distance marketing in financial services to ensure the adequate development of cross-
border distance marketing in this sector.  

The objectives of the Directive are to consolidate the single market while attaining a 
high  level  of  consumer  protection.  In  line  with  Article  20,  the  review  focuses  in 
particular  on  differences  in  national  legislation  relating  to  aspects  of  the  Directive 
which  are  not  fully  harmonised,  namely  pre-contractual  information  provisions  and 
the consumer's right of withdrawal. It evaluates the difficulties which consumers and 
suppliers may face as a result of these differences and assesses if there is a need to 
amend the Directive.  

The Directive, a horizontal measure covering all financial services, was adopted on 
23  September  2002,  giving  Member  States  two  years  in  which  to  transpose  it  into 
national  law.  The  Commission's  report,  duly  submitted  to  the  European  Parliament 
and  the  Council  in  April  2006,1  stated  that  the  review  would  be  postponed  due  to 
Member  States  being  late  in  transposing  the  Directive.2  Most  Member  States  only 
transposed it in 2005/2006. 

This report is fed by conclusions from studies, analyses and feedback on the state of 
the  market  and  on  whether  the  explicit  leeway  applied  by  Member  States  to 
provisions  not  fully  harmonised  has  impacted  on  the  achievement  of  the  internal 
market and consumer protection objectives of the Directive. The bulk of the analysis 
comes  from  two  studies  launched  by  the  Commission.3  The  Legal  Study  examines 
the impact of the Directive from a legal perspective, and its findings have been taken 
into  account  in  the  Economic  Study  which  explores  the  economic  impact  of  the 
Directive on the cross-border distance marketing of financial services. 

In  addition,  discussions  with  consumer  groups  and  the  financial  services  industry 
took  place  in  2007  and  2008.  A  questionnaire  was  circulated  to  Member  States  in 
September 2007 and a workshop with Member States was held in March 2008. The 
report  also  takes  account  of  the  results  of  surveys,  national  and  EU-wide,  such  as 
Eurobarometer,  and  output  from  the  Commission's  2007  focus  groups  on  pre-
contractual information, as well as the Commission's transposition checks. The data 
collected  are  based  on  material  obtained  prior  to  the  economic  and  financial  crisis. 
More recent data does not exist.  

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COM(2006) 161 final. 
The Court found that two Member States had not respected the obligation to transpose the Directive on 
time; see cases C-127/06, Commission/Luxembourg, judgement of 7 December 2006, ECR p. I-131, and 
C-141/06, Commission/Spain, judgement of 19 April 2007, ECR p. I-58. 
See http://ec.europa.eu/consumers/rights/fin_serv en.htm  

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STATE OF THE MARKET 

The  market  for  cross-border  financial  services  business  in  general,  independent  of 
the  marketing  means,  is  still  very  limited  in  the  retail  sector,  both  in  banking  and 
insurance. Eurobarometer4 results for EU citizens who have obtained, for instance, a 
bank  account  across  borders5  give  4%  as  the  figure  for  2003  in  EU-15  Member 
States. This increased to 8% (in EU-25) in 20066.  

Contrasting overall (cross-border and domestic) distance marketing of general goods 
and  services  with  distance  marketing  of  financial  services,  the  most  recent 
Eurobarometer shows that while in 2007, over half (52%) of all  Europeans  made  a 
purchase  of  goods  or  services  by  distance  marketing  in  the  European  Union7,  the 
figure for financial services by distance marketing was much lower, at 12%8. While 
the level is low, the trend in distance marketing of financial services is upward, given 
that the figure for 2006 was only about 7%.9 

Looking at cross-border, as opposed to domestic trade in financial services, there is 
an even greater contrast. Of the 12% of European citizens who purchased a financial 
service  of  some  kind  by  distance  marketing,  10%  did  so  from  providers  in  their 
country,  while  only  1%  purchased  distance  financial  services  from  EU  providers 
outside  their  country,  and  1%  from  providers  outside  the  EU.10  The  most  recent 
statistics show cross border trade in general to be stalling.11 This finding is reinforced 
by the Economic Study which noted that the level of distance marketing of financial 
services cross border is extremely low. 

The  profile  of  the  typical  cross-border  shopper  is  that  of  a  young,  well-educated 
professional with an Internet connection, by far the most popular distance marketing 
channel,  as  shown  by  the  Commission's  focus  groups  study.12  In  fact,  31%  of 
European  citizens  are  not  interested  in  cross-border  shopping  because  they  do  not 
have Internet access.13 Therefore countries with high Internet penetration rates, such 
as the Nordic countries, are likely to have higher levels of distance marketing.  

Confirming  the  Internet  preference  and  the  gap  between  domestic  and  cross  border 
levels  of  business,  the  Commission's  recent  Report  on  cross-border  e-commerce  in 
the  EU14  noted  that  between  2004  and  2008,  the  level  of  consumers  who  ordered 

Eurobarometer  (EB)  60.2  (2004),  EU  Public  Opinion  in  Europe:  Financial  Services,  Report  B.  p.53, 
http://ec.europa.eu/public_opinion/archives/ebs/ebs_205_fullreport_en.pdf 
Qualitative  study  among  cross-border  buyers  of  financial  services  in  the  European  Union,  Optem. 
December 2003, p. 5. Although the sample was not representative, bank accounts were found to be the 
easiest product to measure. 
http://ec.europa.eu/consumers/cons_int/fina_serv/cons_experiences/cross_border_final_report_en.pdf 
Special EB 252 (2006), Consumer Protection in the Internal Market, p.106, see footnote 4 
Special EB 298 (2008), Consumer Protection in the Internal Market, p. 14, see footnote 4 
Idem p. 84. 
See footnote 6, p. 112. 
See footnote 7 p. 84. 
European Commission Second Consumer Markets Scoreboard, COM (2009) 25 final, p. 3. 
European  Commission,  Pre-contractual  Information  for  financial  services.  Qualitative  study  in  the 
27 Member States, January 2008.  
http://ec.europa.eu/consumers/rights/docs/PCI_final_report_22Feb2008_en.pdf 
See footnote 6, p. 57. 
SEC (2009) 283 final, p. 5. 

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goods  or  services  over  the  Internet  increased  from  22%  to  34%.  However,  this 
growth was confined to national markets. E-consumers continue to resist purchasing 
goods  and  services  across  borders,  with  the  gap  in  fact  widening;  cross-border  e-
commerce increased only marginally, from 6% to 7%, between 2006 and 2008.  

Cross-border shopping in the original 15 Member States and in eurozone countries is 
more  common  than  in  the  Member  States  who  joined  post-2004  and  in  the  non 
eurozone countries. In general, Europeans are now more confident about shopping in 
other EU countries than in 2006.15  

Input from the banking industry demonstrated that meaningful levels of cross-border 
distance  marketing  of  financial  services  have  not  yet  been  reached,  partly  because 
distance marketing is not yet one of the main channels used by banks. As is the case 
for  the  cross  border  purchasing  of  general  goods  and  services,  the  most  recent 
Eurobarometer found that citizens rated language problems as the greatest barrier to 
purchasing  financial  services  cross-border.  The  figure  for  language  problems  was 
37%,  followed  by  fraud  risk  (30%),  incomprehensible  (29%)  or  insufficient  (26%) 
information and the extra costs involved (24%).16  

There  is  an  important  distinction  between  distance  services  offered  across  border 
directly  by  the  service  provider  and  those  where  the  offering  is  made  indirectly  by 
the  establishment  of  a  branch,  a  subsidiary,  using  an  intermediary  or  an  online 
facility in another Member State, with the latter typically having back office support 
from  the  home  Member  State.  In  addition,  there  is  usually  no  distinct  model  for 
customer interaction; rather, financial services suppliers use multi-channel marketing 
combining both distance and face-to-face interaction. This pronounced preference is 
noted  in  the  Economic  Study,  which  found  that  contracts  were  seldom  concluded 
over a single channel, i.e. internet, phone or face-to-face only. This preference was 
echoed in the Commission's focus groups study,17 which noted that, in addition to the 
information  available  on  the  internet,  consumers  wanted  to  receive  advice  from 
professionals by means of face-to-face interviews.  

Although reliance  on such advice is unlikely to change, the channel through which 
financial services are marketed has the potential to develop over time. The findings 
of the Economic Study show that there is potential for growth where economies of 
scale can be achieved by large companies entering markets, or within large markets. 
However, critical mass is difficult to achieve in smaller or less developed financial 
markets, although sometimes significant price differentials attract banks to markets, 
overcoming this obstacle. Market consolidation and integration in both banking and 
insurance  sectors  result  in  a  small  number  of  large  companies  doing  business  on  a 
pan-European  basis,  and  their  market  share  is  reportedly  increasing,  both  in 
insurance18 and in banking.19  

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See footnote 7, p. 52. 
See footnote 6, p. 89. 
See footnote 12, p. 14. 
CEIOPS (2007), Report on Financial Conditions and Financial Stability in the European Insurance and 
Occupational Pension Fund Sector 2006-2007 (Risk Update), p. 16, 
http://www.ceiops.eu/media/files/publications/reports/CEIOPS-DOC-12-07.pdf 
SEC(2007) 1696, European Financial Integration Report 2007, Annex II, Chart 1.4, p.50 and Chart 3.1, 
p. 64. 

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The offerings which lend themselves to successful adaptation to distance marketing 
methods primarily include simple products within savings and investments, loans and 
non-life insurance categories. The Economic Study reported non-mortgage loans and 
savings  accounts  as  the  two  most  popular  distance  marketing  products  for  banks, 
followed  by  stocks/shares/bonds  and  credit  cards.  When  it  comes  to  cross-border 
offerings  of  products  by  distance  marketing,  the  range  of  products  narrows,  with 
savings  and  credit  cards  being  the  simplest  and  hence  the  most  popular  for  this 
market. 

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TRANSPOSITION OF THE DIRECTIVE  

Transposition in the Member States  

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In checking the conformity of the national provisions with the Directive, most of the 
difficulties in transposing the Directive appear in connection with a few provisions.  

Article  3  deals  with  the  information  to  be  given  to  the  consumer  prior  to  the 
conclusion  of  the  distance  contract.  The  Directive  requires  that  consumers  are 
informed  about  the  identity  of  the  representative  of  the  supplier  established  in  the 
Member  State  where  they  are  domiciled  or  about  the  identity  of  any  professional, 
other  than  the  supplier,  dealing  with  them.  A  few  Member  States  have  omitted  to 
transpose one of these requirements. 

Article  6  defines  the  right  of  withdrawal  and  its  paragraph  (2)  sets  out  where  such 
right does not apply. A few Member States defined a scope which goes beyond the 
exemptions enumerated in Article 6(2).  

Article  7  concerns  the  payment  of  the  service  provided  before  withdrawal.  When 
consumers exercise their right to withdraw they may only be required to pay for the 
service  actually  provided  by  the  supplier  in  accordance  with  the  contract.  A 
maximum period of 30 days is  set  for  the  supplier or consumer to return any sums 
received.  A  few  Member  States  have  not  correctly  implemented  one  of  these 
provisions.  

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In  some  cases,  as  mentioned  above,  the  Commission  has  launched  formal 
infringement procedures and may do the same for other cases.  

Pre-contractual information rights 

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Article  4  (2)  grants  Member  States  the  right  to  opt  for  additional  pre-contractual 
information rights (either by maintaining existing rights or by introducing new ones).  

According  to  the  information  available,  16  Member  States  (Austria,  Denmark, 
Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Malta, Portugal, 
Romania, Slovakia, Sweden and United Kingdom) have made use of Article 4 (2).20  

Such additional information requirements include for example details of the address 
of the provider/supplier, authorisation and licensing schemes, conditions for exercise 

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See Legal Study; pp. 51-56, 63-74 and national reports. 

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of  the  right  to  vary  contractual  terms,  form  of  information  to  meet  the  needs  of 
disabled  people,  duration  of  the  contract,  details  of  guarantee  funds  and  guarantee 
schemes, whether the provider is subject to any insolvency procedure, language to be 
used, receipts, details of redress schemes or the right of withdrawal, risks involved, 
the  way  information  is  to  be  stored  and  disclosure  requirements  in  the  context  of 
telephone calls.  

At present, there is no evidence that legal differences due to the use of Article 4 (2) 
by  Member  States  constitute  major  obstacles  to  existing  transactions  or  that  they 
have  a direct impact on the level of distance marketing of financial services  across 
the EU. The Legal Study did not detect any specific complaints or concerns related to 
the use of this provision.  

Right of withdrawal 

Article  6  (3)  allows  Member  States  to  exclude  the  right  of  withdrawal  in  some 
specific cases, such as (a) any credit intended primarily for the purpose of acquiring 
or retaining property rights in land or in an existing or projected building, or for the 
purpose  of  renovating  or  improving  a  building,  (b)  any  credit  secured  either  by 
mortgage on immovable property or by a right related to immovable property, or (c) 
declarations by consumers using the services of an official, provided that the official 
confirms that the consumer is guaranteed the right under Article 5 (1).  

According  to  the  information  available,  14  Member  States  (Belgium,  Bulgaria, 
Denmark,  France,  Ireland,  Lithuania,  Luxembourg,  Netherlands,  Poland,  Portugal, 
Romania, Spain, Sweden and United Kingdom) have used the options under a) and 
b). Four Member States (Italy, Luxembourg, Poland and Romania) have made use of 
the option under c).21 

At present, there is no evidence that the differences on the right of withdrawal due to 
Article 6 (3) create a significant legal barrier or that they have a direct impact on the 
level of distance marketing of financial services across the EU. The Legal Study did 
not detect any specific complaints or concerns in relation to this provision. 

OVERALL IMPACT OF THE DIRECTIVE 

The  Economic  Study  reveals  that  the  barriers  to  the  development  of  cross-border 
financial  services  business  by  distance  marketing  are  mainly  supplier-centred. 
However,  only  national  anti-money  laundering  requirements  and  the  lack  of 
harmonisation of relevant national legislation, or absence of EU legislation, on points 
not included in the scope of the Directive are ranked by the study as very significant 
barriers.  While  the  first  category  concerns  differing,  detailed  national  rules, 
prescribing  how  financial  institutions  should  confirm  the  address  and  identity  of  a 
customer,  the  second  concerns  mainly  product-specific  national  rules.  Neither  of 
these categories of barriers falls within the scope of the Directive. In addition, there 
is insufficient and partially contradictory evidence on the importance of the second 
barrier  because  financial  services  providers  themselves  and  banking  associations 
have divergent views on the significance of this barrier. While banking associations 

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See Legal Study, national reports.  

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rated the barrier as significant, only a small number of companies (financial services 
providers)  considered  it  significant.  In  addition,  the  European  Banking  Industry 
Committee, representing banking associations at European level, supports the finding 
that differences in legal regulations in Member States do not impede the cross-border 
distance marketing of financial services.22  

The  most  significant  demand-side  barriers  come  from  differences  in  language  and 
culture, as well as the absence of available information on cross-border products. The 
European Commission has already taken steps in order to improve the quality of pre-
contractual  information  available  to  consumers,  for  instance  in  the  Standard 
European Consumer Credit Information Sheet, annexed to the new Consumer Credit 
Directive,23  and  in  the  Key  Investor  Information  document,  being  tested  for  the 
revision of the UCITS Directive.24 In the area of mortgages, the examination of the 
European  Standard  Information  Sheet  aims  to  improve  the  presentation  of  pre-
contractual  information  to  consumers.25  The  Commission  Communication  on 
Packaged Retail Investment Products proposes measures to deliver clear, comparable 
pre-contractual  information  to  investors  of  these  products.26  The  impact  of  these 
measures  is  to  standardise  the  presentation  of  pre-contractual  information  in  a  way 
which makes it easier for the consumer to compare the offers of different providers. 
This  reduces  the  danger  of  consumers  paying  more  or  taking  unnecessary  risks 
regarding  financial  services  products.  In  addition,  the  Commission  is  launching  a 
behavioural study on retail investment services. This study will provide a mapping of 
the key behavioural traits affecting consumers’ choices in this sector.  

The combination of supply and demand-side inhibitors is reinforced by the character 
of  financial  services.  Compared  with  non-financial  goods  and  services,  financial 
services  exhibit  distinguishing  features,  notably  because  they  are  usually  more 
complex  and  often  require  a  substantial  and  important  long-term  economic 
commitment to a target outcome. This necessitates the provision of advice to enable 
the  consumer  to  make  this  commitment.  In  addition,  some  services  such  as  motor 
insurance  are  local  by  virtue  of  the  location  of  the  risk  and  therefore  do  not  easily 
transfer  across  borders.  Although  the  Directive  provides  a  regulatory  infrastructure 
which can support distance marketing of financial services, it does not change their 
complex nature. 

The  Directive  has  created  in  all  Member  States  a  legal  framework  offered  to 
suppliers  and  consumers  for  purchasing  financial  services  via  distance  marketing 
tools.  While  domestic  distance  marketing  of  financial  services  has  increased,  albeit 
still at a low level overall, it cannot be concluded at this stage that the existence of 
this  framework  has  had  an  impact  on  furthering  the  development  of  cross-border 
activities. The Legal Study reported that there is currently no practical experience of 
consumers  complaining  about  the  way  the  Directive  is  applied.  Legal  experts  and 

EBIC  Position  on  the  Draft  Final  report  on  the  Legal  Impact  of  Directive  2002/65  on  the  Distance 
Marketing of Consumer Financial Services, p. 9. 
Directive  2008/48/EC  of  the  European  Parliament  and  of  the  Council  of  23  April  2008  on  credit 
agreements  for  consumers  and  repealing  Council  Directive  87/102/EEC,  Annex  II,  OJ  L  133, 
22.5.2008, p. 66–92. 
Recast of the Directive 85/611/EEC, COM (2008) 458 final, cf. Art. 76. 
White Paper on the Integration of EU Mortgage Credit Markets, COM (2007) 807 final, p. 6 . 
COM (2009) 204 final. 

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consumer organisations who were consulted in the context of the study explained this 
lack of evidence by the still insignificant level of transactions in this area. 

CONCLUSION 

The current market for distance selling of consumer financial services across borders 
is very small. In most Member States national implementation laws only came into 
force  from  2005/2006  onwards  and  the  market  has  not  significantly  changed  since 
the  Directive  was  introduced.  This  is  in  line  with  the  e-commerce  report27 
conclusions, according to which the market may increase in the medium to long term 
because business attitudes are often framed more by perception than actual problems 
and  because  the  growing  popularity  among  consumers  of  transacting  online  will 
create a demand for cross border expansion.  

Language  and  cultural  preferences  represent  the  most  significant  barrier  to 
consumers  engaging  in  this  market.  However,  the  Commission  cannot  take  any 
measure  in  this  area.  In  relation  to  the  absence  of  information  on  financial  product 
legislation in particular markets, the Commission is undertaking significant steps to 
improve the quality of information in the area of credits and investments. 

Should  future  advances  in  e-commerce  in  general  fail  to  be  mirrored  by  similar 
developments in the area of distance marketing of financial services, the Commission 
may  consider  re-examining  the  case  for  amending  the  Directive  or  taking  other 
relevant initiatives.  

At  this  stage,  there  is  no  evidence  that  consumers  face  problems  arising  from 
incorrect  implementation  of  the  Directive.  Nor  is  there  any  evidence  which  would 
indicate  that  the  legal  diversity  resulting  from  Member  States  using  to  a  varying 
extent the options contained in the Directive has a direct impact on the low level of 
cross-border distance marketing of financial services. 

In  light  of  the  above,  the  Commission  takes  the  view  that  at  present  it  is  not 
appropriate to propose any amendments to the Directive. It will continue to monitor 
developments in the market and the application of the Directive.  

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