Response to consultation on draft Guidelines for cross-selling practices
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- Simplicity for the customer: the latter may prefer to deal with just one person, who will suggest a package solution to meet his/her needs - there is only one contract to meet all his needs, and time is saved;
- Accounting benefits for businesses: accounting rules may differ between separate selling and tied selling, for example in the case of companies carrying out market transactions.
- Reduced costs for the customer: this should be explained using examples such as having only one contract and only one setting-up procedure, reducing the administrative fees involved.
- Added value for the customer, who is offered a solution entirely designed to meet the needs that he/she outlines. For example, a customer requiring an authorised overdraft facility may be interested in an alert service providing updates on the state of his/her account.
- The possibility for customers to learn about certain benefits and products that are new to them, yet that may meet their demands.
“Package” selling therefore does not just have detriments, which the guidelines present in a disproportionate way.
Furthermore, the majority of these examples are not unique to tied selling and could also be cited for individual product sales. The detriment associated with tied sales described by the Joint Committee is not structurally linked to cross-selling. Rather, the examples outlined are of wrongful conduct that could just as easily manifest itself when products are sold separately (lack of customer information or non-respect for customer choice). Point 3 (pages 11 and 12), which criticises the information delivered for being too complex, relates to the specific obligations established by these very guidelines: as such, the guidelines create the complexity being condemned. The overcrowding of information is, above all, the result of the specific rules for a particular product or service included in the offer, to which may be added specific rules for a particular type of customer or distribution channel; the complexity of the information is therefore not down to the fact that it is a package sale, but instead down to the multiple rules that apply to its constituent products or services.
Elsewhere, in point 4b (page 12) for example, the detriment described is in no way unique to cross-selling and remains true for products sold separately.
Finally, point 4e (page 12) strikes us as eminently questionable in the sense that, cross-referenced with the examples featured under guideline 8 (pages 26 and 27), it allows for an element of doubt over the existence of a suitability principle, a principle that was very clearly rejected when level 1 texts were adopted for certain products and services, such as credit for example.
Furthermore, they do not seem fully applicable due to existing regulations, for example on mortgages (obligation of delinking, early repayment fees) and, more generally, not fully representative of banking products but rather of large-scale retail.
We do not share this strong insistence on costs. Pricing is not the only element that motivates the purchase of a bundled offer (flexibility, simplicity, etc.).
Examples 1 and 2: it is common practice to offer services at a better price as part of a package, but it cannot be considered that selling at a higher price is bad practice ipso facto. The practices described are only abusive in nature when they demonstrate poor consumer information about the price of the services (making customers mistakenly believe that they are paying less for services by purchasing a package) or in cases of forced selling (lack of respect for client choice).
Example 3: While returning the part of the premium is not required by law, the pricing methods remain within the domain of freedom of contract. Linking two products must not lead to additional rules being established. The pricing of insurance products may at times be designed in such a way as to spread risk in the event of damages. Allowing the termination of an insurance contract solely because it was sold as part of a tied sale can lead to annual insurance becoming insurance that may be cancelled at any moment, which would effectively make the insurance more expensive and would therefore be to the detriment of customers.
On the other hand, it is important that the pricing is transparent and, where applicable, that the customer is informed of the consequences of terminating one product or another.
Example 4: The payment of early termination fees is regulated by the law, as is the capacity of a party to terminate the contract.
- Guideline 1: key price and cost information
The obligation to provide a breakdown of the costs is difficult to envisage if the products are inseparable (a complementary option for a service, for example).
Furthermore, the example of the interest rate swap does not seem relevant because, as a financial instrument resulting from investment services, it is already treated separately from credit, as per the MIFID regulations.
- Guideline 5: Information on non-price features and risks
The information displayed on the conditions and potential consequences of purchasing the package is already regulated by the MIFID provisions. This guideline merely repeats this obligation.
We understand the requirement for information about the price and the product to be communicated in simple language. However, this contradicts the sector-specific basic texts that impose standardised information whose language, often technical in nature, is not that of the consumer.
Elsewhere, we question the relevance of the need to use the same font for all text. This demand goes beyond the sector-specific basic texts.
- Guideline 4: The example of loan insurance does not clarify which cases can be considered as presenting information in a misleading or distorting way. It should be reviewed or removed.
- Guideline 6: clear and, in good time, useful information on non-price factors and relevant risks
The examples do not shed light on the notion of “non-price factors”.
From a general perspective, these measures must be proportionate to the product’s level of risk.
The assertion made in point 10 (page 16), pertaining to guidelines 2, 3, 4 and 6, has no basis in objective reality.
For us, the application of the current provisions applying to the sale of financial products therefore seems sufficient. The attention of the authorities should be more focused on strengthening the existing legislation and not on a complex increase of the legal framework at a European level that, what’s more, oversteps the boundaries of ESAs competences.
Example 2: French regulations already recommend ‘opt-in’.
Pre-ticking “No” seems to us to be inappropriate, as it presumes that the consumer does not need the product being sold as part of a cross sale. Rather, it seems necessary to us to steer clear of pre-ticking of any sort, to leave the consumer with the freedom to choose.
The example featured is too broad, it concerns the assessment of product suitability and advice, notions that do not apply to all products, particularly not in the case of mortgages.
In a more general sense, this guideline is not specific to tied package sales and must, in our opinion, be removed.
If a bundled package is put on the market, each of its component parts must be sold in accordance with their own applicable rules. There is no grounds for applying additional restrictions regarding the training of the sales staff, beyond those already requested for the sale of each of the individual products that make up the total package.
- Guideline 10: Conflicts of interest in the remuneration structures of sales staff.
The level of detail of this last phrase is striking and its implementation will be complex, if not impossible. “Monitoring by senior management”: it does not always seem appropriate to intervene to this extent in the organisation of institutions, in order to ensure that distribution fits with the realities of the product and the market. Such a framework must only be put in place if it is foreseen by the level 1 texts.
The regulation of conflicts of interest is not unique to sales of tied packages, which do not merit specific attention on this regard. Consequently, this consultation should not deal with rules relating to conflicts of interest.
Neither is this point specific to cross-selling.
Concerning splitting the different components of the package, returning to “stand-alone” pricing can be justified, without this being considered to be a penalty. If customers no longer wish to take advantage of the bundled package, they may lose the advantageous pricing that was associated with it.
The periods and fees for withdrawal or cancellation (cooling-off period for mortgages) seem to correspond to the measures outlined by the directives.
The examples in 3) do not appear adapted because they are inherent to rate-hedging products and, notably for the last phrase, because market operations are founded on this principle, particularly for companies. In this way, this guideline would prohibit any tied transaction in this sector, despite the fact that in certain cases the latter reduces the level of risk for the customer, which is his/her aim.
Furthermore, if the possibility is left to unexceptionally split the components of a package without a disproportionate penalty, derogations must be allowed because there are certain circumstances under which it is not possible to split a package (e.g. a loan guaranteed by an insurance contract). See our comments on the definition of tied selling.
This is why it would be appropriate to reduce the field of application by excluding certain markets, like for example those of large companies and of very simple products.
Question 2: Do you agree with the identified potential benefits of cross-selling practices?
The French banks generally agree with the description of the benefits of cross-selling. However, they would prefer the details of each advantage to be explained in its own unique paragraph, as is the case for the detriments mentioned. For completeness, the following advantages must be taken into account:- Simplicity for the customer: the latter may prefer to deal with just one person, who will suggest a package solution to meet his/her needs - there is only one contract to meet all his needs, and time is saved;
- Accounting benefits for businesses: accounting rules may differ between separate selling and tied selling, for example in the case of companies carrying out market transactions.
- Reduced costs for the customer: this should be explained using examples such as having only one contract and only one setting-up procedure, reducing the administrative fees involved.
- Added value for the customer, who is offered a solution entirely designed to meet the needs that he/she outlines. For example, a customer requiring an authorised overdraft facility may be interested in an alert service providing updates on the state of his/her account.
- The possibility for customers to learn about certain benefits and products that are new to them, yet that may meet their demands.
“Package” selling therefore does not just have detriments, which the guidelines present in a disproportionate way.
Question 3: Do you agree with the identified potential detriment associated with cross-selling practices?
The benefits and drawbacks of cross-selling are not presented in a balanced manner. Ultimately, certain drawbacks may exist such as those outlined relating to potential unfair practices (biased information or conflict of interest, oblique pricing) but the presentation here is too negative compared with the reality of the banking activities and the number of examples is disproportionate, compared with the examples of customer benefits.Furthermore, the majority of these examples are not unique to tied selling and could also be cited for individual product sales. The detriment associated with tied sales described by the Joint Committee is not structurally linked to cross-selling. Rather, the examples outlined are of wrongful conduct that could just as easily manifest itself when products are sold separately (lack of customer information or non-respect for customer choice). Point 3 (pages 11 and 12), which criticises the information delivered for being too complex, relates to the specific obligations established by these very guidelines: as such, the guidelines create the complexity being condemned. The overcrowding of information is, above all, the result of the specific rules for a particular product or service included in the offer, to which may be added specific rules for a particular type of customer or distribution channel; the complexity of the information is therefore not down to the fact that it is a package sale, but instead down to the multiple rules that apply to its constituent products or services.
Elsewhere, in point 4b (page 12) for example, the detriment described is in no way unique to cross-selling and remains true for products sold separately.
Finally, point 4e (page 12) strikes us as eminently questionable in the sense that, cross-referenced with the examples featured under guideline 8 (pages 26 and 27), it allows for an element of doubt over the existence of a suitability principle, a principle that was very clearly rejected when level 1 texts were adopted for certain products and services, such as credit for example.
Question 4: Please comment on each of the five examples in paragraph 13, clearly indicating the number of the example to which your comment(s) relate.
The examples cited could, in the majority of cases, be applied to the sale of individual products.Furthermore, they do not seem fully applicable due to existing regulations, for example on mortgages (obligation of delinking, early repayment fees) and, more generally, not fully representative of banking products but rather of large-scale retail.
We do not share this strong insistence on costs. Pricing is not the only element that motivates the purchase of a bundled offer (flexibility, simplicity, etc.).
Examples 1 and 2: it is common practice to offer services at a better price as part of a package, but it cannot be considered that selling at a higher price is bad practice ipso facto. The practices described are only abusive in nature when they demonstrate poor consumer information about the price of the services (making customers mistakenly believe that they are paying less for services by purchasing a package) or in cases of forced selling (lack of respect for client choice).
Example 3: While returning the part of the premium is not required by law, the pricing methods remain within the domain of freedom of contract. Linking two products must not lead to additional rules being established. The pricing of insurance products may at times be designed in such a way as to spread risk in the event of damages. Allowing the termination of an insurance contract solely because it was sold as part of a tied sale can lead to annual insurance becoming insurance that may be cancelled at any moment, which would effectively make the insurance more expensive and would therefore be to the detriment of customers.
On the other hand, it is important that the pricing is transparent and, where applicable, that the customer is informed of the consequences of terminating one product or another.
Example 4: The payment of early termination fees is regulated by the law, as is the capacity of a party to terminate the contract.
Question 5: Please comment on the proposed guidelines 1 and 5 as well as the corresponding examples, stating clearly in your response the guideline paragraph number to which your comment relates.
It would be useful, particularly in these guidelines, to distinguish between tied and bundled packages.- Guideline 1: key price and cost information
The obligation to provide a breakdown of the costs is difficult to envisage if the products are inseparable (a complementary option for a service, for example).
Furthermore, the example of the interest rate swap does not seem relevant because, as a financial instrument resulting from investment services, it is already treated separately from credit, as per the MIFID regulations.
- Guideline 5: Information on non-price features and risks
The information displayed on the conditions and potential consequences of purchasing the package is already regulated by the MIFID provisions. This guideline merely repeats this obligation.
Question 6: Please comment on the proposed guidelines 2, 3, 4 and 6 as well as the corresponding examples, stating clearly in your response the guideline paragraph number to which your comment relates.
- Guideline 3: Here again, this overlaps with the MIF tools and regulations on credit advertising and pre-contractual information. In the example given, the ideas about how readable the information is appear quite complex. What about the possibility of a promotional offer?We understand the requirement for information about the price and the product to be communicated in simple language. However, this contradicts the sector-specific basic texts that impose standardised information whose language, often technical in nature, is not that of the consumer.
Elsewhere, we question the relevance of the need to use the same font for all text. This demand goes beyond the sector-specific basic texts.
- Guideline 4: The example of loan insurance does not clarify which cases can be considered as presenting information in a misleading or distorting way. It should be reviewed or removed.
- Guideline 6: clear and, in good time, useful information on non-price factors and relevant risks
The examples do not shed light on the notion of “non-price factors”.
From a general perspective, these measures must be proportionate to the product’s level of risk.
The assertion made in point 10 (page 16), pertaining to guidelines 2, 3, 4 and 6, has no basis in objective reality.
Question 7: Please comment on the proposed guideline 7 as well as the corresponding examples, stating clearly in your response the guideline paragraph number to which your comment relates.
The approach of the ESAs should comply with the principle of proportionality and the “better regulation” objective set by the European Commission. It must be noted that the current directive on unfair commercial practices already covers misleading and aggressive commercial practices in the EU. Financial services being “minimum harmonised”, the directive enables member states to adapt their legislation to market developments by foreseeing measures that better protect consumers in this sector.For us, the application of the current provisions applying to the sale of financial products therefore seems sufficient. The attention of the authorities should be more focused on strengthening the existing legislation and not on a complex increase of the legal framework at a European level that, what’s more, oversteps the boundaries of ESAs competences.
Example 2: French regulations already recommend ‘opt-in’.
Pre-ticking “No” seems to us to be inappropriate, as it presumes that the consumer does not need the product being sold as part of a cross sale. Rather, it seems necessary to us to steer clear of pre-ticking of any sort, to leave the consumer with the freedom to choose.
Question 8: Please comment on the proposed guideline 8 as well as the corresponding examples, stating clearly in your response the guideline paragraph number to which your comment relates.
This ties in with the principle of assessing the client’s situation and needs, and therefore the duty to provide advice or warnings, depending on the type of product. Such obligations already exist for financial products (MIF) and insurance (ACD). With respect to mortgages (MCD) there is a duty to provide a warning, but not to assess the suitability of the product nor to provide advice, which were both left out following the debates leading up to the MCD directive being adopted. With regard to credit, advice is a different service to that of granting credit, and therefore also to that of providing information and adequate explanations. The guidelines must not go further than these texts.The example featured is too broad, it concerns the assessment of product suitability and advice, notions that do not apply to all products, particularly not in the case of mortgages.
In a more general sense, this guideline is not specific to tied package sales and must, in our opinion, be removed.
Question 9: Please comment on the proposed guidelines 9 and 10 as well as the corresponding examples, stating clearly in your response the guideline paragraph number to which your comment relates.
- Guideline 9: Adequate training for relevant staffIf a bundled package is put on the market, each of its component parts must be sold in accordance with their own applicable rules. There is no grounds for applying additional restrictions regarding the training of the sales staff, beyond those already requested for the sale of each of the individual products that make up the total package.
- Guideline 10: Conflicts of interest in the remuneration structures of sales staff.
The level of detail of this last phrase is striking and its implementation will be complex, if not impossible. “Monitoring by senior management”: it does not always seem appropriate to intervene to this extent in the organisation of institutions, in order to ensure that distribution fits with the realities of the product and the market. Such a framework must only be put in place if it is foreseen by the level 1 texts.
The regulation of conflicts of interest is not unique to sales of tied packages, which do not merit specific attention on this regard. Consequently, this consultation should not deal with rules relating to conflicts of interest.
Neither is this point specific to cross-selling.
Question 10: Please comment on the proposed guideline 11 as well as the corresponding examples, stating clearly in your response the guideline paragraph number to which your comment relates.
The legislation applicable to each of the products sold is not overruled in the case of a tied sale of these products.Concerning splitting the different components of the package, returning to “stand-alone” pricing can be justified, without this being considered to be a penalty. If customers no longer wish to take advantage of the bundled package, they may lose the advantageous pricing that was associated with it.
The periods and fees for withdrawal or cancellation (cooling-off period for mortgages) seem to correspond to the measures outlined by the directives.
The examples in 3) do not appear adapted because they are inherent to rate-hedging products and, notably for the last phrase, because market operations are founded on this principle, particularly for companies. In this way, this guideline would prohibit any tied transaction in this sector, despite the fact that in certain cases the latter reduces the level of risk for the customer, which is his/her aim.
Furthermore, if the possibility is left to unexceptionally split the components of a package without a disproportionate penalty, derogations must be allowed because there are certain circumstances under which it is not possible to split a package (e.g. a loan guaranteed by an insurance contract). See our comments on the definition of tied selling.
Question 11: Please provide any specific evidence or data that would further inform the analysis of the likely cost and benefit impacts of the guidelines.
The implementation of these guidelines for all customers (from private individuals to very large companies) and all products would necessarily entail significant costs for the rewriting of documentation, the change of sales procedures and the development of IT.This is why it would be appropriate to reduce the field of application by excluding certain markets, like for example those of large companies and of very simple products.