Home > Reference > Articles

Legal Update July 2004 - Distance marketing of retail financial services

The Distance Selling Directive has been in force since 2000 to protect consumers who wish to take out distance contracts for goods and services over the Internet. But it has excluded financial services. Due to be implemented this October, the 'Distance Marketing Directive' (DMD), (Directive 2002/65/EC) will address this gap and is expected to encourage more European cross-border home shopping for financial services.

The Directive covers any service of a banking, credit, insurance, personal pension, investment or payment nature. It basically sets standards for the information that needs to be provided for retail customers (but not business customers) where a financial services contract will be concluded at a distance. This covers the Internet and any situation where there is no face-to-face contact between supplier and consumer in the "offer, negotiation and conclusion of the contract".
So what information needs to be given, when and in what form?

A brief checklist is given in the separate panel below.
The information must be provided before the consumer is contractually committed, and must include cancellation rights. Placing this on the website alone will not be sufficient, as the Directive requires certain information to be made available on paper or an alternative durable medium that can be referred to readily at a later date. Where a distance contract is concluded electronically via a website the requirements imposed by the eCommerce Directive will also apply.
Consult the relevant FSA module in the handbook

The 'DMD Instrument 2004' will be incorporated into UK law through the FSA's Handbook in stages, for different financial sectors, beginning on 9th October 2004.
Investment - 'Conduct of Business'. In force 9th Oct 2004
Mortgages - 'Mortgages: Conduct of Business'. In force 31st October 2004
Insurance - 'Insurance: Conduct of Business'. In force 14th January 2005
(URLs can be found on the weblink at the end of this article).

Other sourcebooks in the FSA Handbook that have been amended to meet the DMD requirements include: Market Conduct of Business, Authorisation manual, Credit unions, Electronic Commerce Directive, Professional firms and Electronic Money.

Further Considerations

Although the Directive does not directly apply to firms outside of the European Economic Area (EEA), (even if they have a branch in the UK) the Treasury in fact propose to subject non-EEA firms operating in the UK to the new legislation. Moreover, the DTI, responsible for consumer lending, are in the process of reforming the Consumer Credit Act 1974 to incorporate consumer lending DMD requirements. Also, the Banking Code and the Business Banking Code will be amended for those deposit taking or e-money organisations subscribing to the Codes.

DMD - The main requirements

Information must be provided on paper or another "durable medium available and accessible" before the consumer is contractually committed and must include cancellation rights.

1) Information disclosure prior to contract signing:
the identity, main business and address of the supplier/intermediary the consumer deals with
the financial service, including its main characteristics and the total price to be paid by the consumer
the distance contract, including information on any rights of withdrawal, any rights to terminate the contract early, any contractual clause relating to the law applicable to the contract
any out-of-court complaints and redress arrangements and any compensation arrangements other than those covered by the Deposit Guarantee and Investor Compensation Directives

2) Minimum periods of withdrawal from distance contracts
In general the right to withdraw from the contract lasts 30 days for life insurance and personal pensions and 14 days for other contracts. There are certain exemptions to this, such as investments that are subject to changes in the stock market.