Response to consultation on remuneration of sales staff
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The fact that in page 25 the consultation paper mentions the misselling of payment protection insurance (PPI) in UK could be used as an example of regulated practices that the Financial Conduct Authority has put in place, which we believe might be transferred to other markets. These practices establish that these products cannot be sold at the point of sale until seven days have elapsed since the purchase of the credit, and in the event that the offer of the insurance product takes place later, up to seven days after having put forward a proposal. Thus, a period should be established for the offer of the tied or bundled product as when PPI is sold in the United Kingdom, so that the customer might have time to adopt an informed decision. In this regard, we believe that only by separating the time of the purchase of the credit or loan from that of the tied or bundled product, the customer will be able to decide with the proper criteria. Further, we are also of the opinion that the UK legislation benefits the consumers’ by mandating the obligation to inform on the cost of the payment protection insurance and stating the obligation to clarify that contracting payment protection insurance is optional and that it can be obtained from several suppliers. It is also forbidden to sell single premium policies and it is mandatory to include an annual reminder to the consumer to the effect that he has the right to cancel the policy.
In addition, one of the most important aspects to protect the customer’s interest is that the distribution of an accessory product such as insurance, which the financial institutions can carry out, does not depend on financial objectives which may take priority over the interests of the customer. It is essential that the employees of the financial institutions that sell insurance packages know the characteristics of the products that they are selling, insofar as they are not the main product offered by the institution. But the most important aspect is that those who offer these products are not the same employees advising on the sale of the loan or credit and that these two transactions do not coincide in time, as it is now averted in the case of the sale of PPI in the United Kingdom, which we mentioned above. They must be different professionals; ones’ specialized in banking advice and others in insurance.
(http://www.ivass.it/ivass_cms/docs/F11166/PPI_Misure%20a%20tutela%20dei%20clienti.pdf
In our opinion, these are examples where it should not exist a difference between banking products and insurance products in the application of these Guidelines. Insurance products should also be covered by the consultation paper when they are offered to consumers by financial institutions. In this regard, the guidelines could prevent financial institutions from establishing strategies which incentivise the sale of tied or bundled products related to a financial incentive, which should be deleted in order not to damage the customer.
In this regard, it is advisable to mention what is established by Good Practices for Financial Consumer Protection Report published by the World Bank in June 2012, on page 15 regarding tying and bundling clauses, and on page 47, stating other negative impacts on tying and bundling clauses. Also, the EIOPA Opinion on Payment Protection Insurance of June 2013 should be taken into account.
Furthermore, in Italy, recently, the commercial practice of a bank, a credit institution or financial intermediary that compulsorily required the customer to subscribe an insurance policy with the same bank, institution or intermediary in order to formalise a mortgage loan contract, has been classified as being considered incorrect. The fact that the Mortgage Credit Directive approved in 2014 forbids tying the insurance to the mortgage credit is also a significant step which merits praise.
1) Do you agree with Guideline 1 on design?
We agree with what is set out in this Guideline, although we miss some practical examples which could be used as a background for the institutions.The fact that in page 25 the consultation paper mentions the misselling of payment protection insurance (PPI) in UK could be used as an example of regulated practices that the Financial Conduct Authority has put in place, which we believe might be transferred to other markets. These practices establish that these products cannot be sold at the point of sale until seven days have elapsed since the purchase of the credit, and in the event that the offer of the insurance product takes place later, up to seven days after having put forward a proposal. Thus, a period should be established for the offer of the tied or bundled product as when PPI is sold in the United Kingdom, so that the customer might have time to adopt an informed decision. In this regard, we believe that only by separating the time of the purchase of the credit or loan from that of the tied or bundled product, the customer will be able to decide with the proper criteria. Further, we are also of the opinion that the UK legislation benefits the consumers’ by mandating the obligation to inform on the cost of the payment protection insurance and stating the obligation to clarify that contracting payment protection insurance is optional and that it can be obtained from several suppliers. It is also forbidden to sell single premium policies and it is mandatory to include an annual reminder to the consumer to the effect that he has the right to cancel the policy.
In addition, one of the most important aspects to protect the customer’s interest is that the distribution of an accessory product such as insurance, which the financial institutions can carry out, does not depend on financial objectives which may take priority over the interests of the customer. It is essential that the employees of the financial institutions that sell insurance packages know the characteristics of the products that they are selling, insofar as they are not the main product offered by the institution. But the most important aspect is that those who offer these products are not the same employees advising on the sale of the loan or credit and that these two transactions do not coincide in time, as it is now averted in the case of the sale of PPI in the United Kingdom, which we mentioned above. They must be different professionals; ones’ specialized in banking advice and others in insurance.
2) Do you agree with Guideline 2 on documentation?
We agree with what is set out in this Guideline3) Do you agree with Guideline 3 on approval and monitoring?
We agree with what is set out in this Guideline4) Do you see a need for any additional requirements?
We consider that these Guidelines are very appropriate as means to prevent the impact of misselling that has been detrimental for consumers over the last few years. Nevertheless, we would like to insist on the fact that, unfortunately, misselling also occurs in the context of the distribution of insurance products by financial institutions, that is why the scope of application of the Guidelines should be wider and thus also refer to the selling of insurance by these entities. The consultation paper in page 25 describes the misselling of payment protection insurance (PPI) in the UK which has had an enormous impact in this market, considering the number of fines and complaints issued. We have also been aware of another case of misselling of PPI that has taken place recently in Italy and the actions that the Central Bank and the Insurance Authority of this country are putting in place to prevent these practices from happening.(http://www.ivass.it/ivass_cms/docs/F11166/PPI_Misure%20a%20tutela%20dei%20clienti.pdf
In our opinion, these are examples where it should not exist a difference between banking products and insurance products in the application of these Guidelines. Insurance products should also be covered by the consultation paper when they are offered to consumers by financial institutions. In this regard, the guidelines could prevent financial institutions from establishing strategies which incentivise the sale of tied or bundled products related to a financial incentive, which should be deleted in order not to damage the customer.
In this regard, it is advisable to mention what is established by Good Practices for Financial Consumer Protection Report published by the World Bank in June 2012, on page 15 regarding tying and bundling clauses, and on page 47, stating other negative impacts on tying and bundling clauses. Also, the EIOPA Opinion on Payment Protection Insurance of June 2013 should be taken into account.
Furthermore, in Italy, recently, the commercial practice of a bank, a credit institution or financial intermediary that compulsorily required the customer to subscribe an insurance policy with the same bank, institution or intermediary in order to formalise a mortgage loan contract, has been classified as being considered incorrect. The fact that the Mortgage Credit Directive approved in 2014 forbids tying the insurance to the mortgage credit is also a significant step which merits praise.