COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT REPORT Accompanying the document Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending Directive 2011/83/EU concerning financial services contracts concluded at a distance and repealing Directive 2002/65/EC

EN EN
EUROPEAN
COMMISSION
Brussels, 11.5.2022
SWD(2022) 141 final
COMMISSION STAFF WORKING DOCUMENT
IMPACT ASSESSMENT REPORT
Accompanying the document
Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE
COUNCIL
amending Directive 2011/83/EU concerning financial services contracts concluded at a
distance and repealing Directive 2002/65/EC
{COM(2022) 204 final} - {SEC(2022) 203 final} - {SWD(2022) 142 final}
Offentligt
KOM (2022) 0204 - SWD-dokument
Europaudvalget 2022
1
Table of contents
1. INTRODUCTION: POLITICAL AND LEGAL CONTEXT................................................. 3
1.1. Objective and scope of this initiative ........................................................................... 5
1.2. Interaction of DMFSD with existing legislation and upcoming initiatives.................. 6
1.3 Peer-to-peer lending and this initiative........................................................................ 7
2. PROBLEM DEFINITION ...................................................................................................... 8
2.1. What are the problems to be addressed by the initiative? ............................................ 8
2.2. What are the problem drivers? ................................................................................... 20
2.3. How will the problem evolve? ................................................................................... 22
2.4. Intervention logic ....................................................................................................... 24
3. WHY SHOULD THE EU ACT? .......................................................................................... 26
3.1. Legal basis.................................................................................................................. 26
3.2. Subsidiarity: Necessity of EU action.......................................................................... 26
3.3. Subsidiarity: Added value of EU action..................................................................... 27
4. OBJECTIVES: WHAT IS TO BE ACHIEVED?................................................................. 27
4.1. General objectives (GOs) ........................................................................................... 27
4.2. Specific objectives (SOs) ........................................................................................... 28
5. WHAT ARE THE AVAILABLE POLICY OPTIONS? ...................................................... 28
5.1. What is the baseline from which options are assessed? ............................................. 29
5.2. Description of the policy options ............................................................................... 30
5.3. Options discarded at an early stage ............................................................................ 37
6. WHAT ARE THE IMPACTS OF THE POLICY OPTIONS?............................................. 38
6.1. Option 1: Repeal of the Directive and non-regulatory measures ............................... 40
6.2. Option 2: Comprehensive revision............................................................................. 43
6.3. Option 3a: Repeal and modernisation of relevant provisions introduced in
horizontal legislation .................................................................................................. 45
6.4. Option 3b: Repeal and modernisation of relevant provisions introduced in product-
specific legislation...................................................................................................... 47
7. HOW DO THE OPTIONS COMPARE?.............................................................................. 49
7.1. Effectiveness .............................................................................................................. 49
7.2. Coherence with other EU legislation and policy objectives....................................... 50
7.3. Efficiency ................................................................................................................... 50
7.4. Comparison of options and proportionality................................................................ 53
8. PREFERRED OPTION ........................................................................................................ 54
8.1. Option 3a: Repeal and modernisation of relevant provisions introduced in
horizontal legislation .................................................................................................. 54
8.2. REFIT (simplification and improved efficiency) ....................................................... 56
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9. HOW WILL ACTUAL IMPACTS BE MONITORED AND EVALUATED? ................... 57
ANNEXES..................................................................................................................................... 59
ANNEX 1: PROCEDURAL INFORMATION............................................................................. 60
1) Lead DG, DEcide Planning/CWP references ............................................................. 60
2) Organisation and timing ............................................................................................. 60
3) Consultation of the RSB............................................................................................. 60
4) Evidence, sources and quality .................................................................................... 62
ANNEX 2: STAKEHOLDER CONSULTATION – SYNOPSIS REPORT................................. 64
1) Introduction and consultation strategy ....................................................................... 64
2) Consultation activities and tools - types of stakeholders and data collection tools.... 64
3) Evidence, Sources and quality.................................................................................... 66
4) Main stakeholder feedback per consultation activity ................................................. 67
ANNEX 3: WHO IS AFFECTED AND HOW? ........................................................................... 76
1) Practical implications of the initiative........................................................................ 76
2) Summary of costs and benefits................................................................................... 76
3) Impact on Small & Medium Enterprises (SMEs)....................................................... 78
4) One-in, one-out........................................................................................................... 79
ANNEX 4: ANALYTICAL METHODS ...................................................................................... 81
1) Partial quantification ............................................................................................... 81
2) Description of the analytical methods..................................................................... 89
ANNEX 5. PROBLEM TREE....................................................................................................... 98
ANNEX 6 INTERACTION OF DMFSD WITH EXISTING LEGISLATION AND ON-
GOING INITIATIVES ......................................................................................................... 99
ANNEX 7 EXAMPLES OF INDUSTRY MISLEADING AND UNFAIR PRACTICES AT
ADVERTISING AND PRE-CONTRACTUAL STAGES................................................. 103
ANNEX 8 BACKGROUND INFORMATION ON FINANCIAL SERVICES PRODUCTS
SOLD AT A DISTANCE ................................................................................................... 104
ANNEX 9 GLOSSARY ..........................................................................................................................105
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1. INTRODUCTION: POLITICAL AND LEGAL CONTEXT
Directive 2002/65/EC on Distance Marketing of Consumer Financial Services (‘the Directive’
or ‘the DMFSD’) aims at ensuring the free movement of financial services in the single market
by harmonising certain consumer protection rules governing this area. It applies horizontally
to any present or future service of a banking, credit, insurance, personal pension, investment
or payment nature contracted by means of distance communication e (i.e. without the
simultaneous physical presence of the supplier and the consumer). The Directive sets out
information obligations to be provided to the consumer prior to the conclusion of the distance
contract (pre-contractual information), grants for certain financial services a right of
withdrawal to the consumer, and bans unsolicited services and communications from suppliers.
The Directive has been subject to a full-fledged Evaluation and the Commission has presented
its results in a Staff Working Document1
. The evaluation examined whether the Directive has
achieved its objectives and whether it is fit for purpose. It assessed the overall functioning and
practical application of the Directive as well as its continued relevance in view of market and
legal developments and the current needs of stakeholders. The main results of the evaluation
can be grouped in two overarching conclusions: following the entry into application of the
Directive, a number of EU product-specific legislative acts (e.g. the Consumer Credit
Directive2
) and EU horizontal legislation (the General Data Protection Regulation3
) have been
enacted. The impact of these more recently enacted pieces of legislation is that the Directive’s
relevance and added value has been subsequently eroded. Secondly, in those areas in which the
Directive is still relevant, a number of developments (e.g. digitalisation) have impacted its
effectiveness.
In this light, in the New Consumer Agenda4, the Commission stated its intention to prepare a
proposal for the revision of the Directive in order to reinforce consumer protection in the
context of the digitalisation of retail financial services. The Council Conclusions on the New
Consumer Agenda5 support the Commission’s intention to revise the Directive, in
particular with a view to strengthening consumer protection by implementing specific measures
preventing consumer misinformation. The European Parliament6
, through different
legislative initiative resolutions, such as the resolution of 20 October 2020 with
recommendations to the Commission on a “Digital Services Act: adapting commercial and civil
1
European Commission, Commission Staff Working Document Evaluation of Directive 2002/65/EC concerning the
distance marketing of consumer financial services, SWD (2020) 261 final.
2
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.
3
Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural
persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive
95/46/EC.
4
European Commission, 2020, Communication: New Consumer Agenda Strengthening consumer resilience for
sustainable recovery, COM/2020/696 final.
5
Council of the European Union, 2021, Council conclusions on the New Consumer Agenda, p. 7.
6
European Parliament, Briefing, New consumer agenda, available online at:
https://www.europarl.europa.eu/RegData/etudes/BRIE/2021/679079/EPRS_BRI(2021)679079_EN.pdf.
4
law rules for commercial entities operating online”7
, has called on the Commission to introduce
new measures in areas in which the Directive still has value (e.g. transparency provisions and
digital nudging). The Directive has been included in the REFIT annex of the 2020
Commission Work Programme, with a potential new legislative proposal depending on the
outcome of the Evaluation and this Impact Assessment.8
Under the President’s Political Priorities of ‘A Europe Fit for the Digital Age’ and ‘An
Economy that Works for the People’, the Commission has launched a variety of political and
legislative actions (e.g. a Digital finance package9
, the Capital markets union 2020 Action
Plan10
, the ongoing Retail Investment Strategy11
) which have directly or indirectly impacted
the Directive.
Alongside the different Commission political and legislative actions, over the past twenty years
distance marketing of consumer financial services has changed rapidly. Financial
providers and consumers have abandoned the fax machine, mentioned in the Directive, and
since then new players with new business models have emerged, such as fintech which also
includes technological developments in sectors such as insurance . The total transaction value
growth of the Fintech sector12
in Europe has been increasing on a yearly basis since 201713
.
Consumers have more confidence in buying through digital tools14
and are increasingly
purchasing financial products and services online, leading established players to adapt their
marketing and business practices. At the end of 2020, 57% of EU consumers were using
banking apps or banking mobile site15
. The impact of the COVID-19 pandemic and the related
lockdowns has accelerated the use of online shopping in general16
. This trend has also been
noted in the recent European Banking Authority Report17
with regards to financial services and
7
European Parliament resolution of 20 October 2020 with recommendations to the Commission on the Digital Services
Act: Improving the functioning of the Single Market (available at https://www.europarl.europa.eu/doceo/document/TA-
9-2020-0272_EN.html) also contains points of interest for the purpose of this Impact Assessment.
8
See Annexes to Adjusted Commission Work Programme 2020.
9
See https://ec.europa.eu/info/publications/200924-digital-finance-proposals_en
10
See https://ec.europa.eu/info/business-economy-euro/growth-and-investment/capital-markets-union/capital-markets-
union-2020-action-plan_en
11
See https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12755-Retail-Investment-
Strategy/public-consultation_en
12
Statista (2021). Total transaction value in EUR in Fintech sector (EU 27 Member States). Available at:
https://www.statista.com/outlook/dmo/fintech/eu-27
13
London Economics Europe, VVA Consulting, Ipsos NV, ConPolicy and Time.lex (‘LE et al.’), 2019, Behavioural
study on the digitalisation of the marketing and distance selling of retail financial services. Available at:
ec.europa.eu/info/sites/default/files/live_work_travel_in_the_eu/consumers/digitalisation_of_financial_services_-
_main_report.pdf. https://www.statista.com/outlook/dmo/fintech/europe#transaction-value was also consulted.
14
Consumer Conditions Survey: Consumers at home in the single market – 2021 edition:
https://public.tableau.com/views/ConsumerConditionsSurvey/S3_D5?%3AshowVizHome=no
15
Consumer Conditions Survey: Consumers at home in the single market – 2021 edition - Key highlights
16
See Eurostat, Online shopping ever more popular in 2020, available at: https://ec.europa.eu/eurostat/web/products-
eurostat-news/-/ddn-20210217-1. According to Eurostat, online shopping increased by 4 percentage points compared
with 2019 (68% of internet users) and by 10 percentage points compared with 2015 (62%)
17
European Banking Authority, September 2021, The use of digital platforms in the EU’s banking and payments sector,
available at:
https://www.eba.europa.eu/sites/default/documents/files/document_library/News%20and%20Press/Communication%
20materials/Factsheets/1019866/Use%20of%20digital%20platforms%20in%20the%20EU%20banking%20sector.pdf.
5
Eurostat data states that 12% of EU citizens have purchased at least one financial service
online in 202018
.
1.1. Objective and scope of this initiative
The Evaluation concluded that the Directive has been partially effective in increasing
consumer protection but of limited effectiveness in consolidating the single market due to
barriers that are beyond its remit. In addition, needs originally addressed by the Directive
are currently addressed by other EU legislation that significantly overlap with it. According
to the Evaluation, 15-28 million EU consumers have benefited from key Directive provisions
since its transposition in 2004, chiefly in the context of payment accounts, insurance and - to a
lesser extent – pensions and consumer loans.
The initial objective of this initiative was to gather and analyse the coherence of the
Directive vis-à-vis the other overlapping EU legislation. To do so, a mapping exercise of the
relevant EU product and EU specific legislation was conducted19
to see whether all the
relevant parts of the Directive have been taken over by the more recent EU legislation.
The initiative looked into whether the Directive could be safely repealed without creating any
legal lacunae and without lowering the level of consumer protection, whilst ensuring the
fostering of the single market for cross-border sale of financial products and services sold at a
distance. The aim of this initiative was to simplify the current legislative framework, either
by repealing it, or safeguarding only those parts that are still relevant and might be relevant in
the future.
As a second step, after analysing the coherence of the Directive, the initiative aim was to
consider whether the residual ‘legally relevant’ parts of the Directive are still practically
relevant (effective) for the stakeholders. In other words, the aim of this second step was to
see whether the still relevant elements of the Directive played a significant role in terms
of consumer protection and consolidation of the single market, especially in light of
digitalisation.
In this second step, the Directive’s safety net feature was also analysed. The safety net
means that the rules of the Directive apply whenever (i) a new product appears on the market
for which there is no EU legislation yet (e.g. virtual currencies are a financial service product
not yet subject to legislation at EU level), (ii) the product-specific legislation does not provide
the right(s) established by the Directive (e.g. the right for the consumer to withdraw from the
contract within an established time-period is not laid down in the relevant insurance
legislations), (iii) the product-specific legislation creates exemptions and the product falls
outside the scope of application (e.g. consumer credit loans below EUR 200 are not covered
by Directive 2008/48/EC - Consumer Credit Directive).
It is important to keep in mind that the Directive defines financial service in a wide manner,
encompassing any banking, credit, insurance, personal pension, investment or payment service.
Thus, the Directive captures traditional products such as a life insurance policy or the opening
of a bank account but also recently emerged products such as cryptocurrencies or consumers
18
See https://appsso.eurostat.ec.europa.eu/nui/submitViewTableAction.do.
19
See Annex 6 (Interaction of the DMFSD with existing legislation and on-going initiatives).
6
taking out a loan from a crowdfunding platform. Based on the survey conducted for the
Evaluation Study the most popular product purchased in the last 5 years by distance means
was in the insurance sector (31%) followed by consumer loans (27%) and payment
accounts (15%)20. It must be kept in mind that the Directive applies only whenever the
financial service is bought at a distance, meaning that there is no simultaneous physical
presence of the consumer and the supplier. On the basis of the survey conducted for the
Evaluation Study, more than 60 % of the respondents mentioned that they used online or
email to buy a financial service; 26% concluded the distance contract via phone.
1.2. Interaction of DMFSD with existing legislation and upcoming initiatives
Within the EU legislative framework concerning financial products and services, the Directive
acts as a lex generalis. Thus, the rules established by the Directive apply horizontally to any
service of banking, credit, insurance, personal pension, investment or payment nature sold at
distance. However, in case there is a sector-specific legislation in one of the mentioned
financial services which establishes rules similar to or more extensive than those laid down in
the Directive, the former (i.e. the sector-specific legislation) will apply (lex specialis).
The Directive entered into application in 2002 and was intended to cover the gap resulting from
Directive 97/7/EC on the protection of consumers in respect of distance contracts21
, since the
latter excluded from its scope financial services. Directive 97/7/EC, which has in the meantime
be repealed and replaced by Directive 2011/83/EU on consumer rights22
(hereafter ‘the
Consumer Rights Directive’), and the DMFSD share a lot of similarities in that they both
provide consumers with basic consumer rights, such as the right of withdrawal and the right to
obtain pre-contractual information. In this light, while the current version of the Consumer
Rights Directive excludes from its scope financial services, the Consumer Rights Directive, in
particular the provisions concerning distance contracts, and the DMFSD bear a number of
similarities.
When the Directive entered into application, the legislative landscape concerning rules on
financial services sold at a distance was sparse, meaning that the scope of application of the
Directive’s rules was vast. However, over the years, a large number of EU legislative acts
have entered into application. At least fourteen (14) product-specific legislation have been
enacted in the different sectors of financial service and at least five (5) horizontal
legislations have had a direct pact on the Directive (See Table 24 in Annex 6). In addition,
the Commission continues to publish legislative proposals which impact directly or
indirectly the Directive23.
A closer look concerning coherence between the Directive and relevant EU acts and the
resulting problems is provided in Section 2.1. However, the current legislation and proposed
20
See Annex 8 Background information on financial services products bought at a distance.
21
Directive 97/7/EC of the European Parliament and of the Council of 20 May 1997 on the protection of consumers in
respect of distance contracts - OJ L 144, 4.6.1997, p. 19
22
Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 on consumer rights,
amending Council Directive 93/13/EEC and Directive 1999/44/EC of the European Parliament and of the Council and
repealing Council Directive 85/577/EEC and Directive 97/7/EC of the European Parliament and of the Council - OJ L
304, 22.11.2011, p. 64.
23
For instance, the Commission published, in June 2021, a legislative proposal in the area of consumer credit23
and, in
September 2021, a legislative proposal in the area of insurance23
.
7
amendments to the EU legislative framework point towards the need to study the concrete
impact of these changes to the Directive, including the coherence between the different
legislations and the remaining relevance, if any, for the Directive.
By way of example, in 2008, thus 6 years after the entry into application of the Directive, the
Consumer Credit Directive (CCD) entered into force. The CCD established rules in the area of
pre-contractual information and the right of withdrawal for those products (consumer loans)
that fall within its scope. Thus, whenever the product falls under the scope of CCD, the rules
of the CCD apply and not the rules of the DMFSD on pre-contractual information and the right
of withdrawal. However, the CCD has a number of exemptions (e.g. loans below EUR 200 or
above EUR 75 000). For those exempted products, the rules of the DMFSD apply. However,
it has to be kept in mind that the CCD is under revision and a number of currently exempted
products from the CCD might eventually fall under its scope, rather than the DMFSD, in a
couple of years.
1.3 Peer-to-peer lending and this initiative
The Explanatory Memorandum of the recent Proposal for a new Directive on consumer credit24
refers to the protection of consumers granting credit through peer-to-peer lending platforms. In
this context, it states that ‘the protection of consumers investing through these platforms, and
the responsibilities of the platforms towards these consumers will be assessed in another
context’. A preliminary assessment of these issues has, therefore, been carried out in the context
of the present initiative, in particular since the Crowdfunding Regulation25
, in Article 1(2)(a)
excludes from its scope ‘project owners that are consumers’. A set of questions were submitted
to stakeholders. While the protection of consumers granting credit through peer-to-peer lending
platforms is not addressed by this initiative since this issue is too specific to fit the logic of the
proposal and the horizontal nature of the Directive (the Directive captures all financial services,
irrespective of the particular products or services), a number of preliminary findings have
emerged. In general, national consumer authorities rarely, if ever, receive complaints in this
area26
. However,interviewed respondents suggest that natural persons making funds available
for consumer credit via peer-to-peer platforms, such as crowdfunding platforms, might be
insufficiently protected against misconduct. Hence, it was noted that complaints are more often
received from consumers providing the funding, rather than the borrowers. In a majority of the
respondents’ Member States, there is currently no regulatory or effective supervisory
framework to protect natural persons acting as lenders on such peer-to-peer lending platforms
as such activity often falls outside the regulatory perimeter, or the application of the existing
24
Proposal for a Directive of the European Parliament and of the Council on consumer credits COM/2021/347 final.
25
Regulation (EU) 2020/1503 of the European Parliament and of the Council of 7 October 2020 on European
crowdfunding service providers for business, and amending Regulation (EU) 2017/1129 and Directive (EU)
2019/1937, OJ L 347, 20.10.2020
26
From the survey ran by the contractor in the context of the stakeholder consultations, 14 out of the 26 national
authorities that replied were competent to deal with this issue. Out of these 14, ‘6’ authorities never received
a complaint in this area, ‘4’ replied ‘rarely’ while ‘4’ competent authorities replied that they do ‘sometimes’
deal with consumer complaints on crowdfunding issues.
8
rules may be unclear. Interviewees agreed that disclosure requirements, such as simplified
disclosure of credit agreement terms or borrower’s risks, and a duty of care clause could be
appropriate. Some respondents argued in favour of other safeguards, such as caps on amounts
that can be made available for consumer credit on such platforms by natural persons. Others
also supported rules for secondary markets in claims.
2. PROBLEM DEFINITION
2.1. What are the problems to be addressed by the initiative?
Problem 1 concerns the current framework of the Directive. The key question under Problem
1 is to understand the scale of the problem as a result of the substantial developments in the
EU legislative framework: considering its lex generalis nature and all the subsequent post-2002
legislation, does it still have a meaning to exist (relevance) in its current format? How does the
Directive interact (coherence) with the more modern EU legislation? What are the problems
created by this lack of coherence and decreased relevance?
After examining the problems concerning the legislative framework (Problem 1), Problem 2
and Problem 3 concern those financial services for which parts of the Directive are still legally
relevant. Thus, Problem 2 and Problem 3 concern only those parts of the Directive (i.e. those
rules) that apply to certain financial services/products for which currently no sector specific
legislation exist (e.g. currently no specific legislation in force on virtual currencies), the sector
specific legislation whose rules do not cover the rules established by the DMFSD (e.g. right of
withdrawal for certain insurance products) or whose sector specific legislation exempts certain
products due to limitations to the scope of application (e.g. consumer loans below EUR 200
are exempted from the Consumer Credit Directive; thus the rules of the DMFSD would apply).
As depicted in Annex 5, three overarching problems have been identified, each propelled by
three types of drivers: a regulatory framework that fails to ensure legal certainty (problem
driver 1), behavioural biases that are exploited by financial providers (problem driver 2), and
barriers that hamper the possible increase of cross-border provision of financial products.
In turn, Problem 1, Problem 2 and Problem 3 translate into consequences for consumers
(detriment in case the product they bought is unsatisfactory, lack of sufficient trust to contract
a financial service, both in home Member State and/or cross-border, and hence loss of welfare),
and businesses (uneven playing field, compliance costs and loss of welfare due to the lack of
realization of the potential of the internal market).
2.1.1. Problem 1: Lack of coherence and decreased relevance of the DMFSD due
to overlap with product-specific and horizontal legislation
As indicated in Annex 6, since 2002, the EU has been active in the area of financial services,
adopting a large number of legislative acts. At the time of writing this impact assessment, there
are two ongoing legislative proposals (Revision of the Consumer Credit Directive27
and a
27
COM(2021) 581 final, 2021/0295(COD).
9
Proposal for a Regulation on Markets in Crypto-assets28
) and prospective revisions (e.g. to the
Mortgage Credit Directive29
, on-going work in the area of Retail Investment30
) which are likely
to have a direct impact on the legislative framework of the DMFSD. The legislative framework
of the DMFSD is a moving target, as its relevance and coherence is linked to the adoption of
new legislation. In this light, the scale of this issue is described in the Table 1.
Table 1. Legal Mapping of the Directive and overlaps with product specific legislation
Pre-contractual information Right of withdrawal
Ban on unsolicited
service
Banking products Right of withdrawal on payment
accounts Fully relevant
Article 9 of the DMFSD
was amended by Unfair
Commercial Practices
Directive
Savings accounts
Consumer Credits Consumer credits below EUR
200 and above EUR 75,000
Consumer credits below
EUR 200 and above EUR
75,000
Mortgages Mortgages for Member States
that opted to give this right under
DMFSD and not Mortgage
Credit Directive
Mortgages for Member
States that opted to give
this right under DMFSD
and not Mortgage Credit
Directive
Insurances Information on the right of
withdrawal for investments
covered by that right
Investments covered by
article 6 of DMFSD
Personal pensions Fully relevant Fully relevant
Investments Information on the right of
withdrawal for investments
covered by that right
Investments covered by
article 6 of DMFSD
Payment services Mostly non-relevant Mostly non-relevant
The table illustrates the seven (7) areas that fall under the definition of ‘financial services’ and
represents the regulatory links (legal framework) between the Directive and these 7 areas with
regard to the three basic consumer rights established in the DMFSD. The red colour signifies
that the articles of the Directive are no longer relevant. Orange signifies that the product
specific legislation is currently under review and the possibility of the Directive still being
relevant is put into question. Green signifies that, from a regulatory point of view, the Directive
is still relevant.
28
Proposal for a Regulation of the European Parliament and of the Council on Markets in Crypto-assets, and amending
Directive (EU) 2019/1937.
29
See: https://ec.europa.eu/info/business-economy-euro/banking-and-finance/consumer-finance-and-payments/retail-
financial-services/credit/mortgage-credit_en.
30
See: https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12755-Retail-Investment-
Strategy/public-consultation_en.
10
Ban on unsolicited services and communication
Out of the three rights provided by the DMFSD, the articles concerning the ban on unsolicited
services and communication are nowadays irrelevant. With regard to the ban on unsolicited
communication, the e-Privacy Directive31
and the General Data Protection Regulation32
apply
horizontally, thus also covering unsolicited communication in the area of financial services.
With regard to the ban on unsolicited services, the Unfair Commercial Practices Directive33
implemented in 2007 addressed this aspect and explicitly amended Article 9 of the DMFSD.
Right to obtain pre-contractual information
Most of the product-specific legislation adopted after 2002 in the area of financial services
have imposed the obligation on financial service providers to supply pre-contractual
information to consumers. The content of information to be provided to consumers varies,
depending on the specific EU legislation in question.
First, the overlap between the DMFSD and the product specific legislation means that the
relevance of the DMFSD articles on pre-contractual information are limited to those financial
products which are exempted from the product-specific legislation since in case of over-
lap the applicable rules are those laid down in the product-specific legislation For instance,
“buy now pay later” consumer loans of less than EUR 200 do not currently fall under the
current Consumer Credit Directive. Thus, the obligations for financial providers to provide pre-
contractual information in that case stems from the DMFSD. The DMFSD articles would also
apply to those financial services products for which no product-specific legislation is currently
in force, such as cryptocurrencies34
.
Second, the overlap between the Directive and the product-specific legislation has led to
practical issues. Both in the stakeholder consultation related to the Evaluation Study and in the
Public Consultation related to this Initiative, stakeholders in the insurance sector pointed out
that this overlap has led insurance providers to present two sets of pre-contractual information
documents, one stemming from the insurance specific legislations and one stemming from the
DMFSD. This amounts to unnecessary financial cost for the providers but also detrimental for
consumers who, in this manner, suffer from information overload35
.
31
Directive 2002/58/EC of the European Parliament and of the Council of 12 July 2002 concerning the processing of
personal data and the protection of privacy in the electronic communications sector.
32
Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural
persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive
95/46/EC.
33
Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-
consumer commercial practices in the internal market and amending Council Directive 84/450/EEC, Directives
97/7/EC, 98/27/EC and 2002/65/EC of the European Parliament and of the Council and Regulation (EC) No 2006/2004
of the European Parliament and of the Council.
34
See footnote 39 concerning a national judgment applying the DMFSD in the area of cryptocurrencies for failure to
provide adequate pre-contractual information.
35
16% of business associations, consumer associations and national authorities participating in the Evaluation study
survey were of the opinion that the existing overlaps between the DMFSD and the product-specific legislation in the
consumer credit loans sector were unjustified. The figure stood at 14% in regard to respondents who believe that the
overlaps between the DMFSD and the product-specific legislation in the mortgage sector were unjustified.
11
Right to withdrawal
While most product-specific legislation have introduced the right to obtain pre-contractual
information, not all have included the right of withdrawal. For instance, in the banking
sector, the Payment Accounts Directive (PAD)36
, while providing extensive pre-contractual
information obligations, does not establish the right to withdraw. Thus, the right of withdrawal
in instances of a banking account bought at a distance, stems from the DMFSD.
The DMFSD articles would also apply to those financial services products bought at a distance
for which no product-specific legislation is currently in force,
Scale of the Problem & the Safety Net feature of the Directive
In light of the Table 24, Figure 3 and Figure 4 found in Annex 6, it is safe to say that the
regulatory relevance of the DMFSD has been in a constant state of decline caused by post-
2002 EU legislation. In addition, the scale of this problem appears to be growing since,
excluding the Proposal to Revise Solvency II37
, the current European Commission proposals
in different financial services overlap and reduce further the DMFSD’s relevance.
The proposal concerning the Revision of the Consumer Credit Directive intends to widen
the scope to consumer loans below EUR 200 and above EUR 75 000. The proposal for a
Regulation on Markets in Crypto-assets will regulate an area which is currently subject to no
specific regulation and hence, would fall under the DMFSD. These instances, just like the
recently adopted Crowdfunding Regulation38
, illustrate that the DMFSD is further losing its
relevance vis-à-vis different financial products.
The lack of relevance of the DMFSD is also illustrated by the fact that it refers, in its recitals
and in the operative part, to largely out-dated technologies, such as fax machines, floppy discs,
CD-ROMs, DVDs.
The problem linked to the relevance of the DMFSD is further exacerbated by the fact that the
provision regulating the relationship between the DMFSD and the product-specific
legislation is unclear. First of all, the hierarchical norm setting out which legal provision
should apply is not laid down in the text. When the DMFSD does refer to the lex generalis/lex
specialis relationship, it concerns only the right for pre-contractual information. In addition, as
explained above this is still not sufficiently clear for certain financial providers, in particular in
the insurance sector, since, to be on the safe side, they provide two sets of pre-contractual
information documents to the consumer.
In addition, in the Public Consultation, national authorities and industry stakeholders stated
that certain definitions and concepts of the DMFSD require further clarification, in
particular ‘fully completed performance’ under Article 6(2)(c) and ‘concluded at the
consumer’s request’ under Article 5(2) of the DMFSD.
36
Directive 2014/92/EU of the European Parliament and of the Council of 23 July 2014 on the comparability of fees
related to payment accounts, payment account switching and access to payment accounts with basic features.
37
In the Proposal, the European Commission proposes to exclude small insurance firms from the scope of application
of Solvency II, thus meaning that, if these excluded insurance firms provide insurance products at a distance, the
DMFSD would apply.
38
Regulation (EU) 2020/1503 of the European Parliament and of the Council of 7 October 2020 on European
crowdfunding service providers for business, and amending Regulation (EU) 2017/1129 and Directive (EU) 2019/1937.
12
The view that the current DMFSD regulatory framework is losing its relevance is shared
by all stakeholders. While they disagree on how to solve the problem, the erosion of the
relevance of the DMFSD is a given-fact.
However, more than 70% of stakeholders from all groups also agree that, while the relevance
of the DMFSD has been reduced, the safety net feature as a result of the horizontal scope
of the Directive renders the DMFSD effective.
Different stakeholders have provided different examples of the use of the safety net feature
of the DMFSD. Financial providers explained that they reverted back to the DMFSD
provisions when they were in doubt as to which legislation applies to cryptocurrencies. Another
example, cited by both financial providers and public authorities, concerned the use of digital
on-boarding. Due to the lockdowns related to the COVID-19 pandemic, instances of physical
meetings in banks between consumers and providers was kept to a minimal. Thus, digital on-
boarding of potential clients took place on a more regular basis. In such instances, financial
providers, upon seeking the views of the relevant competent authorities, applied the DMFSD
since the contract was being concluded ‘at a distance’. Public authorities have also cited other
instances when they use the DMFSD, such as in the area of investment in expensive wines
and diamonds, or certain gift-cards that fall outside the scope of PSD II, or current loans
below EUR 200 that fall outside the Consumer Credit Directive.
With regard to the consumer loan sector, the scientific researcher and most consumer
organisations participating in the Public consultation noted that most of the dangerous
products for consumers on the market, such as buy now pay later loans below EUR 200,
appeared on the market thanks to digitalisation only after the entry into force of the
Consumer Credit Directive. Thus, it is the DMFSD, rather than the Consumer Credit
Directive, that provides, until the latter in revised, consumers with a minimum level of
protection, in terms of pre-contractual information and a right of withdrawal. It was also
highlighted that the emergence of new products brought by digitalisation outpace the
required time for the EU to legislate. In this regard, the safety net in the DMFSD has been
used to cover instances not foreseen by the product-specific legislation at the time of entering
into force. The safety net feature of the DMFSD has also been applied by the national courts39
vis-à-vis still unregulated products (e.g. crypocurrencies). The scientific researcher and
consumer organisations who participated in the public consultation noted that financial
products in the digital sphere tend to be complex for the average consumer to understand. Thus,
the safety net feature of the DMFSD provides the minimum ex ante and ex post protection for
the consumer whilst also providing the necessary trust to contract such innovative products
Public authorities cited the usefulness of the DMFSD as a catch-all instrument during
investigations. Thus, for the same investigation, they cite and apply rules from both the
product-specific legislation and the DMFSD. Nearly half of the financial service providers
replying to the inception impact assessment highlighted the importance of the safety net.
Industry representatives in the area of insurance and all consumer organisations point out that
39
Verona Court, Decision n°195 of 24 January 2017, available at:
https://www.dirittobancario.it/sites/default/files/allegati/tribunale_di_verona_24_gennaio_2017_n._195.pdf.
13
the safety net feature has, over the years, helped build consumer trust, especially since the
right of withdrawal in the area of insurance stems in fact from the DMFSD. In addition, a
number of EU based industry representatives noted that the safety net ensured a level playing
field and cited the on-going entry into the financial services market by Bigtech companies40
.
For instance, Amazon is active in different areas of financial services and might, in the near
future, develop products that do not fall under any product-specific legislation. Thus, the
DMFSD would capture such products. The provision of financial services by Bigtechs has been
on the Commission’s radar for a number of years41
. Over the years, Bigtechs, through their
business models, have been able to process vast numbers of personal data processing activities
and have deployed state-of-the art technological tools. As referred in the EU Digital Strategy
‘these developments are changing the nature of risks to consumers, users and financial stability
and they may also have a significant impact on competition in financial services’. In this light,
it is worth recalling that the DMFSD is without prejudice to Regulation 2016/679 (the General
Data Protection Regulation). Thus, the processing of personal data by Bigtechs falls under the
scope of Regulation 2016/679, which already establishes rules and principles such as purpose
limitation and data minimisation. However, with Bigtechs increasing their offers to consumer
to buy financial services, both legislations can contribute to ensure that the consumer’s personal
data is safeguarded and that all financial service providers are subject to the same rules and
regulations, thereby ensuring a level playing field.
2.1.2. Problem 2: Consumers taking out financial services by means of distance
communication are not sufficiently protected and face detriment
As a result of market, technological and behavioural developments that occurred after the
adoption of the DMFSD, some consumers contracting financial services at a distance are not
adequately protected from arrangements that will become unsustainable for them. Ill-suited
products may cause detriment, such as debt spirals and over-indebtedness. The reasons for the
lack of sufficient protection are multiple, stemming both from the consumer’s behavioural
actions (e.g. heuristic decision making) and manipulative behaviour by the financial provider.
This lack of protection causing consumer detriment cuts across the different rights provided by
the DMFSD.
Sub-problem 2.1.: Limited consumer awareness of key elements and costs of some
financial services (e.g. pre-contractual information does not include how the info needs
to be presented)
Consumers may face detriment when purchasing financial services at a distance if they are not
aware of key features of the services they purchase. In this light, the DMFSD obliges financial
providers to provide, ‘in good time before the consumer is bound by any distance contract or
40
See https://www.cbinsights.com/research/report/amazon-across-financial-services-fintech/
41
See for instance Communication by the European Commission to the European Parliament, the Council, the
European Economic and Social Committee and the Committee of the Regions on a Digital Financial Strategy
for the EU (COM/2020/591 final)
14
offer’, pre-contractual information to the consumer so that the latter is in a position to choose
the product that serves him best.
The Behavioural Study on the digitalisation of the marketing and selling of retail financial
services highlights that the lack of information provision at the pre-contractual stage42 and
the lack of time for consumers to analyse the information provided43 (22% of the
respondents to the Evaluation Public
Consultation stated that the time allocated
was insufficient and felt under pressure to
sign the contract, chart below), lead to a
situation whereby consumers do not
understand the terms and conditions of
the financial services they contract.
Figure 1. Amount of time to review the
information about the offer and the
provider before having to sign the contract44
.
The reason for such incomprehension of key elements and costs can be multiple and may
involve information overload or information complexity by the financial provider. In fact,
according to a Report of a National Competent Authority45
, presenting the costs in a complex
manner with specific legal jargon is a way for financial providers to ensure that
consumers do not fully grasp the information they are provided. This has been recorded in
particular for the consumer loans market and the savings products market. These two markets
represent, on the basis of the Evaluation study, 46 % of all sales carried out by distance selling
in the past five years (Figure 5).
In this manner, the financial providers comply on paper with their pre-contractual obligations,
but the aim and spirit of the law is not reached. Likewise, consumer organisations argue, and
this is also documented in the Behavioural study, that, while the DMFSD obliges the financial
providers to propose pre-contractual information, its rules neither establish how (‘the form’)
the information is to be proposed (the DMFSD uses the term ‘clear manner’, but does not
42
The Study found that mandatory information being omitted at the pre-contractual stage as being “high” prevalence
for most types of financial products, including various types of credit, travel insurance, savings, current accounts and
payment services. London Economics Europe, VVA Consulting, Ipsos NV, ConPolicy and Time.lex (‘LE et al.’), 2019,
Behavioural study on the digitalisation of the marketing and distance selling of retail financial services. Available at:
ec.europa.eu/info/sites/default/files/live_work_travel_in_the_eu/consumers/digitalisation_of_financial_services_-
_main_report.pdf.
43
This has also been confirmed by the Stakeholders consultation. Consumer associations argued that the timing of
disclosure is drafted in a too wide manner, since the DMFSD employs the generic term ‘in good time’, which in practice
has resulted in the pre-contractual information being presented at the same time as the time of signature. See European
Commission, 2019, Evaluation of the Distance Marketing of Consumer Financial Services Directive (Directive
2002/65/EC) Summary report – public consultation.
44
IFC, 2020, Evaluation of Directive 2002/65/EC on Distance Marketing of Consumer Financial Services, p.182.
Available at https://ec.europa.eu/info/sites/default/files/dmfsd_evaluation_final_report_2020.pdf.
45
Autorité de contrôle prudentiel et de résolution (ACPR), 2017, Activity Report 2016 on Customer Protection.
Available at: https://acpr.banque-france.fr/sites/default/files/media/2017/07/10/acpr-2016-part4.pdf.
15
specify that it should be displayed ‘prominently’) nor does it ensure that the information is
fit to modern digital tools.46
The same consumer organisations, in the consultations linked to this initiative, pointed out that
setting up an obligation on Member States to establish an independent comparison website
could help consumers at the pre-contractual stage. This idea is borrowed from the Payment
Accounts Directive (2014/92/EU, ‘PAD’) which indeed establishes such an obligation on
Member States. Through this comparison website the consumer would be able to obtain
information on the payment accounts available on the market and thus make an informed
decision. However, the recent PAD Evaluation47 found ‘that comparison websites are at very
different levels of quality and functionality’. The Study noted that the ‘introduction of the
comparison table does not necessarily translate into a feeling of trustworthiness, impartiality
and transparency’.
Sub-problem 2.2.: Sub-optimal use of the Right of withdrawal
The right of withdrawal (Article 6 and 7 DMFSD), aims to provide consumers with a ‘cooling-
off period’ (of 14 days, extended to 30 days for life insurance contracts) for most of the
financial services purchased through distance means of communication. This allows consumers
time to rethink and reassess the contract, as well as the opportunity to change their minds and
terminate the contract without penalties for non-performance and without having to provide a
reason. The right to withdrawal is especially important for financial services marketed sold at
a distance, because digitalisation and the acceleration of decision-making processes could
facilitate making wrong financial choices. From the Evaluation Study48
Public Consultation, it
emerged that more than 90% of the consulted consumers indicated that having the right
of withdrawal is important (for 75% it is very important), more than 85% of industry
stakeholders consider it relevant and 100% of the national authorities consider it
relevant. The Evaluation survey notes that up to 13% of the consumers surveyed were not
made aware of their right to withdraw and that up to 20% of the consumers surveyed buying
an insurance product were not fully informed of the extent of costs/charges associated in case
that would have exercised their right of withdrawal. Considering that online sale of financial
services is expected to grow, it is reasonable to expect that the number of EU citizens concerned
by this sub-optimal use of the right of withdrawal will increase.
A special 2011 Eurobarometer investigating the extent of consumer empowerment showed that
consumers’ awareness of their rights in respect of cooling-off periods after engaging in a
distance purchase tends, in certain market segment, to be low. In the case of car insurance sold
through distance means, for example, more than half of consumers do not have a clear
understanding of their withdrawal rights, with 27% believing (incorrectly) that they can
cancel a contract and simply pay an administrative fee, 10% (incorrectly) believing they will
46
75% of consumer organisations that participated in the interview questionnaire for the supporting study stressed the
need to render the provision of pre-contractual information fit for the digital devices.
47
Deloitte, 2020, Study on EU Payments Accounts Market. Available at: https://op.europa.eu/en/publication-detail/-
/publication/0854f727-6117-11eb-8146-01aa75ed71a1/language-en.
48
European Commission (2019a).
16
not be refunded if they choose to withdraw from a contract, and 18% (incorrectly) believing
they do not have the right to cancel a contract at all49
. This finding is corroborated by data from
the Evaluation Study and the Behavioural Study on the digitalisation of the marketing and
distance selling of retail financial services50
. The Behavioural Study found that existence of
the right of withdrawal was not communicated to 39% of respondents. The Evaluation of
the DMFSD51 confirmed this result and further shows that 54% did not receive information on
the conditions for exercising the right to withdrawal. The study found that the problem was
particularly prevalent in the money transfers market, where 53% of consumers are not
informed on their right to withdrawal.
Apart from the lack or inadequate informational provision of the right of withdrawal, various
commercial tactics flagged by desk research are used by financial providers to circumvent
potential revenue losses that can arise from withdrawals. For instance, providers may require
consumers to make the first payments after the standard 14-day cancellation period has
elapsed, for example within a month of receiving their contractual agreement. The aim is to
shift the consumer’s attention away from the timeframe set for cancelling to the timeframe set
for making a first payment. By then, if the consumer wishes to withdraw, they will have missed
the opportunity to do so. This practice is often discussed in the context of insurance products
contracted by phone, where premium payments often begin one month after an agreement is
sent to the consumer.
Another tactic is to make the process complex and burdensome which can discourage or
prevent consumers from using the right. This has been included in the European Banking
Authority Opinion on the DMFSD52
. The question on how and whether the withdrawal was
done according to the Directive has led, according to desk research conducted by the contractor
carrying out the Support Study, to litigation before national courts, for instance in Estonia53
and Germany54
..
Among the most common complaints in relation to withdrawals from contracts, nearly two
out of five relate to consumers being subject to hidden charges or fees upon initiating the
withdrawal process. About one in three consumers describe providers’ miscalculations that
would have shortened the withdrawal time window and potentially prevented them from
exercising their right to withdraw.
49
See Special Eurobarometer 342 (2011).
50
LE et al, 2019.
51
IFC, 2020, p.74.
52
European Banking Authority (EBA), 2019, Opinion of the European Banking Authority on disclosure to consumers
of banking services through digital means under Directive 2002/65/EC, p. 8. Available at:
https://www.eba.europa.eu/sites/default/documents/files/document_library/Opinion%20on%20disclosure%20through
%20digital%20means.%20FINAL.pdf.
53
Tartu County Court, decision no 2-17-119750 of 9 May 2018, available at:
https://www.riigiteataja.ee/kohtulahendid/fail.html?fid=231149362
54
Bundesgerichtshof, XI ZR 520/16 of 03.07.2018: http://juris.bundesgerichtshof.de/cgi-
bin/rechtsprechung/document.py?Gericht=bgh&Art=en&nr=86778&pos=0&anz=1; Bundesgerichtshof, XI
ZR 183/15 of 24.01.2017: http://juris.bundesgerichtshof.de/cgi-
bin/rechtsprechung/document.py?Gericht=bgh&Art=en&nr=78004&pos=0&anz=1
17
In short, the lack of awareness of consumers on the possibility of benefit from the mentioned
right at the moment of the purchase, the refusal by the provider to accept the withdrawal and
experience of bureaucratic difficulties faced by consumers while exercising their right lead
to a sub-optimal use of the right of withdrawal.
Sub-problem 2.3.: New market practices exploiting patterns in consumer behaviour
The Behavioural study provides a list of examples concerning new market practices.
Digitalisation has facilitated the emergence of new distribution channels on the market, often
providing opportunities for financial providers to benefit from gaps in the regulatory
framework. In fact, since the DMFSD does not explicitly define how pre-contractual
information should be presented, providers can engage in practices at advertising and at pre-
contractual stage to nudge consumers into purchasing their services. Such market practices
come in different ways and means. The Behavioural study provides 5 overarching practices:
(i) the way in which information is provided (e.g. benefits added while costs hidden or given
less prominence), (ii) features that may accelerate the decision to buy the product (one-click
products), (iii) the actual design of the offer (pre-ticked boxes), (iv) consumer targeting and
personalisation (v) tools made available to consumers to assist their decision-making process).
These practices are then further broken down into specific actions taken by providers to exploit
patterns in consumer behaviour (see Table 25 in Annex 7). In this regard, it is worth noting that
all the instances mentioned in the table are problematic. For instance, a mystery shopping
exercise55 in the area of payment services found that 56% of consumers looking to
transfer money experienced hardship in finding information on the terms and conditions.
The technique of obscuring information has also been noted with regard to the selling of
payment protection insurance (PPI).
Information on financial services if often complex and difficult to understand for the average
consumer, and especially for consumers in a situation of vulnerability. This is exacerbated
when there is no physical contact between the financial service provider and the consumer.
This is why some NGOs and consumer organisations advocate for the creation of basic
necessary financial services with simple standardised features, to avoid financial exclusion.56
With regard to distorting consumer decision-making through ways of how information is
presented, a study by Invesco57
found that consumers in the pension market are more aware of
positively framed messages than negatively framed messages. The study showed that 64% of
consumers were more likely to read a statement encouraging them to manage their
pension compared to a statement warning them against failing to manage. Considering
that the DMFSD is still of great relevance in the pension sector, namely that the right of pre-
contractual information and right of withdrawal stem from it, ensuring that consumers receive
clear and easily comprehensible information is important.
55
European Commission (2020).
57
Invesco, 2020, Beyond the defaults, p. 24. Available at: https://www.nestinsight.org.uk/wp-
content/uploads/2020/11/Beyond-the-defaults.pdf.
18
With regard to techniques that help accelerate the decision to buy a certain product, the
Behavioural Study58 found that fast purchasing processes (i.e involve two or three clicks)
led consumers to choose the best loan for them only in 36.09% of the cases.
With regard to techniques concerning the actual design, the instance of bundling was labelled
as ‘rather detrimental’ to consumer welfare. The average rating of this practice scored as
relatively high (compared to other practices covered) and above 3, meaning that it was
perceived rather detrimental.
With regard to targeting and personalisation, the Behavioural Study notes that fewer than
10% of consumers have no concerns whatsoever when they are the target of personalised
offers. The risk concerning such practices is price discrimination, which may be detrimental
to the consumer. In addition, a horizontal issue mentioned by consumer organisations linked to
personalised offers concerns advice provided by robots. Robo-advisors are online platforms
that use artificial intelligence or algorithms to process information on clients’ investment
preferences, risk tolerance and loss-absorption capacity, to determine an investor profile and
make a personalised and often product-specific investment recommendation59
. Better Finance,
in their Annual Robo-Advice Report described, respectively, the issues concerning
transparency and suitability offered by robots as ‘disappointing’ and ‘alarming’. The European
Commission Expert Group on Regulatory Obstacles to Financial Innovation (ROFEIG), in its
Final Report to the European Commission60
, refers to used cases of robo-advice in the financial
sector (e.g. in brokerage and investment management or in insurance products and services)
and calls on the Commission to look into this issue.
2.1.3. Problem 3: The competitiveness of the internal market for financial
services sold by means of distance communication is not fully achieved due to
barriers to the provision of financial services across borders
One of the two main objectives of the DMFSD is to foster cross-border sales of financial
services. Figures pre-DMFSD illustrated that the lack of EU action in this area led to consumers
not trusting services from other Member States. According to the Eurobarometer 205 survey61
,
only a small fraction of respondents would consider purchasing a financial product or service
from another EU62
. The introduction of the provisions on pre-contractual information
obligations, right to redress, ban on unsolicited services and communication and the right of
withdrawal in the DMFSD was meant to address consumer concerns and trigger the provision
of cross-border financial products.
58
LE et al, 2019.
59
Better Fiance, Robo-Advice 5.0: Can Consumers Trust Robots?, December 2020, available at:
https://betterfinance.eu/wp-content/uploads/Robo-Advice-Report-2020-25012021.pdf.
60
European Commission, Expert Group on Regulatory Obstacles to Financial Innovation (ROFIEG): 30
Recommendations on Regulation, Innovation and Finance - Final Report to the European Commission - December
2019.
61
Special Eurobarometer 205.
62
According to the Eurobarometer survey, 28% of respondents were concerned about not receiving clear or sufficient
information on the product or service purchased from another EU Member State, 23% expressed a concern about the
possibility of fraud or crime, 22% were concerned about possible language barriers affecting the purchase of the product
or service, and 15% believed that there is less consumer protection in other EU Member States.
19
While according to Eurostat’s estimates around 12% of the individuals in the EU have, in 2020,
purchased at least one financial service online in the previous 3 months, the share of EU
citizens making cross border purchases remained relatively low in 2005-2020. According
to the Eurobarometer surveys, in 201163
94% of respondents that had purchased financial
products reported not having purchased these products from another Member State, while in
201664
this share stood at 92%. According to the Eurobarometer surveys, the most common
financial service bought between 2003 and 2016 from another Member State were current
bank accounts (3% in 2016). The other financial services were credit cards, car insurance and
investment funds, shares or bonds, all with an average 1% of respondents reportedly
contracting at least one of those products from another Member state in 2016.
The reasons for such figures are the result of a number of barriers that consumers and
businesses face.
On the consumer-side perception, emotional, cultural and language barriers, such as
consumer preferences for domestic products, informational friction and a lack of trust or
confidence.65
The lack of confidence may be the result of perceived problems associated with
cross-border transactions, such as websites being blocked or not being able to finalise a
transaction66
.
From the business side, industry stakeholders consulted for the Impact Assessment Support
Study indicated a number of barriers that are preventing them from offering services cross-
borders, including lack of demand (particularly in the banking industry); providers generally
prefer serving markets in which they are physically established; entrance costs (for example,
due to language barriers); different tax regimes and other regulatory barriers such as the lack
of common rules on services and contracts.
Differences in the way the DMFSD was transposed at national level due to the regulatory
choices offered to Member States (e.g. third paragraph of Article 6(1), Article 7(2) DMFSD)
and the lack of clarity on when the DMFSD applies and when the product-specific
legislation applies have also been cited as barriers to cross-border expansion by industry
stakeholders and public authorities in the stakeholder consultation to this initiative.
63
Eurobarometer 373 (2011).
64
Eurobarometer 446 (2016).
65
The Evaluation’s Public Consultation indicated as main reasons for not contracting financial products beyond their
border: uncertainty about their rights or where to turn to get redress in case of a problem (about 38%); they are satisfied
with the services offered in their country (28%); they prefer face-to-face contact (24%); language barriers (15%).
66
According to the Consumer survey prepared by the contractor for the DMFSD Evaluation, the most common
experience for those consumers that tried to purchase financial services in another Member State was that they were
redirected to a website that was specific to the country where they live (29%) or they could not access the website (19%).
In addition, according to a study of the French-Germany ECC on the European insurance market (Franco-German ECC,
2014, Der europäische Versicherungsbinnenmarkt, Grenzüberschreitende Versicherungsverträge: Abschluss oder
Ausschluss, available online: https://www.cec-zev.eu/fileadmin/Media/PDF/publications/Etudes-
Rapports_DE/Studie_Versicherungsbinnenmarkt-FINALE.pdf) buying insurance products was only possible on 47%
of the insurance websites, and it was possible in only 9.7% of the cases to subscribe to these contracts when living in a
different country.
20
However, a recent European Banking Authority (EBA) report67
stresses that there appears to
be widespread use of digital platforms68
to market and distribute payment services, credit
products (including short-term unsecured loans and mortgage products) and investment
products, and it should increase. This is expected to increase cross-border provision of financial
services. This is confirmed by the desk research linked to this Initiative, which indicates that
digitalization, the entrance of new players (e.g. FinTechs), new services (e.g. P2P lending)
and the use of new channels (e.g. mobile apps) will continue to grow in the coming years. Just
as an example from the banking sector, according to a 2018 European Banking Federation
survey, 90% of the banks surveyed highlighted that digitalization was their main priority.
In this light, the revision of the rules concerning financial services will help overcome a number
of the barriers mentioned above, including entrance costs on the business side and, on the
consumer side, will help increase consumer trust and confidence in buying services cross-
border. However, this Initiative will not be able to overcome issues related to geo-blocking or
emotional, cultural and language barriers.
In addition, the DMFSD, through its safety net, plays an important part in ensuring a level
playing field for all competitors providing financial services. In fact, 65% of the industry
stakeholders consulted during the preparation of the Evaluation Study believe that the safety
net feature ensures that future products, that might not be yet subject to product specific
legislation, would at least be subject to the rules of the DMFSD. This is shared too by the
majority of the consumer organisation replying to the survey ran by the contractor working on
the Support Study. In this regard, the Directive creates a level playing field since it ensures a
minimum set of rules applies to all current and future services and providers, thereby
preventing unfair competition from providers exploiting legal loopholes due to a lack of
product-specific legislation.
2.2. What are the problem drivers?
Driver 1: Lack of legal clarity
When the Directive was adopted, the EU acquis in the area of financial services was limited.
However, over the years the progressive adoption of EU rules in the different financial services
has led to issues of coherence with the product specific legislation. The sources driving this
lack of legal clarity can be attributed to:
(a) the lack of a clear hierarchical provision in the current DMFSD setting out the lex
generalis/lex specialis relationship between it and the product-specific or horizontal
legislation. In fact, nearly half of the business associations and company organisations
responding to the public consultation rated the issue of over-lap concerning the provision on
pre-contractual information and right to withdrawal as occurring often or on a daily basis. In
addition, the issue of overlapping legislations creating legal uncertainty has been reported in
67
EBA, Report on the use of digital platforms in the EU banking and payments sector, September 2021.
68
Please note that the definition of ‘digital platform’ adopted for the report
21
different studies69
and the figure in the Evaluation study stating that half of the position papers
received flagged the overlap issue was experienced during the preparation of this initiative.
(b) the fact that the DMFSD uses vague terms ‘in good time’ in Article 3 DMFSD, ‘fully
completed performance’ in Article 6(2)(c) DMFSD and that while it is generally technological
neutral in that it applies regardless of the technology used by the financial providers, it still
refers to outdated technologies (e.g. floppy disk, fax). In fact, according to the Evaluation
survey, only 1% of consumers used a fax machine during the period 2013-2018 to buy at a
distance a financial product.
Driver 2: Developments in consumer behaviour, often exploited by providers, making
regulatory framework inadequate
Over the past twenty years consumer behaviour has evolved70
, fuelled by the spread of the
internet and the appearance of mobile devices. In fact, the Behavioural Study notes that
consumers nowadays prefer a more direct and faster conclusion of contracts in the area of
financial services. The Support Study accompanying this Initiative, highlights in the analysis
of the consumer journey, consumers biases, such as anchoring or herd behaviour, which may
trigger consumer detriment and points out that the Directive does not adequately address such
behaviour. For instance reference is made to practices by financial service providers which
prey on the consumer’s desire to buy a product in a fast manner. In this context, the provider
promotes its products by saying that, for instance, a loan can be provided in less than 15 minutes
or through just one-click. Often, the loan agreement that the consumer buys would turn out not
to be the ideal one.
Driver 3: Emergence of new distribution channels and financial services due to increased
digitalisation
Digitalisation has refashioned the relationship between the consumer and the financial
provider. It has led established players to adapt their marketing and business practices and
fostered the entry into the market of new players with new business models (e.g. fintech firms).
In addition, these new channels impact also the quality of the information the consumer
receives at pre-contractual stage (e.g. the provision of pre-contractual information based on the
DMFSD for a mobile phone screen may not necessarily empower the consumer). For instance,
a consumer needs to swipe around thirty times in order to read all the pre-contractual
information on his mobile device. In addition, new financial service products have appeared
since 2002, across the different financial services sectors, such as buy now pay later credits or
Amazon selling insurance products online in Germany.71
69
For instance, LE et al. (2019); CEPS (n.d.) The Future of Retail Financial Services What policy mix for a balanced
digital transformation?. Available at: https://www.ceps.eu/system/files/TFRFutureFinancialServices.pdf; OECD,
G20/OECD Policy Guidance Financial Consumer Protection Approaches in the Digital Age. Available at:
https://www.oecd.org/finance/G20-OECD-Policy-Guidance-Financial-Consumer-Protection-Digital-Age2018.pdf;
European Banking Opinion: Opinion on disclosure to consumers of banking services through digital means
https://www.eba.europa.eu/sites/default/documents/files/document_library//Opinion%20on%20disclosure%20through
%20digital%20means.%20FINAL.pdf.
70
LE et al. (2019).
71
European Insurance and Occupational Pensions Authority (EIOPA) - Consumer Trends Report 2019, 2020, available
at: https://www.eiopa.europa.eu/document-library/consumer-trends-report/consumer-trends-report-2020_en.
22
2.3. How will the problem evolve?
The concerns linked to the evolution of the Problem 1 will continue to increase, in the
sense that the decline of the relevance of certain articles of the DMFSD is expected to
persist and the issues of coherence with the other EU legislation are expected to increase.
The relevance is expected to decline since a number of products currently falling under the
DMFSD should, once the revised Consumer Credit Directive and Markets in Crypto-assets
Regulation72
enter into application, be regulated by the latter legislations. There is no indication
that the Commission will not use its right of initiative in the area of financial services and thus
future legislation in the area of application of the DMFSD may be expected. More product-
specific legislations in the future also mean that due to the lack of a clear hierarchical norm in
the DMFSD, more issues of duplication and legal uncertainty may be expected. Not intervening
will also continue to render certain parts of the DMFSD framework obsolete, in the sense that
references to outdated technologies will continue to feature and the articles on unsolicited
communication and on unsolicited services which are already superseded by more recent EU
legislation will continue to feature.
In addition, the evolutions and disruptions to the market brought by the digitalisation of
the financial services will continue. In fact, Eurostat73
estimates that in 2020, around 12% of
the individuals in the EU have purchased at least one financial service online. The increase in
the number of individuals who have purchased financial services online from 2015 to 2019 has
been of 5 percentage points74
. Even though, as explained in the Directive’s Evaluation, in the
last years the share of consumers reporting problems across various financial services has
decreased, with more and more consumers purchasing financial services at distance, the
volume of problems would increase.
At the same time, the FinTech sector has had considerable transaction value in 202075
. New
products like Buy Now Pay Later schemes, i.e. interest free short term credits to spread
payment of retail goods currently covered by DMFSD but not by sector-specific legislation,
have been continuously growing in EU countries for several years. But also outside the EU: in
the UK the unregulated Buy Now Pay Later market more than trebled in size in 202076
, and in
the US it faced massive growth due to COVID-19 is expected to triple by 2024 (from USD 39
billion in 2020)77
.
The further digitalisation of the financial services sector also implies the possible emergence
of more complex financial services/products, increased speed with which consumers can sign
72
Proposal for a Regulation of the European Parliament and of the Council on Markets in Crypto-assets, and amending
Directive (EU) 2019/1937, COM/2020/593 final.
73
Eurostat (2021), Digital economy and society. Financial activities over the internet (2020 onwards), available at:
https://appsso.eurostat.ec.europa.eu/nui/show.do?dataset=isoc_ec_ifi20&lang=en.
74
Ibidem.
75
Statista (2021), Total transaction value in EUR in Fintech sector (EU 27 Member States). Available at:
https://www.statista.com/outlook/dmo/fintech/eu-27
76
Financial Conduct Authority, The Woolard Review - A review of change and innovation in the unsecured credit
market, 2021, available at https://www.fca.org.uk/publication/corporate/woolard-review-report.pdf.
77
Mercatory Advisory Group, Buy Now, Pay Later: Gaining Scale and the Disrupting Status Quo in Lending, 2021,
available at https://www.mercatoradvisorygroup.com/Reports/Buy-Now_-Pay-Later--Gaining-Scale-and-the-
Disrupting-Status-Quo-in-Lending/.
23
a contract and purchase a financial service (e.g. speedy, or ‘one-click’ products) and more
sophisticated tools to better influence and shape consumer behaviour (e.g. using ‘Big Data’ to
personalise communications and offers, giving prominence solely to positive reviews, or using
influencer marketing).
Further digitalisation could also lead to increased cross-border purchases of financial
services. According to the Consumer Conditions Survey 2021, in 2020 27% of EU consumers
purchased a good or a service from a provider located in another EU country. This represents
an increase of 9 percentage points since 201478
.
The consequences of the current problems and the possible evolution impacts the Directive’s
two main objectives, namely ensuring a high level of consumer protection and fostering the
provision of cross-border financial services. In fact, from the consumer side, the consequences
of the current and future problems are that consumers who have suffered detriment (for
instance, bought through digital means a loan that was not fit for him/her) have less trust in the
market. On the other hand, consumers, because of the problems and problem drivers explained
above, might not have trust in buying a financial service at a distance in the first place. With
regard to the objective of fostering the provision of cross-border financial services, the over-
lap issue has caused unnecessary compliance costs (e.g. providing two sets of pre-contractual
information documents) and the current and future barriers has led and will lead to loss of
welfare since opportunities are not taken up.
78
See https://ec.europa.eu/info/sites/default/files/ccs_ppt_120321_final.pdf.
24
2.4. Intervention logic
Figure 2 below illustrates the three problems inflicting the current Directive (column in red labelled ‘Problems’) and the three drivers (horizontal
box at the end of the figure labelled) that are the source for the three identified problems. The problems and the problems drivers have been
explained in Chapter 2. As will be explained in the next chapters, in particular Chapter 4, this Initiative pursues 3 general objectives which can
then be further broken down into 5 specific objectives (column in the middle of the figure coloured in blue). These 5 specific objectives are linked
to the respective three identified problems. The column on the right (coloured in orange) proposes the three options identified as possible options
to fulfil the objectives of this initiative (they are further explained in Chapters 5 till 8). In short, the three options propose a set of measures that
aim to address as best as possible the general and specific objectives of this initiative that, in turn, address the problems inflicted to the Directive.
25
Figure 2. Intervention logic
26
3. WHY SHOULD THE EU ACT?
3.1. Legal basis
The Treaty on the Functioning of the European Union (TFEU) confers upon the EU the
competence to adopt measures for the establishment and functioning of the internal market
(Article 114 TFEU). More specifically, according to article 114(1) TFEU, the EU can adopt
measures for the approximation of Member States rules and, pursuant to article 114(3) TFEU,
with regard to consumer protection the EU ‘will take as a base a high level of protection’.
Article 169(1) TFEU, relating to consumer protection, states that to promote the interests of
consumers and ensure a high level of consumer protection, the EU shall contribute to protecting
the health, safety and economic interests of consumers, as well as to promoting their right to
information, education and to organise themselves to safeguard their interests. Article 169(2)
TFEU specifies that these objectives can be reached through measures adopted pursuant to
Article 114 TFEU in the context of the internal market completion.
This is the legislative approach taken also for the adoption of the DMFSD in the field of
distance marketing of financial services to consumers. The objectives set out in Article 169
TFEU are meant to be achieved through Article 114 TFEU, which serves as the legal basis for
the possible revision to be carried out through this initiative.
Accordingly, Recital 1 of the DMFSD states that ‘[i]t is important, in the context of achieving
the aims of the single market, to adopt measures designed to consolidate progressively this
market and those measures must contribute to attaining a high level of consumer protection, in
accordance with Articles 95 and 153 of the Treaty’. Recital 2 of the DMFSD further outlines
that ‘[b]oth for consumers and suppliers of financial services, the distance marketing of
financial services will constitute one of the main tangible results of the completion of the
internal market’.
3.2. Subsidiarity: Necessity of EU action
Since 2002 the number of EU Member States has significantly increased and the internal
market has thoroughly expanded, making even more relevant the consequences arising from
its malfunctioning. The legal framework for retail financial services has evolved since 2002,
including through the development of product-specific legislation and horizontal legislation.
This, coupled with the gradual creation of the Capital Markets Union (CMU) – started in 2015
and boosted through the actions detailed in the new CMU plan adopted on 24 September 2020,
increases the necessity of a revision of the DMFSD. Integrating national capital markets into a
unified EU single market, making the EU a safer environment to invest and reducing obstacles
to make financing accessible to European companies and households require an update of the
DMFSD to fully benefit from the advantages of distance marketing of financial services
without reducing consumer protection.
The development of robo-advisors and online trading platforms is an example of how distance
marketing can now take different forms as compared to the past. Considering the changed
scenario, a revision of DMFSD is justified. Considering these new distribution channels, the
27
cross-border element is expected to increase and thus this Initiative will ensure the
establishment of rules that will strengthen the cross-border element through harmonised rules.
3.3. Subsidiarity: Added value of EU action
In light of the situation as developed over the past two decades, improving the current
regulatory framework can only be achieved at EU level. The EU added value of doing so would
be to bring a clearer legislative framework that ensures legal certainty, achieved through more
harmonisation.
In the retail financial services field, harmonisation in financial regulation aims to protect the
financial system from market failures whose effects can spill over across the EU. In fact,
regulatory frameworks providing consumers with different levels of protection in some
Member States could create negative externalities possibly affecting also market participants
based in other Member States. It is key to increase consumers’ trust in distance marketing of
financial services by rising the available legal safeguards within a harmonised context.
Rules concerning distance marketing are meant to favour cross-border provision of financial
services and FinTech innovations in turn can further facilitate the provision of financial
services from a distance. Finally, the revision of the DMFSD aims at addressing those
shortcomings identified by the Evaluation, with a view to better achieving the objectives of the
Treaties – namely enhancing consumer protection while favouring the conclusion of contracts
from a distance, thereby further integrating the internal market for financial services.
In conclusion, there are two main reasons why the EU should act, in particular to foster the
cross border offering of financial services. First, digitalisation is creating a dynamic through
which BigTechs may become increasingly active in financial services. The possibility of
BigTechs offering financial services cross-border leads to opportunities and risks;
opportunities in the sense that BigTechs can scale up rapidly and thus offer products across
borders in a fast manner; risks in the sense that BigTechs can leverage their dominance and,
for instance, engage into product tying or bundling or behave in a way that is not data protection
friendly. Second, the Directive offers the EU with the chance to address such opportunities and
risks, especially since the Directive provides a wide definition of the term ‘financial service’,
thus covering all possible financial sectors. Addressing such risks leads to two tangible
benefits: (i) Equal playing field - ensuring that current or future financial services offered by
BigTechs are subject to the same regulation as traditional financial services. One of the main
feature of the Directive is the ‘safety net’ feature, meaning that its provisions apply also to
products that appear on the market for which no product-specific legislation exists yet (e.g.
cryptocurrencies). The safety net feature in the context of cross-border sales of products and
services is appreciated in particular by traditional financial service providers; (ii) Consumer
trust: the fact that consumers are provided with basic rights (pre-contractual information &
right to withdrawal) increases trust and this leads to more cross-border purchases of financial
services. In light of the above, EU intervention is warranted both for current and future
products.
4. OBJECTIVES: WHAT IS TO BE ACHIEVED?
4.1. General objectives (GOs)
In line with the original objectives of the Directive, the general objectives of this Initiative are:
28
 GO 1: Streamlining of the regulatory framework ensuring higher clarity for all
stakeholders, whilst ensuring a high level of consumer protection.
 GO 2: Reduce detriment and ensure a high and consistent level of protection for consumers
purchasing financial services at distance.
 GO3: Facilitate cross-border provision of financial services and the competitiveness of the
internal market.
4.2. Specific objectives (SOs)
GO 1 SO 1: Simplify the existing legal framework by removing regulatory overlaps and ensure that the
Directive’s relevant provisions are included in the most adapted regulatory legislation(s) (problem 1)
GO 2 SO 2: Ensure that consumers purchasing financial services at distance are empowered by effective
and timely information (problem 2.1)
SO 3: Ensure that consumers reflect on their purchases and exit unsuitable agreements for the
provision of financial services (problem 2.2)
SO 4: Prevent that consumers are nudged into purchasing financial services which are not in their
best interest (problem 2.3)
GO 3 SO 5: Reduce barriers for providers offering financial services across borders while enabling more
choice for consumers (problem 3)
5. WHAT ARE THE AVAILABLE POLICY OPTIONS?
Table 2. Summary of the policy options assessed
Option 0: Baseline scenario – no policy change
Option 1: Repeal of the Directive and non-regulatory measures
Option 2: Comprehensive revision
Option 3: Repeal,
modernisation of relevant
provisions introduced in other
legislation
Option 3a: relevant provisions introduced in horizontal legislation
Option 3b: relevant provisions introduced in product-specific legislation
The three identified policy options are effective and propose substantially different policy
measures. The option design is wide and ranges from Repeal (Option 1) of the current
framework to comprehensive reform (Option 2). These two distinct policy options had support
from different stakeholders right from the start of the consultations. A third policy choice
proposed to repeal the current Directive but safeguard its relevant provisions, either in another
regulatory legislation or directly in the product-specific legislations.
The starting point of the initiative was based on one of the main outcomes of the Evaluation,
namely that the needs originally addressed by the Directive have progressively but not
exhaustively been addressed by other EU legislation (reduced relevance) and that there is
significant overlap between the Directive and subsequent EU legislation (lack of coherence).
The founding aim of the initiative was to simplify the current legislative framework (General
Objective 1 and Specific Objective 1). As a first step, a mapping exercise was conducted to
check the degree of overlap between the Directive and other EU legislations and the remaining
legal relevance of the Directive. After conducting the mapping exercise and identifying those
financial sectors were the Directive was still legally relevant, the practical relevance
(effectiveness) on the ground for the stakeholders was examined. At this stage, the safety net
feature was analysed: an examination was conducted to see whether in those instances where
29
the Directive was still legally applicable (for instance in insurance sector and for private
pensions) the stakeholders were actually applying it on the ground. This two-step approach
could have led to a total repeal of the directive and abandoning of the safety net function,
namely if the Directive and its key features were not used on the ground. However, the outcome
was that in certain cases it was still legally relevant and applied on the ground.
In this context, Option 1 (Repeal) was the starting point and could not be discarded upfront,
since the objective of simplifying the current legislative framework (eliminating overlaps)
could have been achieved through this Option. In addition, it is worth noting that in the
Inception Impact Assessment replies, businesses were either in favour of keeping status quo or
in favour of repeal.
5.1. What is the baseline from which options are assessed?
The baseline from which options are assessed (Option 0) is a "no policy change" scenario. It
implies the continuation of the status quo for the period 2022-2031. Hence, the Directive
would remain in force but no specific measures would be undertaken to tackle the problems
detailed in Section 2, which could evolve as explained in Section 2.3 (How will the problem
evolve).
Certain provisions of the DMFSD are still relevant for facilitating consumer protection in
distance selling and marketing of financial services79
. According to the Directive’s Evaluation,
15-28 million EU consumers have benefited from key Directive provisions since its
transposition in 2004, chiefly in the context of payment accounts, insurance and - to a lesser
extent – pensions and consumer loans.
In the baseline scenario, the Commission would continue to monitor the Directive
implementation at national level, and national authorities would continue to enforce it.
Enforcement authorities would continue to cooperate through the Consumer Protection
Cooperation (CPC) network and the European Consumer Centres Network (ECC-Net). The
Court of Justice of the European Union (CJEU) would continue to interpret the Directive,
shedding further light on some of the unclear provisions, when required to do so.
With regard to the impact of currently proposed legislation by the Commission, this will be
particularly of a regulatory nature (see Section 2.4). On the one hand, the current Consumer
Credit Directive and Markets in Crypto-assets Regulation proposals will lead to less products
being captured by the DMFSD and thus result in a reduction of its relevance. On the other
hand, the current Solvency II proposal will lead to more insurance firms falling under the scope
of the DMFSD. This is so since the revision of Solvency II proposes to exempt insurance firms
currently falling under Solvency II and thus, whenever the service is sold at a distance, the
DMFSD would apply.
Keeping status quo has only received mild support, mainly from financial providers who
oppose repealing the Directive. In fact, half of the financial providers/associations who
responded to the Inception Impact Assessment are in favour of keeping the current framework
79
See Legal analysis, Supporting study to the Impact Assessment (VVA et al.).
30
for two main reasons: first, they view positively the technology neutral approach of the
Directive; second, the safety net feature is important for certain current financial services and
for future ones. With regard to the actual application of the safety net feature, through the
different consultations held, public authorities have cited a number of instances when they use
the DMFSD, including in the area of investment in expensive wines and diamonds, or certain
gift-cards that fall outside the scope of PSD II, or current loans below EUR 200 that fall outside
the Consumer Credit Directive. Public authorities have also been recorded as stating that they
use the DMFSD as a top-up when carrying out investigations, meaning that they include the
provisions of the DMFSD in conjunction with the product-specific legislation. In addition,
national courts have also used the DMFSD80
vis-à-vis still unregulated products (e.g.
crypocurrencies).
5.2. Description of the policy options
In addition to the baseline scenario, four other options are considered to address the problems
identified, with the aim to achieve the initiative’s objectives, as shown in the intervention logic
(Figure 2).
Table 3. Proposed measures per Policy Option covering financial services
Option 1: Repeal
and non-regulatory
measures
Option 2:
Comprehensive
revision
Option 3a: Repeal,
modernisation of
relevant provisions
injected in horizontal
legislation(CRD)
Option 3b: Repeal,
modernisation of
relevant provisions
injected in product-
specific legislation
Simplification
of the legal
framework
(problem 1)
Repeal would
eliminate current
over-lap and thus
help simplifying the
framework. Repeal
would also lead to
the disappearance of
the “safety net”
feature provided by
DMFSD
Clarify in the legislation
that new measures going
beyond the current
sector specific
legislations would apply
to all financial services,
but that sector specific
legislation applies when
there is an overlap with
DMFSD.
Clarify in the
legislation that sector
specific legislation
applies when there is
an overlap with the
modernized former
DMFSD articles.
Repeal would help
simplifying the
framework. No “safety
net” feature for future
products that would
not be subject to
product specific
legislation.
80
Verona Court, Decision n°195 of 24 January 2017, available at:
https://www.dirittobancario.it/sites/default/files/allegati/tribunale_di_verona_24_gennaio_2017_n._195.pdf.
31
Information
(problem 2.1)
Financial education
campaigns to improve
financial and digital
literacy, run by the
European Commission
and the relevant EU
agencies, such as the
European Insurance and
Occupational Pensions
Authority.
Introduce rules on
information to be
included in advertising;
Standardised pre-
contractual information
form for all financial
services;
Introduction of rules on
robo-advice to enhance
transparency and
fairness;
Specify the timing for
the provision of the key
information (i.e.
information are provided
not generically “in good
time” but at least “one
day before” the contract
is concluded).
Require that
information is adapted
to the channel on
which it is displayed;
Modernization of the
information that needs
to be provided to
consumers (e.g.
inclusion of the need
to mention email
address);
Specify the timing for
the provision of the
key information i.e.
information is
provided not
generically “in good
time” but at least “one
day before” the
contract is concluded)
Alternatively,
mandatory reminder of
the Right of
Withdrawal after the
conclusion of the
contract).
Require that
information is adapted
to the channel on
which it is displayed;
Modernization of the
information that needs
to be provided to
consumers (e.g.
inclusion of the need
to mention email
address);
Specify the timing for
the provision of the
key information (i.e.
information are
provided not
generically “in good
time” but at least “one
day before” the
contract is concluded).
Alternatively,
mandatory reminder of
the Right of
Withdrawal after the
conclusion of the
contract.
Right of
withdrawal
(RoW)
(problem 2.2)
Awareness raising
campaigns on consumer
right of withdrawal,
organised by the
European Commission
and the relevant EU
agencies.
Provision of a specific
“Withdrawal form”
including standard rules
on manner of exercise
for the right of
withdrawal.
Reminder of the right
of withdrawal in case
pre-contractual
information is
provided less than one
day before. Financial
service providers to
provide for a
cancellation button.
Reminder of the right
of withdrawal in case
pre-contractual
information is
provided less than one
day before. Financial
service providers to
provide for a
cancellation button.
Exploitative
practices
(problem 2.3)
Industry self-regulation
to avoid harmful
practices, based on an
EU Recommendation.
Ban on product tying. Prohibition of default
options e.g. pre-ticked
boxes.
Prohibition of default
options e.g. pre-ticked
boxes.
Cross-border
offer and
access
(problem 3)
Guidelines by the
European
Commission on
information
disclosure and on the
application of right
of withdrawal to
increase
harmonisation.
Establishment of a new
framework.
Establishment of new
provisions bringing
legal clarity.
Establishment of new
provisions bringing
legal clarity.
Option 1: Repeal of the Directive and non-regulatory measures
Option 1 envisages the repeal of the Directive. In procedural terms, the Commission would
need to adopt a proposal to repeal the current DMFSD. This would then be subject to the co-
decision procedure.
32
With regard to Problem 1 and the linked actions to ensure a simplification of the legal
framework, the result of the Commission proposal to repeal would be that at EU level, once
the current DMFSD is repealed, there would no longer be EU horizontal rules providing
consumers with rights and applicable to future financial services or products for which there
would not, as yet, be product-specific legislation (i.e. no more safety net). In addition, there
will no longer be EU horizontal rules in those areas for which the DMFSD is still relevant (e.g.
right of withdrawal in the insurance or payments area). Thus, the repeal of the DMFSD frees
Member States from the obligation to transpose, implement and enforce the current provisions
of the DMFSD.
This measure of repealing the DMFSD implies that the overlap at EU level of the rules of the
DMFSD and the corresponding rules of the product specific legislation will no longer exist,
thereby simplifying the EU legislative framework. However, this does not mean that Member
States will automatically repeal their current rules81
. Therefore, financial providers might still
be bound by the current national rules, which, as time goes by, might become different
depending on the different Member State legislative action82
. In fact, if legislation at national
level is amended, businesses would need to comply with new rules and consumers would need
to familiarise themselves with them. If the level of consumer protection is lowered from the
current one, enforcement authorities might need to deal with an increased number of
complaints. In addition, since there would no longer be harmonised rules established at EU
level, there might also be Member States that remove the right of withdrawal, thus creating
disparities across Member States and increasing the uncertainties of contracting a financial
service across border.
With regard to Problem 2.1 and the linked actions to improve the right of pre-contractual
information, in the absence of EU rules, financial education campaigns to improve financial
and digital literacy would be required to combat the issue concerning information issues at the
pre-contractual stage. The European Commission, in conjunction with the relevant EU
agencies, would set up such a campaign which Member States would then implement and
complement on the ground.
With regard to Problem 2.2 and the linked actions to improve the right to withdrawal, in those
Member States that would have kept the right of withdrawal, an awareness campaign on the
existence of the right of withdrawal may be envisaged. The aim would be to inform and
empower the consumer of the availability of this right. Similar to action proposed for Problem
2.1, the European Commission, in conjunction with the relevant EU agencies, would set up
such a campaign which Member States and their public authorities would then implement and
complement on the ground.
With regard to Problem 2.3 and the linked actions to address exploitative practices, in an effort
to ensure consumer trust, financial services, on the basis of a Recommendation proposed on
the basis of Article 288 TFEU, providers may implement out of their own will practices that
do not cause consumer detriment (self-regulation by industry).
81
During the stakeholder consultations, certain public authorities have expressed the view that they would keep the
current rules, regardless of what happens to the DMFSD.
82
The possibility for Member States to deviate one from another concerns those parts of the current DMFSD which are
still relevant, such as the right of withdrawal in the insurance sector (See Section 2.1 to see which parts of the current
DMFSD are still relevant).
33
With regard to Problem 3 and the linked actions to improve cross-border and access, in addition
to the actions under Problem 2.1 and 2.2, guidelines by the European Commission on
information disclosure and on the application of the right of withdrawal may increase the
provision of cross-border financial services, even though the DMFSD would have been
repealed.
Option 2: Comprehensive reform
Option 2 entails a comprehensive reform of the current framework through the introduction of
new measures. Some of the below measures have been inspired by the Recommendations of
the Behavioural Study on the digitalisation of the marketing and distance selling of retail
financial services, the Evaluation or the contributions by consumer organisations in the context
of the stakeholder contributions or other legislations, such as the Payment Account Directive
or the recent proposal to revise the Consumer Credit Directive. This option would entail a
substantial review of a self-standing act (the Directive itself). Hence, the measures could go
beyond what is currently in the Directive and address issues such as robo-advice. Since out of
the three policy options, Option 2 is the only comprehensive reform proposing to set out new
rules, certain measures, such as measures concerning robo-advice are only included under this
policy option. Under this policy option:
Problem 1 (the simplification of the current framework) would be addressed by the following
measures:
 the introduction of a hierarchical norm to specify that in case of an over-lap of the
obligations stemming from the DMFSD and the sector-specific legislation, the latter
prevails; and
 a provision explaining that the new obligations imposed by the ‘revised DMFSD (e.g. ban
on tying) will need to be applied to all financial services.
The addresses of these complementary measures are the Member States that would need to
transpose the new provisions and public authorities would then need to enforce the appropriate
legislation.
Problem 2.1 (issues with pre-contractual information) would be addressed by the following
measures:
 Introduction of rules on how information provided at the advertising stage would
need to be channelled. Advertising is a powerful tool as it nudges consumers to purchase
a product and often uses tools influencing behavioural biases to do so. Most of the time,
the problems involve costs and risks not being properly disclosed in the advertisements. At
present, the DMFSD does not regulate the provision of information at the advertisement
stage. Thus, this will be a new area to be tackled by the DMFSD and the provision will
establish how the information would need to be channelled so that the consumer obtains
information in a transparent manner. In this regard, the DMFSD would propose a set of
provisions regulating standard information for advertising. Concretely, the provision would
set out the format and content of how advertisement should be carried out for financial
services. The content would include an overview of the main characteristics of the product,
the total price and warnings depending on the level of sophistication of the financial
product. The addressees will be Member States in the sense that they would need to
34
transpose the new provision and their public authorities that would need to enforce the
provision and financial services providers to comply with this new obligation.
 Standardised pre-contractual information form for all financial services: inspired from
the pre-contractual obligations laid down in the Payment Accounts Directive, a fee
information document and glossary (FID) for all financial services would introduced. The
fee information document would be a stand-alone document, presenting in a short and
concise manner the accurate amount in the currency of the financial service providers the
fees linked to the product or service. It is a basic document capturing the key standard
information requirements which, through its generic nature, would be able to apply to
present and future financial products. The main addresses, apart from the necessary
transposition and enforcement by Member States, would be financial service providers.
 Introduction of rules on robo-advice to enhance transparency and fairness: Digitalization,
in this case, Artificial Intelligence, is bringing new automated ways of interacting with
consumers. The European Commission Expert Group on Regulatory Obstacles to Financial
Innovation (ROFEIG), in its Final Report to the European Commission83
, refers to used
cases of robo-advice in the financial sector (e.g. in brokerage and investment management
or in insurance products and services) and calls on the Commission, to improve
explainability and interpretability of services that use artificial intelligence (AI). Therefore,
the DMFSD represents an opportunity to provide rules on robo-advice, to ensure that the
advice provided is suitable, transparent, user friendly and void of any conflict of interest.
In this regard, the robo-advice would need to be provided through a durable medium to
ensure traceability and the rules will take the form of a set of provisions dedicated to this
channel of communication. The provisions would regulate how the robo interacts with the
consumer, in the sense that the quality of information provided by the robo would need to
meet certain qualifications, such as being independent, transparent and to suggest products
in the interest of the consumer. The main addresses would be financial providers that use
robo-advice as part of their interaction with consumers..
 Specify the timing for the provision of the key information: In order to ensure that the
consumer is not coerced to sign the contract without reflecting, specifying the current vague
term ‘in good time’ would be required. Therefore, the time-gap between the provision of
the pre-contractual information and the actual signing of the contract would be of one
working day. This would allow the consumer to digest the information before signing the
contract.
Problem 2.2 (the sub-optimal use of the right of withdrawal) will be addressed with the
following measures inspired by the Commission proposal to Revise the Consumer Credit
Directive and the current provision on the right of withdrawal found in the Consumer Rights
Directive:
 Provision of a specific “Withdrawal form”: Article 11 of the Consumer Rights Directive
regulates the exercise of the right of withdrawal. In Annex I (B) it provides a model
withdrawal form which may be used by the consumer to express his/her intention to
withdraw from the service or product. This model form would be extended to all financial
83
ROFIEG (2019).
35
services and would include standard rules on the manner of how the right of withdrawal
maybe exercised. Therefore, whenever a consumer exercise his/her right to withdraw, the
use of the form would need to be recognized by the service provider. The main addressees
would the public authorities who would need to monitor and enforce this obligation and
financial providers who would need to accept the withdrawal once this form is presented
within the stipulated time.
 Right of withdrawal clearly highlighted in the pre-contractual stage: Since the right of
withdrawal is one of the key rights, has remained relevant for certain sectors, and financial
services products may be complicated for a consumer to understand, an obligation on
financial services providers will be set in order to clearly highlight this right at the pre-
contractual stage. This would be done in a way appropriate to the channel used.
With regard to Problem 2.3 (exploitative behaviour by financial providers nudging consumers),
Article 12 of the Mortgage Credit Directive would be extended to all the financial services
market, namely a ban on product tying. The main addresses would be financial service
providers.
With regard to Problem 3 (cross-border offer and access), the legal framework would be
sanitized and modernised.This option would, with the inclusion of the hierarchical provision,
ensure more legal certainty and keep the safety net feature of the current Directive. This might
increase the level of harmonisation and thus stimulate more cross-border offer.
Option 3a: Repeal, modernisation of relevant rights injected in horizontal legislation
(Consumer Rights Directive)
In this option, the DMFSD would be repealed and only the relevant consumer rights would be
injected in the Consumer Rights Directive. The relevance of the three consumer rights
enshrined in the DMFSD has been discussed above (problem 1). Since most of the articles of
the DMFSD have lost their relevance and the lack of regulatory intervention on its legal
framework has resulted in coherence issues with other legislations, only the still relevant rights
would be saved, namely the right to pre-contractual information and the right to withdrawal.
In doing so, these two rights would be modernized and rendered fit for the digital age, whilst
also conserving the safety net feature in case future financial services products appear on the
market and for which no legislation would apply.
Since the DMFSD would be repealed, the natural place to move these rights would be the
Consumer Rights Directive, which is also a horizontal piece of consumer legislation. In this
manner, the decision taken by Directive 97/7/EC (predecessor of the Consumer Rights
Directive) to exclude financial services from its scope would be partially revisited. Under this
option, the injection of the modernised rights would ensure that the internal balance of the
Consumer Rights Directive is not impacted and that not all of its rules will apply to financial
services. Under this option, apart from the extension of certain rules currently found in the
Consumer Rights Directive to distance marketing of consumer financial services, the proposed
measures either build on the text of the Consumer Rights Directive or are inspired from the
recent Commission Proposal to Revise the Consumer Credit Directive.
Thus, in short this option is based on the concept of reducing as far as possible the current
overlaps while safeguarding and modernising those provisions that are still relevant. So in
36
essence, option 3a sanitizes and modernise the framework; sanitizes in the sense that the
redundant rules (e.g on unsolicited communication) will not feature in the updated version of
the rules concerning financial services and modernised in the sense that the still relevant
provisions will be rendered fit for the digital age. This will be carried out by changing the
current exclusion of financial services from the Consumer Rights Directive and applying, as
far as possible, its existing rules, in particular, on pre-contractual information and the right of
withdrawal, to financial services. This explains also why measures proposed under option 2,
such as robo-advice fit only under option 2, but not option 3.
Measures under this Option:
Problem 1 (the simplification of the current framework) would be addressed by the following
measure
 Clarification in the legislation that sector specific legislation applies when there is an
overlap with modernized-former DMFSD articles: Similar to Article 3(2) of the
Consumer Rights Directive, a hierarchical norm to specify that if the provisions of the
modernized former-DMFSD articles conflict with a provision of another Union act
governing that financial services product, the provisions of that other Union shall prevail
and shall apply to the product.
The following measures would address Problem 2.1 (issues with pre-contractual information):
 Information adapted to the channel on which it is displayed: To enhance consumer
empowerment through effective information, the display of pre-contractual information
would have to be done in a way appropriate to the means used (mobile phone screen etc.).
 Modernization of the information that needs to be provided to consumers: Information
concerning the financial services provider would be modernised, to include, for instance
the provision of its email address which is currently missing from the DMFSD. The
Consumer Rights Directive would serve as the basis for the required updating while
ensuring that it fits the particular nature of financial services.
 Specify the timing for the provision of the key information: Inspired by the Commission
proposal to revise the Consumer Credit Directive, the term ‘in good time’ would be
specified, namely that if the pre-contractual information concerning the financial service is
provided less than one day before the contract is concluded, the financial services provider
would be obliged to send a reminder of the possibility for the consumer to exercise the right
of withdrawal.
The addressees of the measures would be financial services providers.
With regard to Problem 2.2 (suboptimal use of the right of withdrawal) the mechanism
explained above concerning ‘specifying the timing for the provision of the key information’
would also improve the right of withdrawal. The suggested mechanism would emphasise the
existence of the right of withdrawal and thus, possibly trigger its use, where appropriate. In
addition, to facilitate the exercise of this right, a rule obliging financial service providers to
provide a cancellation button will be introduced.
With regard to Problem 2.3 (exploitative behaviour by financial providers nudging consumers),
Article 22 (Additional payments) of the Consumer Rights Directive could serve as the basis to
37
regulate default options in the financial services area. The main addresses will be the financial
service providers.
With regard to Problem 3 (cross-border offer and access), the repeal of the DMFSD and the
injection of the relevant modernized rights would, with the inclusion of the hierarchical
provision, ensure more legal certainty, keep the safety net feature of the current Directive and
increase the level of harmonisation with regard to the right to pre-contractual information and
the right of withdrawal. Thus, this should stimulate more cross-border offer.
Option 3b: Repeal of the DMFSD, modernisation of relevant provisions injected in product-
specific legislation
In this option, the DMFSD would be repealed and only the relevant consumer rights would be
injected in the different product-specific legislation. The relevance of the three consumer rights
enshrined in the DMFSD has been discussed above (problem 1). Since most of the articles of
the DMFSD have lost their relevance and the lack of regulatory intervention on its legal
framework has resulted in coherence issues with other legislations, only the still relevant rights
will be saved, namely the right to pre-contractual information and the right to withdrawal. In
doing so, these two rights will be modernized and rendered fit for the digital age.
However, unlike Policy Option 3a, the modernized provisions would be injected into the
different product-specific legislation. Thus, for instance, the right of withdrawal would be
introduced into the Payment Accounts Directive. This would need to be repeated in all financial
services legislation that currently do not offer the same level of rights as the DMFSD. In doing
so, the level of consumer protection currently provided by the DMFSD would be conserved.
However, two points are worth highlighting. In order to keep the same level of protection, the
proposals to amend the product-specific legislation need to be agreed and adopted. In addition,
this approach would not ensure the safety net feature, in the sense that while current
products would be covered, future products that would not be as yet subject to legislation would
remain outside the scope of any EU legislation. This is so since the Consumer Rights Directive
excludes from its scope financial services and the DMFSD would be repealed. Therefore, the
result of this policy option is that there would no longer be a consumer horizontal legislation
covering financial services.
The measures proposed for Policy Option 3b are the same as for Policy Option 3a, but the
former differs in terms of the delivery instrument choice. This policy option is the outcome of
the mapping exercise and the fact that the relevance of the Directive has been reduced. Through
repeal but safeguarding the relevant provisions, the general and specific objectives could be
reached. In addition, the methodology applied in order to identify the usefulness or not of the
safety net (explained in the introductory part of Chapter 5) meant that option 3b could not be
discarded from the start.
5.3. Options discarded at an early stage
The option to transform the Directive into a Regulation was considered but discarded at an
early stage. The prima facie strong point of turning the rules into a Regulation was that it would
provide directly applicable rules thereby ensuring a high level of consumer protection and
would have reduced barriers in the sense that the possibility for Member States to transpose
the rules differently would be eliminated.
38
However, since 2002 the Directive has lost much of its relevance. Creating a large number of
actions and making them directly applicable would run counter to the reality of the current state
and use of the Directive. In addition, introducing new far-reaching measures and presented in
the form of a Regulation would have increased, not decreased, the current problem caused
by overlaps between it and the product-specific legislation. Thus, in terms of coherence, this
option would have led to complex legal untangling, in particular on recently adopted
legislations (e.g. the 2020 Crowdfunding Regulation) or on negotiations of recent legislative
proposals such as the revision of the Consumer Credit Directive.
In terms of efficiency, the preliminary indications were that the impact on public authorities
would be negative since the expected recurrent monitoring and enforcement costs would be
excessive. The one-off and recurrent compliance costs of such a far-reaching Regulation,
especially handling consumers’ complaints, for financial service providers would have also
been high, and did not seem proportionate.
In terms of effectiveness, SO2, SO3 and SO4 (improvements for consumers) might have scored
positively under the discarded option; however, under SO1 (simplifyng existing legal
framework) the score would have definitely been negative and would have outweighted
any possible benefits.
The combination of options 3a (Repeal, modernisation of relevant rights injected in
horizontal legislation) and 3b (Repeal of the DMFSD, modernisation of relevant
provisions injected in product-specific legislation) as described above was also considered
but then discarded upfront. The reason for discarding this combination upfront is that it would
not achieve the general objective and specific objective 1 to simplify the existing legal
framework. The aim of the revision is to eliminate overlaps and provide legal clarity to
stakeholders (businesses, citizens, Member States authorities). The combination of options
3a and 3b will entail references to two legal texts (the revised Consumer Rights Directive
and the product-specific legislation) and will require repeating the same provisions/suggested
measures in the Consumer Rights Directive and the product-specific legislation. Such an option
duplicates legal norms and departs from the objective of streamlining the regulatory framework
6. WHAT ARE THE IMPACTS OF THE POLICY OPTIONS?
This section presents a qualitative and partially quantitative assessment of each of the policy
options, on different categories of stakeholders, against three main criteria:
 Effectiveness: how successful the policy option is expected to be in addressing the specific
objectives (SOs) outlined in the intervention logic. The effectiveness of each option is rated
using a scale from -5 (very low effectiveness) to 5 (very high effectiveness). The scoring
is based on the results of the stakeholder consultation, including the Public Consultation,
on desk research and legal analysis.
 Efficiency: the impacts of the revision of the Directive on the different stakeholder groups,
which can be either positive or negative. A wide array of economic, social, environmental,
and overarching impacts have been considered. Based on their expected magnitude,
39
likelihood and relevance for stakeholders84
the following categories of significant impacts
were selected85
:
Financial Service Providers:
o Expected weight of one-off compliance costs
o Expected weight of recurrent compliance costs (e.g. costs of handling consumers’
complaints)
Consumers:
o Expected impact on consumer trust
o Expected impact on consumer detriment
Public authorities:
o Expected impact on adaptation on one-off adaptation costs
o Expected impact on recurrent monitoring and enforcement costs
The impacts were scored from -5 (very negative impact) to 5 (very positive impact). The
results of the qualitative assessment build on stakeholders’ views in the various
consultations and on the results of the quantitative estimates86
.
The cost for businesses that were taken into account for the purposes of the analysis are
clustered into two groups: “one-off costs”, including costs that businesses are expected to
incur in only at the time of the implementation of the regulatory revision; and “recurring
costs”, including those costs that are expected to be repeated on a yearly basis. For the
purposes of the quantitative analysis, these costs have been considered for a period of 10
years following the regulatory change and accounted at their net present value.
The one-off costs considered for this study are:
- Costs related to familiarisation with the new regulatory framework;
- Costs incurred by financial services for the adapatation of their information systems
(including website);
- Costs incurred for the update of the documentation, both internal and for
consumers’ information.
- Costs incurred for the update of staff training activities, accounted in proportion to
the relevance of the DMFSD in relation to pre-contractual information and right of
withdrawal;
The recurrent costs for financial services estimated in the analysis:
- Compliant handling costs;
- Costs relevant for robo-advisors;
- Cost reduction due to the simplification (no duplication) of the documentation
shared with customers.
Regarding the impacts on consumers, the analysis builds on the estimates of consumer
detriment calculated in the related evaluation study and provides an indication of the reduction
in consumer detriment in proportion of the reported expected effectiveness of the proposed
84
Consulted stakeholders did not highlight disproportional impacts on SMEs in comparison to large enterprisesso they
have not been assessed separately. Also costs for the EU public authorities have not been identified as significant as
compared to costs for Member States public authorities, so they have not been assessed separately.
85
The impact on cross border trade was not included among the impacts assessed under efficiency to avoid double
counting, because it is included in the effectiveness assessment.
86
See section 7.3 and Annex 4.
40
policy measures.87
For the purposes of this assessment, the estimated consumer detriment for
the year 2018 (DMFSD evaluation study) has been extended for the period 2022-2031 at a
discount rate of 4% per annum.
 Coherence: how the measures planned would interact with other EU legislation and with
EU policy objectives, such as its digital priorities (future proof approach), leading to
increased legal clarity. The coherence score ranges from 0 (no change to the level of legal
coherence) to 5 (increase of EU legal coherence to a very great extent). The scoring is based
on the results of the stakeholder consultation, including the Public Consultation, on desk
research and legal analysis.
The attribution of scores and the description of the assessments are the result of an analytical
exercise detailed in the supporting study based on desk research, legal analysis, expert
judgment and stakeholder consultation. Evidence collected was examined, analysed and
triangulated.
6.1. Option 1: Repeal of the Directive and non-regulatory measures
With repeal, the current over-lap between the DMFSD and product-specific legislation
would be eliminated, thereby simplifying the existing legislative framework and, at the same
time, ensuring a decent level of ‘coherence’. However, this Option scores poorly under
effectiveness and efficiency since it would lead to the lowering of consumer protection and
open the way for possible uneven level playing field between current products and future
products. The "cost-of non-Europe", namely the cost of the Union no longer acting, has been
integrated as well.
Effectiveness:
Specific objectives (SOs) Rating
SO 1: Simplify the existing legal framework by removing regulatory overlaps and ensure that the
Directive’s relevant provisions are included in the most adapted regulatory legislation(s)
3
SO 2: Ensure that consumers purchasing financial services at distance are empowered by
effective and timely information
-1
SO 3: Ensure that consumers reflect on their purchases and exit unsuitable agreements for the
provision of financial services
-2
SO 4: Prevent that consumers are nudged into purchasing financial services which are not in their
best interest
0
SO 5: Reduce barriers for providers offering financial services across borders while enabling
more choice for consumers
-1
The only positive point brought by Option 1 towards achieving the initiative’s specific
objectives concerns the removal of the current regulatory overlaps. This is so since with the
repeal of the Directive, there will no longer be any overlaps with sector-specific or horizontal
EU legislation. However, the fact that product-specific legislation does not cover in all
instances i) all financial services sold at distance (i.e a number of products – e.g gift cards under
PSD II, or loans below EUR 200 from the Consumer Credit Directive - fall outside the scope
of application of product specific legislation) and ii) all the rights provided in the DMFSD (no
87
The DMFSD evaluation study calculates that the net benefits of the DMFSD in the period 2004-2018 were on average
3,7% annually. Based on stakeholders’ feedback, to each policy measure is assigned a rate of expected increase of
effectiveness which contributes, in turn, to a reduction of consumer detriment.
41
right of withdrawal in most insurance legislations) means that the complete repeal of the
DMFSD would lead to gaps in consumer protection, particularly with regard to the rights of
pre-contractual information and right to withdrawal for certain financial services. The complete
repeal would thus lower the level of consumer protection meaning that SO 2, SO 3 and SO 4
would not be positively reached. The difference in marking between these three SO is explained
by the fact that the right of withdrawal is still quite relevant for a number of financial services
and thus, its loss, will have a larger impact. In addition, there are currently no rules that
specifically address nudging, so its repeal will not lower current protection since there is no
protection currently against this practice. The repeal of the DMFSD will also entail the loss of
the “safety net” feature, with the result that future financial services not covered by product-
specific legislation would not be covered by the obligations relating to pre-contractual
information and the right of withdrawal. The loss of the “safety net” will also lead to a possible
unlevel playing field between regulated and non-regulated financial services88
. This explains
why SO 5 has also a rather negative scoring. The non-regulatory measures proposed will not
mitigate the lowering of consumer protection since such information campaigns and guidelines
will not significantly impact the behaviours of providers and consumers. According to the
feedback gathered, some industry representatives are the only ones that believe that Option 1
would be effective in addressing the identified problems since this option will eliminate the
overlap issue between the Directive and the product-specific legislation.
Coherence:
In terms of coherence, Option 1 scores 2. In fact, repealing the DMFSD would have an overall
positive impact since deleting it would eliminate the overlap between different legislative acts.
However, the loss of the safety net feature for financial services bought at a distance lowers
the level of consumer protection and thus renders this option not fully coherent with the goal
set out in Article 169 of the Treaty on the Functioning of the EU (TFEU) and with EU policy
objectives (“A Europe fit for the digital age”).
Efficiency:
Main category of impacts Score
Consumer trust -3
Consumer detriment -4
Business compliance costs
One-off 0
Recurrent 1
Member State costs
One-off adaptation costs 0
Recurrent enforcement costs 0
Consumers: Repealing the DMFSD would be the most negative option for consumers both in
terms of consumer trust and consumer detriment. Such option was the least popular one among
consumers organisations in the survey run by the contractor working on the Support Study (all
of them are against the repeal of the Directive, since it would lower the level of consumer
protection, repeal the safety net feature and reduce consumer trust in the area of financial
88
For instance, in insurance products, if the DMFSD is repealed, current products will be subject to pre-contractual
information obligations stemming from the product-specific legislation and no longer subject to the right of withdrawal
stemming from the ‘repealed’ DMFSD. Without the DMFSD, newly emerged products not subject to any product-
specific legislation will have no obligations to respect and would not offer any consumer rights. This creates an unlevel
playing field between current and future financial services.
42
services). More than half of the interviewed stakeholders believe that repeal of the DMFSD
would bring detriment to consumers both for current and future products since repeal will
deprive them of basic consumer rights. The partial quantification performed for this impact
assessment shows that a repeal would lead to around EUR 430 million in terms of consumer
detriment89
. These costs, however, could be somewhat reduced in case of effective self-
regulation of the industry (not monetised) or other non-regulatory measures. Repeal would also
lead to loss of consumer trust since without the ex ante right to pre-contractual information and
the ex-post right of withdrawal, consumers will contract less financial services at a distance.
Businesses: Repealing the DMFSD would have an impact on financial services providers one
off costs, since they would have to face a new regulatory framework, even though according
to Member State consultation, there would not be an immediate repeal of the current national
rules by all Member States. Nonetheless, over a period of 10 years, it may be expected that
Member States amend their legislation, and with no harmonised rules in the area for which the
DMFSD applies today (e.g. right of withdrawal in insurance), the respective Member States
might enact different new rules. On the other hand, the repeal would reduce costs in terms of
communications to consumers which are higher because providers seem to send information
twice to comply both with the DMFSD and with sector specific legislation. Hence, Option 1
could entail a balance between costs and benefits for financial service providers with costs for
financial services providers since national legislation would apply. Option 1 would have
negative consequences on the cross-border trade since, as stated by industry representatives
and consumer organisations, repealing the DMFSD would decrease consumer trust when
purchasing financial services online. This would lead to lower uptake of cross-border trade in
online financial services in the EU. The repeal of the DMFSD would also create an unlevel
playing field with newly emerged products that would not be subject to any product-specific
legislation since the latter would be free from any kind of regulation. Some financial services
providers/associations support repealing the Directive to solve over-lap issue, and checking its
relevance and coherence before introducing new or modernised rules. However, the complete
repeal is strongly opposed by those financial providers and business associations offering
products whose product specific legislation does not cover all the rights of the DMFSD. They
argue that safeguarding a basic level of consumer rights ensures trust and avoids legal gaps.
Public administration: Repealing the DMFSD would have no immediate impact on public
administration regarding enforcement and adaptation costs respectively since, according to
Member State consultation, there would not be an immediate repeal of the current rules by all
Member States. Nonetheless, over a period of 10 years, it may be expected that Member States
amend their legislation and thereby incurring adaptation costs and subsequent enforcement
costs. In the consultation, the majority of public authorities have consistently held that
repealing the Directive would lower the level of consumer protection and deprive them of a
piece of legislation that they still use for investigative and enforcement purposes. While public
authorities have stated that the number of complaints concerning the Directive is low, they use
it as a top-up, meaning that they also cite its provisions alongside other relevant product-
specific legislations when carrying out investigations. Throughout the different consultation
89
For more details see Annex 4.
43
strands, the majority of public authorities and the scientific researcher participating in the
public consultation, have highlighted that technology and the subsequent appearance of
products on the market often out-paces the legislative process and thus the safety net was
important for this purpose.
The “cost of non-Europe” would account for the benefits forgone in case of repeal of the
DMFSD in comparison with the alternative policy interventions. In case of repeal, the
regulatory framework would be simplified leading to a marginal reduced cost for businesses
which could be considerable if compared to the increased costs of PO2 (EUR 190 million) or
more limited in comparison to PO3a and PO3b (about EUR 20 million). Nevertheless, the
larger “cost of non-Europe” would be experienced by European consumers that would lose, in
the long term, the opportunity to reduce their detriment (around EUR 140 and 250 million in
10 years as per PO3(a), PO3(b) and PO2).
6.2. Option 2: Comprehensive revision
This option would address the initiative’s specific objectives related to the right to pre-contractual
information and right to withdrawal in a very effective way. However, the impact of its measures on
stakeholders would vary, from clearly positive for consumers, to negative for businesses (significant
compliance costs) and public administrations (enforcement and adaptation costs). Due to the
comprehensive nature of the measures, the coherence with other legislations will not be improved
when compared to the baseline.
Effectiveness:
Specific objectives (SOs) Rating
SO 1: Simplify the existing legal framework by removing regulatory overlaps and ensure
that the Directive’s relevant provisions are included in the most adapted regulatory
legislation(s)
-1
SO 2: Ensure that consumers purchasing financial services at distance are empowered by
effective and timely information
4
SO 3: Ensure that consumers reflect on their purchases and exit unsuitable agreements for
the provision of financial services
4
SO 4: Prevent that consumers are nudged into purchasing financial services which are not in
their best interest
4
SO 5: Reduce barriers for providers offering financial services across borders while enabling
more choice for consumers
3
Option 2 would be particularly effective with regard to SO 2, SO 3 and SO 4 since the package
of measures90
to be introduced will modernise the right of withdrawal and the right to pre-
contractual information and counter practices exploiting consumer biases.
On the other hand, this option might not necessarily simplify the existing legal framework.
While the current over-laps will be clarified through a hierarchical provision91
, the legal
framework would not be simplified. The current Directive will remain in place. Its limited use
by a number of public authorities, evidenced by the low number of complaints and limited
documented case-law, together with the subsequent product-specific legislation, put in question
its current relevance. Moreover, the addition of new provisions (e.g. robo-advice) to be applied
horizontally to all financial services might not be sufficiently future-proof and detailed,
90
A standardised pre-contractual information form for all financial services, specify the timing for the provision of the
key information, rules on robo-advice, ban on tying, standardised withdrawal form and standard rules on how to exercise
withdrawal, the provision of basic products – see Section 5.2.
91
I.e. if any provision of this Directive conflicts with a provision of another Union act governing specific sectors, the
provision of that other Union act shall prevail and shall apply to those specific sectors.
44
meaning that a product-specific legislation might, within the next ten years, regulate those
aspects in a different more detailed way. This might cause unnecessary over-lap.
However, Option 2 would safeguard the safety net feature of the Directive and thus ensure a
level playing field between current and future products not yet subject to product-specific
regulation. Its contribution to reducing barriers for cross-border provision of financial services
through the creation of a more harmonised framework would be positive. However, the lack of
simplification of the existing framework could have the knock-on effect of creating new
barriers to the provision of cross-border financial services since Member States might not
transpose the new rules consistently.
Coherence:
In terms of coherence, Option 2 scores -1. The current over-laps with product-specific
legislation would be clarified through the hierarchy provision. However, some measures, for
example the establishment for all financial services the obligation to have a standard
information form, might create confusion with current rules already found in the product-
specific legislation (e.g. in the Payment Accounts Directive). Moreover, even if the safety net
feature of the Directive would be kept, the numerous new additions to its framework, and the
possibility that in the future product-specific legislation will also regulate the same issue (e.g.
on robo-advice) might lead once again to over-lap issues.
Efficiency:
Main category of impacts Score
Consumer trust 3
Consumer detriment 3
Business compliance costs
One-off -3
Recurrent -2
Member State costs
One-off adaptation costs -1
Recurrent enforcement costs -2
Consumers: Consumer trust will increase through the package of measures to improve
transparency and consumer understanding (e.g. standard document, timing of the provision of
pre-contractual information). Consumer organisations tend to favour a comprehensive revision
of the Directive, as the improvements Option 2 proposes are necessary to ensure higher
consumer protection. Indeed, most of the measures mentioned under this option have been
mentioned by them in the different consultation strands. Such option should lead to around
EUR 260-300 million in terms of reduction of consumer detriment.
Business: A comprehensive reform of the DMFSD would bring additional compliance costs to
the financial service providers (one-off and recurrent) because of the new rules to be complied
with. In fact, the measures under this policy option would require service providers to
familiarise themselves with new obligations (around EUR 90 million), adapt their IT systems
(around EUR 52 million), train staff (around EUR 4 million), update their websites and update
contracts (around EUR 60 million). It would also slightly increase costs for handling
consumers’ complaints (around EUR 27 million). The complete revision of the DMFSD would
also include measures on the use of robo-advice for companies, which was estimated to around
EUR 35 million. During the stakeholder consultation activities, stakeholders from the financial
services industry pointed out that this Option would generate excessively high costs. The
comprehensive reform of the DMFSD is the least supported option by financial services
45
providers since they argue that the measures to be introduced under this option will outweigh
the benefits. Thus, they did not favour this option since it would introduce disproportionate
costs when compared to the benefits. According to the partial quantification exercise detailed
in Annex 4, such option would entail around EUR 230 million in costs for businesses.
Public administration: Option 2 is generally not supported by national authorities. It would
require them to spend additional resources on adaption and enforcement costs (at least around
EUR 12 million).
6.3. Option 3a: Repeal and modernisation of relevant provisions introduced in
horizontal legislation
This Option is effective in reaching the specific objectives, efficient, in particular for consumers, and
ensures a high level of coherence.
Effectiveness:
Specific objectives (SOs) Rating
SO 1: Simplify the existing legal framework by removing regulatory overlaps and ensure that the
Directive’s relevant provisions are included in the most adapted regulatory legislation(s)
3
SO 2: Ensure that consumers purchasing financial services at distance are empowered by
effective and timely information
4
SO 3: Ensure that consumers reflect on their purchases and exit unsuitable agreements for the
provision of financial services
3
SO 4: Prevent that consumers are nudged into purchasing financial services which are not in their
best interest
3
SO 5: Reduce barriers for providers offering financial services across borders while enabling
more choice for consumers
3
In this option, the DMFSD will be repealed and the relevant provisions will be modernised and
injected in the Consumer Rights Directive. Thus, this Option is effective in reducing regulatory
overlaps, it will eliminate all the irrelevant articles and establish a clear hierarchical provision
on the lines of Article 3(2) Consumer Rights Directive.
The option would be effective in tackling SO 2, SO 3, SO 4 since the proposed measures92
will
improve and modernise the current rights still exercised by consumers. The scoring for SO2 is
higher because the majority of the proposed measures under this option address the information
problem and are measures already laid down in the Consumer Rights Directive, meaning that
financial service providers can benefit from the recent amendments and improvements to the
Consumer Rights Directive.
With regard to SO 5, this option is effective in the sense that since it conserves the safety net
feature it ensures a level playing field between current and emerging products. The
improvement in the regulatory framework and the clarification, through the hierarchical
provision, will improve legal certainty for the sale of financial services at a distance. This,
together with higher harmonisation (e.g. thanks to measures addressing behavioural biases)
should then trigger more cross-border sales.
Since through this option the safety net will be safeguarded, the majority of consumer
organisations, public authorities and half of the business associations expressed favour views
in the validation workshop and scored positively in the survey run by the contractor working
on the Support Study.
92
Prohibition of default choices, adapting presentation of information to different distribution channels, improving
clarity on when information should be presented to consumers, see Section 5.2.
46
Coherence:
In terms of coherence, Option 3a scores 4. In this option, all the suggested measures are similar
to provisions found predominantly in the Consumer Rights Directive and/or other financial
services legislations or proposed legislation such as the Revision of the Consumer Credit
Directive. The fact that the DMFSD will be repealed, thus one less legislation, and that the still
relevant articles will be placed in another consumer horizontal legislation, ensures a high level
of coherence. Moreover, the safety net feature for future financial services bought at a distance
ensures coherence with EU policy objectives (“A Europe fit for the digital age”) and with the
Article 169 TFEU.
Efficiency:
Main category of impacts Score
Consumer trust 2
Consumer detriment 3
Business compliance costs
One-off -1
Recurrent 0
Member State costs
One-off adaptation costs 0
Recurrent enforcement costs -1
Consumers: The option is expected to overall have a positive effect on consumer trust by
introducing new rules on how and when information should be presented and by limiting
practices exploiting patterns of behaviour such as using default options. For the same reasons,
the option would have a positive effect on reducing consumer detriment (at least EUR 170-210
million). While consumer organisations tend to prefer a comprehensive revision, at the
validation workshop they confirmed they can support a repeal of the Directive if the relevant
parts of the DMFSD are inserted in the Consumer Rights Directive. For consumer
organisations, safeguarding the safety net feature is paramount. However, overlapping with
other legislation might create some legal uncertainty which could lower consumer trust. This
explains the slight difference in score between consumer trust and consumer detriment. Taking
everything into account, it is considered that the policy option would have a positive impact on
consumers.
Businesses: Adopting this policy option would incur additional one-off and recurring costs for
businesses since measures under this policy option would require service providers to
familiarise themselves with the improved Consumer Rights Directive, adapt their IT systems,
train staff, update their websites and update contracts. After the initial implementation of
changes, the recurrent costs would be minor in comparison to a full revision of the DMFSD,
since the complaint handling costs, which determine most of the recurrent costs for financial
services, are accounted only in proportion of the relevance of the measures of the DMFSD to
be merged in the horizontal legislation. In addition, this policy option does not include specific
measures for robo-advice, decreasing the overall costs for companies. Adopting new rules for
presenting pre-contractual information, removing pre-ticked boxes and updating contracts to
include also the right of withdrawal mechanism would be done in the implementation phase.
On the other hand, introducing more detailed rules on right to withdrawal could create more
opportunities for consumers to submit complaints creating slightly higher costs for processing
those complaints. However, the repeal would reduce costs in terms of communications to
47
consumers which are higher because providers seem to send information twice to comply both
with the DMFSD and with sector specific legislation. This would balance one off and recurring
costs. According to the partial quantification exercise detailed in Annex 4, such option would
entail around EUR 19 million in costs for businesses. This option would also lead to higher
cross-border trade.
Public authorities: This option would introduce some one-off and recurrent costs for national
authorities (at least around EUR 6 million). Authorities would bear some transposition and
implementation costs during the adoption phase, but the burdens would be low since the new
provisions are minimal. Furthermore, additional monitoring and enforcement costs would be
incurred due to introduction of new rules such as prohibition of default options (e.g. pre-ticked
boxes) and adaptation of presentational rules for different distribution channels. Public
authorities support modernising the current text concerning pre-contractual information. Public
authorities also stated that they are familiar with the Consumer Rights Directive and
incorporating parts of the DMFSD into the former would not be excessively complicated.
6.4. Option 3b: Repeal and modernisation of relevant provisions introduced in
product-specific legislation
This option is effective in reaching the specific objectives, efficient in particular for public authorities
and financial service providers and ensures a high level of coherence. Its drawback is the loss of the
safety net feature.
Effectiveness:
Specific objectives (SOs) Rating
SO 1: Simplify the existing legal framework by removing regulatory overlaps and ensure that the
Directive’s relevant provisions are included in the most adapted regulatory legislation(s)
3
SO 2: Ensure that consumers purchasing financial services at distance are empowered by
effective and timely information
3
SO 3: Ensure that consumers reflect on their purchases and exit unsuitable agreements for the
provision of financial services
2
SO 4: Prevent that consumers are nudged into purchasing financial services which are not in their
best interest
2
SO 5: Reduce barriers for providers offering financial services across borders while enabling
more choice for consumers
2
Option 3b envisages the repeal of the DMFSD and the injection of the still relevant articles into
the different product-specific legislation. Therefore, the current regulatory overlaps will be
eliminated and the legal framework would be simpler and clearer for stakeholders. Thus it
scores high vis-à-vis SO 1. The drawback of this option is that, by repealing the DMFSD, and
not inserting it in another horizontal legislation, the safety net is lost, for both current products
exempted from sector specific legislation and for new unregulated financial services. This loss
of the safety net means that this option is moderately effective vis-à-vis SO 2, 3, 4 since, while,
it modernises the still relevant rights which will be injected in the different product-specific
legislation, it does not provide consumers with protection for products currently not covered
by product specific legislation (e.g. credits below EUR 200) or if a new unregulated financial
service appears on the market. SO 2 scores a point higher than SO 3 and SO 4 since the
proposed measures under this option to address the information problem are more robust when
compared to the measures proposed for SO 3 and SO 4.
48
This option has the potential to somewhat facilitate cross-border trade by removing regulatory
overlaps. However, the loss of the safety net features entails risks to the cross-border provision
since new products not subject to product-specific legislation would be unregulated. This
would create an uneven playing field with current regulated products.
Coherence:
In terms of coherence, Option 3b scores 3. This option would eliminate overlaps between the
DMFSD and product-specific legislation. However, the loss of the safety net feature for
financial services bought at a distance lowers the level of consumer protection for future
financial services which would not be captured by product-specific legislation. Thus renders
this option not fully coherent with the goal set out in Article 169 TFEU and with EU policy
objectives (“A Europe fit for the digital age”).
Efficiency:
Main category of impacts Score
Consumer trust 1
Consumer detriment 2
Business compliance costs
One-off -1
Recurrent 0
Member State costs
One-off adaptation costs 0
Recurrent enforcement costs -1
Consumers: This option is expected to have an overall positive effect on consumer trust by
introducing new rules for businesses on how and when information should be presented and
by limiting practices exploiting patterns of behaviour such as using default options. For the
same reasons, the option would have a positive effect on reducing consumer detriment (around
EUR 130-160 million), but to a lesser extent compared to Option 3a because consumers buying
financial services at a distance currently not covered by sector specific legislation might face
detriment. Consumer association and some Member States participating in the validation
workshop argue that the benefits brought by these improvements to the right to pre-contractual
information and right to withdraw would be offset by loss of the safety net. The overall
efficiency scores for both consumer trust and consumer detriment were lowered to reflect this
fact.
Businesses: Adopting this option would incur one-off and recurrent costs for businesses in line
with those mentioned for Option 3a. On the other hand, the repeal would reduce recurrent costs
in terms of communications to consumers which are higher because providers seem to send
information twice to comply both with the DMFSD and with sector specific legislation. The
net costs for financial services providers would be at least around EUR 39 million. Business
associations and financial providers who still relay on the DMFSD with regards to the right of
withdrawal and to a certain extent the right to pre-contractual information (because product
specific legislation does not cover them), would support the repeal of the Directive but ensuring
that the consumer rights are modernised and introduced in product-specific legislation.
Public administration: This option would introduce some one-off and recurrent costs for
national authorities (at least around EUR 6 million). Authorities would bear some transposition
and implementation costs during the adoption phase, but the burdens would be low since the
49
new provisions would be merged into existing vertical legislation. Furthermore, additional
monitoring and enforcement costs would be incurred due to introduction of new rules such as
prohibition of default options (e.g., pre-ticked boxes) and adaptation of presentational rules for
different distribution channels
7. HOW DO THE OPTIONS COMPARE?
This section compares the performance of the five policy options considered, based on the
elements developed in Section 6.
7.1. Effectiveness
The considered policy options would achieve specific objectives to different extents.
Table 4. Effectiveness (from -5 i.e. very low effectiveness to 5 i.e. very high effectiveness)
Specific Objectives
(SO)
Option 0
(Baseline)
Option 1 Option 2 Option 3a Option 3b
SO 1 0 3 -1 3 3
SO 2 0 -1 4 4 3
SO 3 0 -2 4 3 2
SO 4 0 0 4 3 2
SO 5: 0 -1 3 3 2
Since all the specific objectives are equally important, it was decided not to differentiate in
terms of weighting. The combination of all five specific objectives would lead to benefits for
stakeholders.
According to our analysis, Option 3a scores best in terms of effectiveness.
In terms of the specific objectives related directly to the provisions providing consumers with
rights (SO 2, SO 3, SO 4) Option 2 scores highest, followed by Option 3a (which scores equal
to Option 2 as regards SO2 because of the breadth of the measures it entails to tackle the
information problem). This is the result of the fact that Option 2 provides a larger number of
measures to modernise the right of withdrawal and better addresses new practices exploiting
consumer biases. While Option 3a and 3b contain the same measures, the safety net feature is
lost in Option 3b. Hence, Option 3b scores a bit lower than Policy Option 3a for SO 2, 3, 4.
The repeal of the Directive (Option 1) would lower the consumer protection currently provided
by the DMFSD, since, as explained in Section 2, it still is relevant for certain financial services.
Repeal will also mean that there is no safety net feature for financial services.
The loss of the safety net feature also explains the difference between the score of SO 5 between
Option 3a and 3b. In fact, its loss entails risks to the cross-border provision since, as highlighted
by stakeholders, products currently not covered by sector specific legislation or new products
not subject to product-specific legislation would be unregulated. This would create an uneven
playing field with current regulated products. The repeal of the Directive envisaged under
Option 1 would create harmonisation gaps which would have also an indirect effect on cross-
border trade: consumers would feel less certain regarding own rights in purchasing financial
services from cross-border provider. Option 2 and 3 are moderately effective to reduce barriers
since they will increase consumer trust.
50
However, while Option 2 will indeed increase consumer trust, since it will include a large
number of new provisions crossing across all financial services (e.g. rules on robo-advice) it
will not simplify the current framework (SO 1). Option 2 will entail a large number of
provisions. Some of its measures, for example the burden for all financial services to provide
a standard information form, might create confusion with current rules already found in the
product-specific legislation (e.g. in PAD). Moreover, the numerous new additions to its
framework, and the possibility that in the future product-specific legislation will also regulate
the same issue (e.g. on robo-advice) might lead once again to over-lap issues. On the other
hand, the repeal of the Directive will eliminate any possible overlaps. The difference between
Option 3a and 3b with regards to SO1 is that, while the former will reduce the current overlap
through the inclusion of a clear hierarchical provision clearly explaining the lex specialis/lex
generalis situation, it will reduce and not eliminate potential overlaps. In Option 3b, the issue
of overlapping is eliminated.
7.2. Coherence with other EU legislation and policy objectives
Each option’s coherence with other EU legislation and EU policy objectives, including the
Treaty (TFEU) and with other policy initiatives and instruments, has been assessed based on a
thorough legal analysis. Considerations about legal clarity have also be taken into account.
Table 5. Coherence (from 0 i.e. no change to the level of legal coherence to 5 i.e. increase of
EU legal coherence to a very great extent)
Option 0 (Baseline) Option 1 Option 2 Option 3a Option 3b
0 2 -1 4 3
Improving the Directive’s coherence is one of the key issues of the initiative. Addressing
problem 1 (lack of coherence and decreased relevance) and the related problem driver (over-
lap and vague terms) is of fundamental importance for all stakeholders. In this light, the
coherence criteria is very important for this Impact Assessment.
Under the coherence criteria, Option 3a scores best since it will establish a clear hierarchical
norm to regulate the issue of over-laps with product specific legislations, proposes measures
that are similar to provisions found predominantly in the Consumer Rights Directive and/or
other financial services legislations or current Commission proposal, and safeguards the safety
net feature. The loss of the safety net feature in Option 3b and Option 1 means that consumers
would be deprived of their rights with regard to financial services bought at a distance which
are not captured by product-specific legislation. This fact renders these options not fully
coherent with the goal set out in Article 169 TFEUand the Commission’s priority to ensure a
‘Europe fit for the digital age’. However, Option 1 and 3b score differently because the latter
would ensure higher coherence with the goal of Article 169 TFEU. Option 2 scores slightly
negatively because even though it would keep the safety net feature, apart from the introduction
of a hierarchical norm, it would perpetuate the current concerns and issues with the DMFSD’s
framework.
7.3. Efficiency
In order to assess the efficiency of the options, a partial quantitative assessment was carried
out, based on the analysis of the monetisable impacts and of a selection of policy measures for
which enough quantitative evidence was gathered. The partial quantification was
51
complemented with the opinions of stakeholders participating to the interviews, surveys and
workshop in order to get the final assessment of the efficiency of the options.
Partial quantification
This table presents the costs/benefits for stakeholders for each option (see Annex 4 for a
detailed breakdown). The quantitative assessment assumes a range of increased effectiveness
of the individual policy measures: a small increase in effectiveness (lower bound) and a higher
increase in effectiveness (higher bound).
Table 6. Partial quantification exercise (EUR million) – costs in parenthesis
Policy
Option 1
Policy
Option 2
Policy
Option 3a
Policy
Option 3b
Public Authorities (PA)
Total one-off costs for PA 0,0 (1,6) (0,8) (0,8)
Total recurrent costs for PA 0,0 (10,2) (5,1) (5,1)
Total costs for PA (A) 0,0 (11,8) (5,9) (5,9)
Financial Services providers (FS)
Total one-off costs for FS (90,3) (206,7) (103,4) (103,4)
Total recurring costs for FS 0,0 (62,3) (13,7) (13,7)
Total costs for FS (90,3) (269,0) (117,0) (117,0)
Total benefits93
for FS (reduced recurrent
communications to consumers)
97,7 0,0 97,7 97,7
Net costs for FS (B) (7,4) (269) (19,3) (19,3)
Consumers
Consumer detriment (C) (559,7)
Total consumer benefits (lower bound) (D) 42 258 198 179
Total consumer benefits (higher bound) (E) 48 297 231 208
Total estimates (lower bound) (A+B+C+D) (510) (23) 173 153
Total estimates (higher bound) (A+B+C+E) (504) 16 206 183
Each policy option would generate costs and benefits for the different categories of
stakeholders. However, as shown in the table above, the costs for Policy Options 3a and 3b for
Public Authorities and for Financial Service providers are estimated to be the same. This
similarity is due to the fact that the same measures are foreseen for both options; however, what
differs is the way of how to inject the relevant provisions of the DMFSD, namely through a
horizontal instrument (Option 3a) or in the product specific legislation (Option 3b). Such
different approach in the implementation should have an effect on consumers’protection since,
as previously mentioned, only a horizontal implementation would maintain the “safety net”
role of the EU regulatory approach.
In particular:
 Option 1: Repeal of the DMFSD – this policy option would generate a total cost estimated
above 500 Million euros in consumer detriment as a result of the loss of the expected
benefits of the DMFSD (baseline). These costs could be reduced in case of effective self-
93
In terms of reduced recurrent communications with consumers.
52
regulation of the industry (not monetised) or increase in case of national law to reduce
consumer protection due to the absence of the DMFSD at EU level.
 Option 2: Improve the DMFSD based on identified issues (Comprehensive revision) –
this policy option, according to our calculations, would generate a positive net benefit in
the period 2022-2031. This option foresees an increased burden for financial services
providers, which should be compensated by the increase of consumer protection. This small
positive net benefit calculated in our estimates, however, could easily also be a negative net
cost in case of slightly higher costs for businesses or lower benefits for consumers.
 Options 3(a) and 3(b): Repeal, modernisation of relevant provisions introduced in
horizontal legislation – these policy options are the most balanced in terms of efficiency
amongst the ones taken into consideration. According to the monetised impacts, these
options would generate a moderate level of costs for public authorities and financial
services while bringing a relatively high reduction of consumer detriment generating a
positive net benefit in the period taken into account. However, while Option 3a foresees
the integration of the measures of the DMFSD still relevant into a horizontal legislation
(i.e. the Consumer Rights Directive), which would apply also to financial services currently
not covered by specific legislation (e.g. gift cards), Option 3b foresees the integration of
these measures in each product specific legislation which would allow for a standard
protection for consumers only for already covered financial products. Hence, the benefits
for policy option 3(b) have been accounted not fully (at 90% of their value) to take into
account of the absence of the “safety net” feature of the DMFSD or that a horizontal
consumer protection legislation would bring.
Qualitative assessment
The results of the qualitative assessment build on stakeholders’ views in the various
consultations and takes into account the results of the quantitative estimates.
Table 7. Efficiency (from -5 i.e. very negative impact to 5 i.e. very positive impact)
Impacts
Option 0
(Baseline)
Option 1 Option 2 Option 3a Option 3b
Financial
Service
Providers
Compliance costs:
one-off costs
0 0 -3 -1 -1
Compliance costs:
recurrent costs
0 1 -2 0 0
Consumers Consumer trust 0 -3 3 2 1
Reduction in
consumer
detriment
0 -4 3 3 2
Public
authorities
Adaptation costs:
one-off costs
0 0 -1 0 0
Enforcement costs:
recurrent costs
0 0 -2 -1 -1
Based on the magnitude of the impacts, the main ones to be looked at are the reduction in
consumer detriment and one off and recurrent costs for financial services providers.
Comparing those categories of costs and benefits, the best performing option is Option 3a.
Option 3a scores a higher value also looking at other impacts. It would ensure positive outcome
for consumers and not entail excessive costs. It is differentiated from Option 3b because of the
importance of maintaining a “safety net” for consumers.
53
In particular, stakeholders see positively the role of “safety net” of the DMFSD which would
be kept only for Options 2 and 3a. However, in case of complete revision of the DMFSD with
the addition of measures aimed at increasing consumer protection, the benefits for consumers
are counterbalanced by the higher expected costs for financial service providers.
7.4. Comparison of options and proportionality
To compare the options we looked at the best performing one for each of the three criteria
considered. It was decided not to attribute different weightings to the criteria, because we
consider they were all equally important. The coherence criteria is as much relevant as the other
two in this impact assessment, considering the decreased relevance of the DMFSD because of
the introduction of product specific and horizontal legislation. In addition, Option 3a scores
best under all three criteria and thus the attribution of different weightings would not have had
any impact.
Table 8. Ranking of policy options (from 1= better performing to 4=worst performing)
Assessment Ranking
Option 1 Option 1, through the repeal of the Directive, will eliminate the current over-lap between the
DMFSD and product-specific legislation, thereby simplifying the existing legislative framework
and, at the same time, ensuring a moderate level of ‘coherence’. However, this option scores
poorly under effectiveness and efficiency since it would lead to the lowering of consumer
protection and opens the way for possible uneven level playing field between current products and
future products due to the loss of the safety net feature.
Effectiveness: 4th
| Efficiency: 4th
| Coherence: 3rd
4
Option 2 Option 2 would address the initiative’s specific objectives related to the right to pre-contractual
information, the right to withdrawal and practices exploiting behavioural biases in a very effective
way. However, in terms of efficiency, the impact of its measures on stakeholders would vary,
from clearly positive for consumers, to seriously negative for businesses (significant compliance
costs) and public administrations (enforcement and adaptation costs). Due to the comprehensive
nature of the measures, the coherence with other legislations will not be improved when compared
to the baseline.
Effectiveness: 2nd
| Efficiency: 3rd
| Coherence: 4th
3
Option 3a Option 3a comes first in all of the three criteria. It is very effective in reaching the specific
objectives, efficient, and ensures a high level of coherence.
Effectiveness: 1st
| Efficiency: 1st
| Coherence: 1st
1
Option 3b Option 3b is effective in reaching the specific objective of simplifying the legislative framework
since it will result in the repeal of the Directive, and quite effective in reaching the others. It is
efficient and ensures a high level of coherence. Its drawback is the loss of the safety net feature.
Effectiveness: 3rd
| Efficiency: 2nd
| Coherence: 2nd
2
The performed analysis highlights that Option 3a ranks first in all three criteria. The
legislative technique proposed for Option 3a safeguards the ‘safety net’ feature which
stakeholders from all sectors believe is useful and helpful. In fact, the safeguarding of the safety
net allows Option 3a to ensure more coherence with other EU legislation and policy in a wider
sense. Option 3a will not eliminate completely possible overlaps; however, through the deletion
of most of the current provisions and, proposing the modernisation of two fundamental
consumer rights i.e. right to pre-contractual information and right of withdrawal, and the clear
hierarchical norm specifying the lex specialis/lex generalis relationship between the Directive
and product-specific legislation, it will bring more legal certainty and legal clarity compared
to base-line. The cost of the measures proposed for financial service providers and public
54
authorities on the basis of the partial quantification conducted, should be limited; the option
should result in a net benefit for consumers and lead to increased cross-border trade.
In accordance with the principle of proportionality, the proposed rules will not go beyond
what is necessary in order to achieve the objectives set out in Section 4. While it might seem
logical that the Option 1 (repeal and introduction of non-regulatory measures) would respect
best the principles of proportionality and subsidiarity, when taking into consideration the cost
of non-Europe, the result is that this option is the least effective and least efficient. The initiative
will cover only the aspects that Member States cannot achieve on their own and where the
administrative burden and costs are commensurate with the specific and general objectives to
be achieved.
As such, proportionality will be embedded in the provisions of the Directive. The measures
proposed under Options 3a are minimal and are already found in other legislations or in the
Commission proposal revising the Consumer Credit Directive. Considering the current and
future level of relevance of the Directive, the minimalist approach to modernisation respects
the principle of proportionality.
8. PREFERRED OPTION
8.1. Option 3a: Repeal and modernisation of relevant provisions introduced in
horizontal legislation
Based on our analysis and explanation above, the preferred option is 3a - Repeal,
modernisation of relevant rights injected in horizontal legislation, namely the Consumer
Rights Directive (CRD). This policy option tackles the three identified problems and
addresses the objectives in the most effective, efficient and proportionate way. Moreover it
ensures a high level of coherence. The proposed legal intervention sanitizes the current
framework by repealing the provisions that have lost relevance, modernising the relevant
consumer rights concerning the right to pre-contractual information and the right of withdrawal
and injecting them into the CRD. Certain articles of the CRD will also extend to distance
marketing of financial services. In so doing, the minimalist approach to this legal revision
ensures a high level of consumer protection, renders the relevant rights fit for the digital
age, and safeguards, as requested by all stakeholders, the safety net feature for possible
future emerging products.
This preferred option will lead to the repeal of the current legislation without the creation
of a new legal instrument. The CRD was chosen as the appropriate instrument since, similar
to the DMFSD, it provides horizontal consumer rights and rules. Thus, injecting the DMFSD
relevant rights in the Consumer Rights Directive ensures that the safety net feature is
safeguarded. The Consumer Rights Directive, whilst as of today excludes from its scope
‘financial services’, already provides for the right to pre-contractual information and the right
of withdrawal; thus, applying these two rights to financial services within the CRD will fit well.
Special attention will be provided, on the one hand, to ensure the required specificity of
financial services, and on the other hand, to ensure that the CRD is not rendered too complex.
The best way to proceed would be align, as far as possible, rules already laid down in the CRD
to financial services. When this is not possible, and in an effort not to render the current CRD
framework unnecessarily complex, a dedicated chapter to financial services will be added to
55
the CRD. This added chapter will concern only financial services and will not extend to the
current CRD rules concerning other services and goods. A review of this methodology will
take place in line with the standard period for normal legislative proposals, thus within 5 years.
It is also worth keeping in mind that the recent Commission Proposal94
on empowering
consumers for the green transition also proposes to amend the CRD. Thus, the objective is to
carry out the review within the same time-line.
The preferred option is deemed to be effective in tackling the problems identified and in
achieving the initiative’s objectives.
 The repeal of the DMFSD itself, the inclusion of a clear hierarchical norm explaining
the lex generalis/lex specialis relationship (already set out in a clear manner in Article 3(2)
of the CRD) and the injection of the still relevant rights in the Consumer Rights
Directive will simplify the existing legal framework by removing regulatory overlaps and
ensure that the Directive’s relevant provisions are included in the most adapted regulatory
legislation (SO1). This course of action will also ensure a level playing field for financial
services providers across borders while enabling more choice for consumers (SO 5) since
the safety net is kept, thereby subjecting emerging products to EU legislation.
 The modernisation of the still relevant right to pre-contractual information and the
right to withdrawal through:
o the updating of the provision setting out the required content of information to be
included by the provider at the pre-contractual stage, for instance the inclusion of
the email address which is missing from the current DMFSD;
o the requirement that the pre-contractual information to be provided to the consumer
is adapted to the channel on which it is displayed;
o the requirement that the pre-contractual information is to be provided at least 24
hours before the actual signature of the financial service, and, if signed within less
than 24 hours, an obligation on the financial provider to inform the consumer of
the right to withdraw from the contract;
It will ensure that consumers purchasing financial services at distance are empowered by
effective and timely information (SO 2) and that consumers reflect on their purchases and exit
unsuitable agreements for the provision of financial services (SO 3).
The prohibition of default options such as pre-ticked boxes will prevent consumers from
being nudged into purchasing financial services which are not in their best interest (SO 4).
The above described measures are all measures which are similar to measures already found
in current legislation or in legislative proposals. The updating of the content to be provided at
pre-contractual stage corresponds to what is already found in Article 6 (Information
requirements for distance and off-premises contracts) of the Consumer Rights Directive.
Adapting information to the channel corresponds to Article 8 (Formal requirements for distance
contracts) of the Consumer Rights Directive. And the timing of pre-contractual information
coupled possibly with a reminder of a right of withdrawal corresponds to Article 10 (Pre-
contractual information) of the Commission Proposal to revise the Consumer Credit Directive.
94
56
This minimalist approach to modernising the current relevant DMFSD rights and the
inclusion of a clear hierarchical provision ensure that the coherence with other EU relevant
legislations and policies will be improved.
Since the preferred option repeals the DMFSD, injects the still relevant parts in the Consumer
Rights Directive, and safeguards the safety net feature, the protection of consumers granting
credit through peer-to-peer lending platforms is not addressed by this initiative. This issue is
too specific to fit the logic of the proposal and the horizontal nature of the Directive.
Option 3a would also have a positive effect on the reduction of consumer detriment (at least
EUR 170-210 million) and on consumer trust. It would entail some costs for financial services
providers (at least around EUR 19 million) and for public authorities (at least around EUR 6
million).
8.2. REFIT (simplification and improved efficiency)
The review of the Directive was included among the Adjusted Commission Work Programme
REFIT initiative 2020.95
In this context, the report has analysed how the current legal
framework could be simplified, improve the efficiency and decrease administrative burden, in
line with the Better Regulation rules and guidelines. The following actions under Option 3a
should lead to such higher efficiencies:
Table 9. REFIT Cost Savings – Preferred Option 3a
Description Amount Comments
The repeal of the Directive ensures
that the non-relevant articles (e.g.
ban on unsolicited communications)
will not be injected into the
Consumer Rights Directive. This
will reduce the number of articles
that need to be complied with.
A hierarchical provision, on the
basis of Article 3(2) (Scope) of the
Consumer Rights Directive, will
regulate the overlap issue between
the Directive and product-specific
legislation. This provision will
clarify which legislation applies
through the lex generalis/lex
specialis norm.
Approximately
EUR 97,7
million in
savings linked
to reduced
communication
s to consumers
because the
overlap with
sector specific
legislation
would be
clarified.
These two actions will simplify the legislative framework,
thereby improving efficiency and reducing regulatory costs for
financial service providers and public authorities.
Concretely, for financial service providers, this simplification
translates, in the arch of the period 2022-2031, into less
administrative burden thanks to a clearer application of the
legislation, less costly compliance activities, lower need of
specialized legal support to ensure that the revised practices are
in line with the new legislation and, possibly, a lower number
of consumer complaints to deal with.
For public administrations, the higher degree of legal clarity
and the simplified regulatory framework applicable to the
distance marketing of financial services should lead to a
reduction of the issues faced by consumers (which as of 2018,
ranged between 4% and 8% of the financial services
purchased) and thus proportionally decreasing the number of
complaints.
Consumers too will benefit from such simplification (for
instance, due to the current overlap, certain financial providers
present consumers with two sets of pre-contractual
information, one based on the DMFSD, one based on the
product-specific legislation. Through Option 3a, this should no
longer take place).
Clearer regulatory framework
leading to increase of cross-border
provision of financial services and
increased consumer choice
Approximately
EUR 40 million
A harmonised regulatory framework would lead to higher
consumer trust and to an increase of the number of consumers
that purchase at better conditions from non-national providers.
Beyond these simplifications and higher efficiencies, this initiative endeavours to keep
regulatory burdens to the minimum necessary both for businesses and Member States to what
95
Annexes to the Adjusted Commission Work Programme 2020, Brussels, 27.5.2020 COM(2020) 440 final.
57
is strictly needed to ensure a high level of consumer protection and foster the provision of
cross-border financial services. Option 3a proposes measures that are similar to measures in
other legislative texts or legislative proposals and are limited in number. The costs to be
incurred by financial providers and public authorities are mostly one-off costs which will be
be compensated by larger long-term benefits. For instance, the burden reduction of adapting
information requirements for digital use has an initial cost but once these have been
prepared, it could be less burdensome to provide these online. Just for the consumer credit
sector, the Impact Assessment accompanying the revision of the Consumer Credit Directive
held that the burden reduction could ultimately impact over 25 million personal bank loans
annually bought at a distance.
In conclusion, all the ongoing work related to financial services under other initiatives has been
and will be duly taken into account to avoid overlaps and overregulation.
9. HOW WILL ACTUAL IMPACTS BE MONITORED AND EVALUATED?
The Commission will monitor the implementation of the preferred policy option, i.e. the repeal
of the DMFSD and the modernisation of its relevant provisions injected in horizontal
legislation, if adopted and in line with the specific objectives identified in this Impact
Assessment. Table 10 presents a list of monitoring indicators that will help evaluating whether
the preferred policy option is successful in achieving these specific objectives. These indicators
will then serve as a basis for the next evaluation that should be presented at the latest five years
after the entry into force of the present initiative.
The draft proposal will contain a commitment to evaluate the impacts of the new legislative
act. The Commission will start monitoring the implementation of the preferred policy option
after the entry into force of the initiative.
Table 10. Monitoring indicators for the specific objectives
SOs Monitoring indicators Data sources Actors responsible
for data collection
SO1 ■ Number/proportion of relevant DMFSD
provisions modernised
■ Number/proportion of relevant DMFSD
provisions injected in the CRD
■ Legal analysis
■ Member States experts on the
DMFSD
■ European
Commission
■ Member States
SO2 ■ Number/proportion of consumers who
deem they were provided with effective
and timely information on purchased
product
■ Number/share of consumer complaints
associated with information in distance
purchases of financial services
■ Enforcement authorities/CPC
■ Stakeholder surveys/interviews
■ Consumer and creditor surveys
■ Mystery shopping exercises (e.g.
through EBA)
■ Member States experts on the
DMFSD
■ European
Commission
■ Member States
SO3 ■ Number of reminders on the possibility to
exercise the right of withdrawal sent by
the financial services providers to the
consumer per agreement
■ Number/share of consumers who used
their right of withdrawal to exit unsuitable
agreements
■ Number/share of consumer complaints
associated with the right of withdrawal in
distance purchases of financial services
■ Enforcement authorities/CPC
■ Stakeholder surveys/interviews
■ Consumer and creditor surveys
■ Mystery shopping exercises (e.g.
through EBA)
■ Member States experts on the
DMFSD
■ European
Commission
■ Member States
58
SO4 ■ Level of consumers’ trust in distance
purchases of financial services
■ Number/share of consumer complaints
associated with practices exploiting
consumer biases in distance purchases of
financial services
■ Enforcement authorities/CPC
■ Stakeholder surveys/interviews
■ Consumer surveys
■ Mystery shopping exercises (e.g.
through EBA)
■ European
Commission
■ Member States
SO5 ■ Number/proportion of cross-border
distance purchases of financial services
■ Number/type(s) of products financial
services providers offer as part of distance
purchases of financial services
■ Market studies
■ Eurobarometer
■ European
Commission
59
ANNEXES
60
ANNEX 1: PROCEDURAL INFORMATION
1) Lead DG, DEcide Planning/CWP references
 LEAD DG: DG JUSTICE AND CONSUMERS
 DECIDE PLANNING: PLAN/2020/7021
 CWP 2020 - ANNEX II (REFIT INITIATIVE NO. 43)96
2) Organisation and timing
The impact assessment took place between March 2021 and November 2021 and was
announced in the 2020 Commission Work Programme – Annex II Refit Initiatives. It was
carried out by Unit E1 "Consumer Policy" of the Commission, DG Justice and Consumers.
Representatives from the Secretariat General (SG), the Legal Service (SJ), DG Justice and
Consumers (JUST), DG Financial Stability, Financial Services and Capital Markets Union
(FISMA), DG Competition (COMP), DG Communications Networks, Content and
Technology (CNECT), DG Economic and Financial Affairs (ECFIN), DG Employment, Social
Affairs & Inclusion (EMPL) and DG Internal Market, Industry, Entrepreneurship and SMEs
(GROW) were appointed to the Interservice Steering Group.
The Interservice Steering Group met two times between May 2021 and November 2021. The
first meeting was held on 27 May 2021 and the second meeting on 3 November 2021.
3) Consultation of the RSB
An upstream meeting was held with the Regulatory Scrutiny Board (RSB) on 4 June 2021, to
informally discuss questions concerning how to prepare the best possible report for the
Directive’s revision. The draft of the impact assessment was submitted to the RSB on 10
November 2021 and discussed at the RSB hearing of 8 December 2021. The RSB delivered a
POSITIVE opinion on 10 December 2021.
The comments formulated by the Board were addressed and integrated in the final version of
the impact assessment. The two tables below present the elements of the RSB opinion and how
the report has been updated to take them into account.
Main issues raised by the RSB in its opinion and related updates
(1) The report does not present the options nor their structure and content in sufficient detail. It
does not explain why options without the safety net are not discarded.
Related updates:
 The Revised IA Report clarifies the overall options and structure/content in more detail by
explaining in the introductory party of Chapter 5 (‘What are the available options) the narrative
and steps taken in order to device the options and structure. The opinion of the different
stakeholders has been added in order to illustrate their respective support to certain policy options.
 In this introductory explanation, and through the support the different options obtained from the
different stakeholders, an explanation is given why the options that do not include the safety net
were not discarded. In this light, the part on options discarded at an early stage is also strengthened.
96
COM(2020) 440 final, Annexes.
61
 Under Chapter 5.2 (Description of the Policy Options) the content of the respective policy options
has been described in greater detailed, in particular Policy Option 1. In this light, the corresponding
Table 5 (Proposed measures per Policy Option covering financial services) has also been improved.
(2) The report does not sufficiently assess impacts on business. It does not explain estimates and is
not clear about limitations
Related updates:
 The Revised IA Report has strengthened the impact analysis. It provides further analysis and
explanation related to the cost to businesses and consumer detriment in Chapter 6 (‘What are the
impacts of the policy options’).
 The Revised IA Report has improved the monetisation of consumer empowerment through the
calculation of consumer detriment by summarising the detail in annex 4 in the main body of the
Revised IA Report and the ‘cost-of non-Europe’ has been integrated into the analysis.
 The Revised IA Report has further elaborated on the burden reductions or costs that the proposed
measures will entail under the respective policy options, including for businesses.
 The estimates have been clarified and the limitations of the figures explained.
Specific improvements requested by the RSB How the RSB comments have been addressed in
the revised IA report
(1) The problem analysis should assess potential
risks (e.g. data protection,
discrimination) associated with the access by Big tech
companies to personal data when
providing financial services at a distance as this may
affect both fair competition in affected markets and
consumer trust
This issue has been further developed under the
problem description chapter and the subsidiarity
chapter.
(2) The report should clarify the content and
structure of the policy options. It should
explain why options differ not only in the envisaged
legal delivery instrument, but also
contain different approaches to modernise and update
the provisions of the current
DFMSD. It should explain how these are linked to the
different legal delivery instruments.
The most ambitious modernisation option should be
more specific on the precise measures
it would include.
Cf main issue 1
Content and structure of each policy option has been
explained in further detail;
Better explanation of the options in the introductory
narrative, spelling out how and why the options differ
in content and in envisaged delivery instrument.
The precise measures of the most ambitious option
(Option 2) have been further explained.
(3) The report should better explain why it does not
discard options without the safety net
upfront. The problem description demonstrates that
the safety net ensures an important
element of trust. Without it the options risk to be
ineffective on the consumer protection
objectives.
Cf main issue 1
The Revised IA Report explains the methodology
that was applied when conducting the Report and in
so doing, explains why the options that do not
contain the safety net could not be discarded upfront.
(4) The report should explore whether including
DFMSD provisions in the Consumer
Rights Directive may result in unintended
consequences such as increased complexity of
the Consumer Rights Directive
This point has been addressed in two parts of the
Revised IA Report: (i) under the description of the
policy option that suggests the inclusion of current
DMFSD provisions in the Consumer Rights
Directive, and (ii) when describing the preferred
option.
(5) The report should strengthen the impact analysis.
In particular, it should provide
further explanation related to the cost to businesses,
potential consumer detriment and the
impact on SMEs
A short section dedicated to SME has been included
in Annex 3.
62
(6) The report should provide more detail on the
assumptions underpinning estimates (e.g.
artificial 10% reduction of the consumer benefit in
absence of the safety net), the data
sources and the calculation methods for all key
estimates, in particular the calculation of
costs and benefits. It should present clearly the
limitations and how they are addressed
Cf main issue 2
The report has added the requested detail, in
particular concerning the assumptions, such as the
10% reduction, the data sources and the calculation
methods.
(7) The report should be more specific on the
timeframe for the evaluation of the newly
included provisions in the Consumer Rights
Directive.
Some more technical comments have been sent
directly to the author DG.
The Revised IA Report indicates that the timeframe
for the evaluation of the newly included rights will
be in synch with another Commission Proposal that
also intends to amend the Consumer Rights Directive
Other technical comments have be taken into
account, including the revision of the Table:
Overview of Benefits – Preferred Option.
4) Evidence, sources and quality
For the purpose of this impact assessment, Commission services collected data through various
sources and consultation strands (see also Annex 2).
The impact assessment relies and builds on the Evaluation of the Directive, which took place
in 2018-2019 and was announced in the 2019 Commission Work Programme. To this end, the
Commission published an Evaluation Staff Working Document and an Executive Summary of
the Evaluation.97
The Evaluation of the Directive received a positive opinion from the RSB.
The Commission published the Inception Impact Assessment of the Directive and received
public feedback on it from 28 May 2021 to 25 June 2021.
The Commission also based the impact assessment on the evidence gathered from the Open
Public Consultation on the “Distance marketing of consumer financial services – review of EU
rules”, which was held from 22 June 2021 to 28 September 2021.
The Commission also consulted its dedicated Member State Expert Group on the
Implementation of the Consumer Credit Directive, specifically to discuss the Review of the
Distance Marketing of Financial Services Directive (June 2021).
The Commission had previously outsourced to an external contractor a study supporting the
Evaluation of the Directive, whose final report was also published (2020).98
97
See https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/2002-Distance-Marketing-of-Financial-
Services-evaluation-of-EU-rules_en.
98
See https://ec.europa.eu/info/business-economy-euro/banking-and-finance/consumer-finance-and-payments/retail-
financial-services/distance-marketing-financial-services_en.
63
In 2021, the Commission outsourced a new supporting study to provide sound evidence and
analysis for preparing this impact assessment for potential EU action to revise the Directive. A
contract for expert advice for impact assessment analyses to be conducted in the context of the
legislative initiative under the New Consumer Agenda was outsourced and a professor was
appointed.
64
ANNEX 2: STAKEHOLDER CONSULTATION – SYNOPSIS REPORT
1) Introduction and consultation strategy
a. Objective of the consultation
The stakeholder consultation collected information and feedback on various aspects of the
possible revision of the DMFSD from a wide range of key stakeholders representing
consumers, retail financial services providers, national authorities, and other relevant interest
groups. It included semi-structured interviews, a follow-up online survey, the analysis of the
feedback to the Commission’s Inception Impact Assessment (IIA)99
the analysis of the
responses to the Commission-run public consultation on Distance marketing of consumer
financial services100
, a validation workshop covering the key findings of the study, as well as
ad hoc contributions from stakeholders provided through other channels and consultation tools.
The aim of the consultation was to obtain qualitative and quantitative information from key
stakeholders at national and EU level representing all groups concerned by the possible revision
of the DMFSD.
2) Consultation activities and tools - types of stakeholders and data collection tools
The impact assessment relies extensively on the evidence findings of the external supporting
study prepared by the contractor VVA/LE Europe (Study on the possible impacts of a proposal
for revision of Directive 2002/65/EC concerning the distance marketing of consumer financial
services) which fed into the analysis of the Commission. The study was carried out under close
guidance of DG JUST.
The impact assessment also relies on the information and evidence gathered in the context of
the 2019 Behavioural study on the digitalisation of the marketing and distance selling of retail
financial services101
and the REFIT evaluation published in 2020102
.
The consultation strategy was underpinned by a number of key activities using multiple tools
to target a wide range of stakeholders through different channels and gather insights from as
many relevant stakeholders as possible.
Stakeholder feedback was received on the Inception Impact Assessment between 28 May and
25 June 2021, following the Commission Proposal to review the DMFSD as part of the REFIT
Annex of the Commission Work Programme 2020. A total of 14 contributions were received,
analysed and taken into account. Overall, 9 contributions came from financial service providers
and associations, 3 contributions came from consumer organisations, and 2 contributions came
from others (1 trade union, 1 citizen).
99
See https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/13048-Distance-marketing-of-
consumer-financial-services-review-of-EU-rules/feedback_en?p_id=24834005.
100
See https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/13048-Distance-marketing-of-
consumer-financial-services-review-of-EU-rules/public-consultation_en.
101
See
https://ec.europa.eu/info/sites/default/files/live_work_travel_in_the_eu/consumers/digitalisation_of_financial_services
_-_main_report.pdf.
102
See https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/2002-Distance-Marketing-of-
Financial-Services-evaluation-of-EU-rules_en.
65
The Commission also consulted its dedicated Member State Expert Group on the
Implementation of the Consumer Credit Directive specifically to discuss the Review of the
Distance Marketing of Financial Services Directive (June 2021).
The stakeholder interviews, organised by the contractor, aimed at gathering views from
various key stakeholder groups. The interviews were performed from 29 July 2021 to 20
September 2021. Overall, 26 interviews with national authorities were performed, ranging from
national regulatory authorities, consumer protection authorities and ombudsman. Furthermore,
four contributions were collected from EU and national consumer associations. To gather the
perception of the financial industry, three interviews with financial industry associations and
two interviews with financial service providers were also conducted. The aim of the interviews
was gathering information and views on the relevance of the DMFSD, potential gaps in the
provisions, areas of improvements and qualitative data on the potential effects of a repeal
(including costs and benefits). The findings, together with the results of other research
activities, were used to develop preliminary policy options.
An Open Public Consultation was launched by the European Commission’s DG JUST
between 22 June 2021 and 28 September 2021 and 45 stakeholders’ answers were received.
The feedback received was analysed in order to gather additional evidence for the study
regarding the relevance of the DMFSD, its application and enforcement. Overall, 6 consumer
associations, 3 public authorities and 28 business associations and business contributed to the
consultation. The rest of the participants comprised of academic/research institutions, NGOs
and EU citizens.
A follow-up online survey, organised by the contractor, ran between 13 September 2021 and
3 October 2021. It targeted national authorities, consumer associations and financial service
providers in all Member States. The survey focused on obtaining input on the expected impact
of preliminary policy options and measures (including costs and benefits).
Lastly, a validation workshop was organised by the contractor on 20 October 2021. It offered
participants a chance to discuss the various policy options, covering aspects such as their
expected effectiveness and efficiency in addressing the problems identified and the impacts
that they are likely to have on key stakeholders. 46 stakeholders participated.
Table 11. Summary table on the numbers and type of activities
Stakeholder
group
Consultation methods
Interviews Survey IIA OPC Workshop
Businesses and
business
associations
5 6
9
28 12
National
Regulatory
Authorities
26 9
-
3 31
66
Stakeholder
group
Consultation methods
Consumer
Associations
4 3
3
6 3
Academic
institutions
- -
-
1 -
Other103 - -
2
7 -
Total 35 18
14
45 46
Other inputs were received through bilateral meetings with stakeholders, specific ad-hoc
reports and data from consumer associations, industry representatives and researchers.
The evidence collection for the Staff Working Document is also based on the Commission’s
experience in monitoring and implementing the Directive.
3) Evidence, Sources and quality
Thorough desk research and legal analysis were conducted.
The implementation of the stakeholder consultation encountered various challenges, some of
which affected most consultation activities. The timing of the consultation also constituted an
obstacle as it coincided with the summer period, when many stakeholders take their annual
leave. Stakeholder fatigue may have also contributed to the low response rate. Most
stakeholders had already started preparing their contribution for the Open Public Consultation
argued they had no additional time nor views to share in such a short period of time.
Below is a summary of the key limitations affecting the quality of the evidence collected
through some of the stakeholder consultation activities.
Stakeholder interviews: the number of interviews conducted with national authorities and
ministries did not reach the target of 50 interviews initially planned. Several efforts were made
to increase participation, including sending additional reminders, extending the deadline
several times, using the European Commission’s own communication channels, and giving an
option to provide written feedback, with limited success.
Follow-up survey: the low response rate is the main limitation affecting the surveys despite the
efforts to boost the response rate (such as extension of the deadline to submit responses,
additional reminders via email and phone and contact with alternative stakeholders).
Considering relatively small window of opportunity for stakeholders to provide feedback (three
weeks), and the fact the survey was launched shortly after stakeholder interviews had been
103
NGOs, European citizens and unspecified.
67
concluded, some stakeholders reported not having sufficient availability to participate in the
survey. Some also argued that their stance was adequately captured during the interview stage.
Open Public Consultation: a high number of responses was received especially from business
associations and financial service providers, which helped balance the views gathered via
surveys and interviews. In addition, the public consultation also collected the views from
additional stakeholder groups such as citizens, NGOs and academic and research institutions.
4) Main stakeholder feedback per consultation activity
a. Inception Impact Assessment
The input consisting of 14 contributions covered the assessment of the expected impacts of a
potential EU action to revise the Distance Marketing of Financial Services Directive, including
economic, social and impacts on simplification and administrative burden.
The outcome of this feedback illustrated that financial service providers prefer either the
baseline scenario or the option to repeal the Directive. Those providers that opted to keep the
baseline argued that deleting the Directive would deprive financial services from the benefits
of the safety net feature.
Consumer organisations mostly favour a comprehensive revision of the DMFSD and mention
the added value of the Directive represented by the safety net. They also point to ways of how
to modernize the current text and build on it, for example taking into account the various
digitalisation aspects that have come up since the adoption of the Directive.
b. Member State Expert Group meeting
In its dedicated Member State Expert Group on the Implementation of the Consumer Credit
Directive specifically to discuss the Review of the Distance Marketing of Financial Services
Directive (June 2021), the Commission presented in detail the state of play of the file, including
the problems and options presented in the Inception Impact Assessment, before the tour de
table on a set of questions took place.
The questions concerned: the added value and relevance for the DMFSD in light of
product/horizontal legislation that occurred since its adoption, reference to concrete examples
for the actual application of the DMFSD as a ‘safety net’, and the application/enforcement of
the DMFSD.
The Member States gave several preliminary comments, from which a wide and rather variated
picture emerged. A small number of Member States consider that the DMFSD only has
theoretical value at the moment, and no longer has relevance. These Member States consider
that its main features are included in sectoral legislation and there are overlaps, while they
consider sectoral legislation more robust. Some of these Member States held that even if the
DMFSD were to be deleted, they would not amend, in the short-time, their national legislative
framework. One Member State could agree to repeal the DMFSD, but called to ensure that the
still valid parts are covered by product-specific legislation. This Member State cautioned that
if repeal were to happen, the absorption of the protective framework of the DMFSD by other
pieces of legislation is important so that there are no loopholes. A large number of Member
68
States that took the floor were against a repeal because they thought it would leave a gap, and
consider the DMFSD still relevant especially for the general framework and transparency it
provides. The Member States against the repeal of the DMFSD argued that its provisions are
used in investigation and enforcement actions and that repealing the safety net feature will
lower the level of consumer protection.
c. Interviews
On pre-contractual information: Despite some variation between financial sectors, most
stakeholders indicated that the provisions on pre-contractual information are useful for
providing consumers with a high level of protection. Further analysis shows that opinions differ
between public authorities, consumer associations and the industry.
On average, consumer associations rated Article 3 of the DMFSD as useful, while financial
industry associations and financial service providers consider the provisions mostly not
useful considering the average score. Overall, 20 national authorities and ministries provided
input on how useful provisions on pre-contractual information are for consumer protection.
Based on their input it appears that national authorities have different views on the relevance
of this provision. Overlapping with national legislation and product-specific legislation was
identified as the main driver behind the reduced relevance of Article 3. In contrast, some public
authorities and ministries find the provisions on pre-contractual information of the DMFSD
still useful to a certain degree. They mentioned three main reasons: the DMFSD acts as a
“safety net”, the DMFSD is more stringent compared to other legislation, and the DMFSD
bridges the gaps in consumer protection left by other directives.
In most cases participants believe repealing Article 3 of the DMFSD would produce
moderate to high costs. For insurance products, payment accounts and personal pensions the
potential costs according to half of participants would be high or very high. On the other hand,
regarding consumer credits and mortgages, over 20% of participants suggested a repeal would
not incur any costs for concerned parties.
Six national authorities out of 20 who replied, believe repealing the DMFSD would not create
any costs for concerned stakeholders. Other public authorities believe that by repealing the
DMFSD, financial service providers would be obliged to provide less pre-contractual
information which would in turn result in lower benefits for service providers and high costs
for consumers. Seven authorities believe costs of the repeal would be high for consumers
purchasing services which are not covered by product-specific legislation. Six respondents
indicated that Article 3 of the DMFSD is more stringent than other legislation which is why
repealing it would create high costs for consumers.
All four consumer associations believe that repealing Article 3 of the DMFSD would create
high costs for consumers in sectors not covered by other legislation. In this regard, they
specifically referred to new emerging markets.
On the contrary, business associations and financial service providers indicated that repealing
the DMFSD would result in low costs since product-specific legislation already addresses all
the relevant issues.
69
On the right of withdrawal: Concerning the issue of sub-optimal use of right of withdrawal,
interviewees had different opinions on the usefulness of article 6 to ensure an effective level of
consumer protection. Indeed, the stakeholders’ opinion varied depending on the type of
product. For consumer credits and mortgages, around 40% of the interviewees mentioned that
article 6 is mostly not useful, while around 25% of the stakeholders interviewed declared it is
sometimes useful with only 15% mentioning that it is extremely useful. However, for other
products, such as insurance products, other emerging services, personal pension products,
article 6 seems to be still very useful. As an example, for insurance products, around 80% of
the interviewees have rated this provision as useful, of which 35% have rated it as extremely
useful and 55% as mostly useful.
National authorities’ opinion on the usefulness of the DMFSD right of withdrawal also
depended on the type of product. 6 national regulatory authorities stated that the DMFSD right
to withdrawal is still extremely useful since, since 2002 the distance marketing of consumer
financial services has changed in light of the digitalisation and the commercial practices used
online by providers.
These 6 national regulatory authorities agree that the Directive, due to its horizontal application
acts as a safety net for financial services and thus is useful for current products for which the
legislation does not provide a right of withdrawal (e.g. insurance) and for future ones.
Provisions on the right to withdrawal are regarded as necessary and should not be repealed,
unless other legislation (i.e. directives) ensure an effective right of withdrawal in all cases
currently falling within the scope of the DMFSD. As an example, in several countries payment
related services, insurances, pensions and investments products are not covered by sector
specific legislation.
Concerning consumer associations, there is a consensus on the extremely usefulness of the
DMFSD in terms of right of withdrawal, especially for pensions, insurance products,
investment products. 2 out of the 4 interviewed highlighted that consumers should be clearly
informed about the procedure and provided the relevant withdrawal form before signing the
contract. Granting a right of withdrawal and providing information to consumers on how to
exercise it is very important for all financial services purchased online.
Concerning financial service providers, out of the 5 interviewed, 2 highlighted the extremely
relevance of Article 6 of the DMFSD for home savings and cross-border sales. According to
two of them, the most relevant aspect of such provision is the 14-days right to withdraw period.
When asked about the costs on consumer protection in case Article 6 were repealed,
interviewees opinions differed greatly, again, depending on the product concerned. As an
example, for consumer credits, the majority of stakeholders highlighted the low/no costs for
consumers: around 70% mentioned that in case Article 6 of the DMFSD were repealed, there
will likely be no or very limited in terms of costs for consumer credits (including credit cards).
On the other hand, for insurance products, personal pension and other emerging services,
around 50% of the stakeholders agreed that a possible elimination of Article 6 would create
high/very high costs on consumer protections. Moderate costs were foreseen for payment
accounts and mortgages.
70
On cross-border transactions: According to stakeholders, the main problems consumers face
when purchasing financial services from different Member States mostly concern pre-
contractual information, exercising the rights to withdrawal and starting a redress process.
d. Open Public Consultation
On the DMFSD as a safety net:
Digitalisation has led to new financial products emerging into the market at an increased pace
and are increasingly offered online. Recent examples of new products not covered by product
specific legislation include peer-to-peer lending, increased online offers of payday loans, and
buy-now-pay-later schemes. In all these cases, the rights contained in the DMFSD are fully
relevant (pre-contractual information and right of withdrawal), and the DMFSD should in
principle act as a “safety net” for these new products, ensuring a uniform, high level of
protection for consumers across the EU. As financial products are increasingly being sold
online, and the number of physical bank branches is steadily decreasing, consumers should be
duly protected whenever new products and technologies are launched into the market, which
are not yet covered by product-specific legislation.
Business associations believe that the DMFSD provides a common ground for consumer
protection when the sale of a service is not specifically regulated, usually for the pre contractual
and contractual information, and for the right of withdrawal. This framework leaves room for
innovation and is still valid. Business organisations also highlight the increasing familiarity
with the use of the Internet as a result of the containment and lockdown measures adopted
during the Covid-19 pandemic. They expect that specific provisions could eventually raise that
level of protection in certain sectors, but it should be considered that the safety net of the
Directive creates a level playing field for financial services, in a broad sense.
Consumer organisations support that the DMFSD ""safety net"" is useful for all types of retail
financial services products sold online that are not yet covered by product-specific legislation
as they are new and have been created afterwards.
NGOs mention that while product-specific legislation is increasingly bringing currently
unregulated products into scope, this is often not immediately after a new financial services
product is brought to market given the need for a proper legislative process to bring them into
scope first. Moreover, there are ample examples of product-specific legislation that do not
cover or do not cover sufficiently key consumer protection rules of the DMFSD. For example,
without the DMFSD, key consumer protection requirements would be lacking for savings
accounts sold online. Other examples can be found in the insurance sector. Consumers of
insurance bought online would not be able to benefit from the right of withdrawal without the
DMFSD.
Public authorities have provided instances when they applied the DMFSD during
investigations and enforcement actions (e.g. the need to provide pre-contractual information
when diamonds are sold online).
On pre-contractual information:
71
Business associations believe that the provisions of the DMFSD on pre-contractual
information are still relevant for savings accounts, consumer loans not covered by the consumer
credit directive in its current form or for new products and mortgage credit. Also, the DMFSD
provisions for telephone sales remain fully relevant given the absence of specific European
legal provisions applicable to payment services, payment accounts, investment products and
consumer credit. For those services covered by product-specific legislation, the DMFSD
provides complementary protection. However, the large amount of pre-contractual information
can contradict its actual purpose, namely, to provide the customer with a clear and transparent
product description and thus a sound basis for decision-making. Deletion of the obsolete
information requirements of the DMFSD and focus on essential details would be welcome.
Business organisations also consider that the rules laid down by the DMFSD result outdated
and obsolete as a result of more recent product specific legislation.
Consumer organisations argue that the right to pre-contractual information contained in the
DMFSD will be even more important in the future as financial institutions and new players
such as Fintechs and Bigtechs are increasingly offering products online, with physical bank
branches closing at an increased pace in the face of the COVID-crisis and the overwhelming
digitalisation of the financial services market. In order to ensure that the provisions on pre-
contractual information are applied in practice, enforcement of the articles stemming from the
Directive is crucial.
NGOs mention that the articles of the DMFSD may be applied in case of problematic products
sold by distance (over the Internet or by phone). For example, this takes place in case of cross-
selling when consumer credit products mortgages which are sold to consumer together with
other products such as payment protection insurance.
Public authorities noted that most of the product-specific legislation already provide rules on
pre-contractual information. However, this provision is important in case of a future emerging
product for which no legislation is as yet applicable since providing pre-contractual
information is a basic right.
On the right of withdrawal:
Business associations consider that the 14-day right to withdraw is one remaining aspect of
the Directive which is still relevant and therefore must be retained. They are open also to amend
the relevant sector-specific legislation to include the 14-day right. Overall, future legislation
should be designed to be technology-neutral and future-proof.
Consumer organisations pointed out that financial service providers often exploit behavioural
biases of consumers online, an environment where they are particularly vulnerable. In these
situations, the right of withdrawal is extremely important in order to ensure that consumers are
duly protected from unsuitable or overly expensive products, as well as hidden charges. Most
complaints concerned the lack of consumer information of this right, the refusal by the provider
to accept the withdrawal and bureaucratic difficulties faced by consumers while exercising
their right. According to them, the DMFSD should therefore be revised to ensure that the
procedure to exercise the right of withdrawal is simple and straightforward for consumers and
consumers are duly informed about this procedure.
72
Public authorities noted that the right of withdrawal is still relevant in a number of important
financial services, such as insurance.
On unsolicited services and communications:
Business associations consider that the issue of unsolicited services is sufficiently addressed
by the provisions of the Unfair Commercial Practices Directive.
Consumer organisations also refer to the fact that the Unfair Commercial Practices Directive
added a ban on inertia selling into Article 9 of the DMFSD. Regardless of how often the article
on unsolicited services is applied or enforced, this article is not in itself sufficient to adequately
protect consumers in the digital era. Consumer consent in the digital space can be obtained by
default, for example via the use of pre-ticked boxes. The Consumer Rights Directive already
prohibits the pre-ticking of boxes, but does not, for the moment, apply to financial services.
Regarding unsolicited communications, public authorities consider that the issue is
sufficiently addressed in existing regulations and retaining the relevant provisions in the
DMFSD would offer little value to consumers. The provisions of the GDPR relating to
lawfulness of processing and consent are more comprehensive and stringent and therefore more
effective in protecting persons from unsolicited communications than the DMFSD.
On the relevance of the DMFSD and the application of horizontal and product-specific
legislation:
Business associations mention that since its creation, the Directive has put in place a safety
net whose spirit and content allow adaptation to technological developments and thus ensure a
high level of consumer protection. Today, the Directive creates legal uncertainty due to overlaps
and/or duplications with provisions of more recent sector or products specific EU legislation
such as the Insurance Distribution Directive (IDD) and the Packaged Retail and Insurance-
based Investment Products Regulation (PRIIPs regulation) that have introduced new pre-
contractual information or disclosure requirements that aim to strengthen the protection of the
consumer. These EU texts (and also the GDPR and the e-privacy Directive) therefore diminish
the intention and effect of the Directive. Overlapping legislation creates unnecessary regulatory
burden which increases costs to the financial institutions and ultimately to the consumer.
Consumer organisations believe that new products are increasingly appearing on the online
financial products market that are not yet subject to specific regulation. Thus it still is relevant
and will continue to be relevant, irrespective of any other legislation.
Public authorities acknowledged that the relevance of the DMFSD has decreased over the
years and that time is ripe to revise its legal clarity.
On the repeal of the DMFSD:
Business associations consider that there is currently too much duplication in the information
that has to be provided to the consumer at pre-contract stage. Repealing parts of the Directive
will remove duplication and additional work involved, as well as reduce costs. Product-specific
directives are more effective in providing consumer protection because such requirements are
suited to the product in question. They consider that the only provision that has not been
superseded and retains value is the 14-day right of withdrawal. Companies additionally
73
highlight that possible abolition of the DMFSD would risk to create fragmentation between
actors due to different sectoral regulations and a risk of distortion of competition.
Consumer organisations highlight that the repeal of the directive would lead to a decrease in
the level of consumer protection for financial services that are not or not fully covered by
product-specific directives, as well as for all new types of financial products. The digitization
of the distribution of financial services has increased significantly since the directive came into
force and at the same time providers are reducing their physical representation and accessibility
for consumers. This development shows how important it is to reduce existing information
asymmetries between providers and consumers in order to protect consumers from hasty
decisions (through pre-contractual information) and to enable them to revoke these decisions
if necessary (through the right of withdrawal).
Public authorities consider that consumer protection would be badly affected, if DMFSD
would be repealed. There is no product-specific legislation covering all kind of financial
products and product-specific regulation will never be up to date as such products may appear
in every moment. So they appreciate DMFSD as a safety net. Public authorities also noted that
the DMFSD is still used for investigation and enforcement actions.
e. Survey results
On the baseline scenario: Concerning the current level of consumer protection regarding pre-
contractual information, business associations and public authorities stakeholders consider that
the level of protection offered by the DMFSD is very low or low since there is a large amount
of overlap. Thus, the applicable law is not the DMFSD but the product-specific legislation. On
the other hand, these same stakeholders and consumer organisations think that the current level
of the protection regarding the right of withdrawal is high or very high.
On repeal: Concerning the effect on consumer protection regarding pre-contractual information
if the DMFSD was to be repealed, all consumer organisations and a majority of public
authorities and more than half of business associations anticipate that the effects would be very
negative or negative, especially for the articles of the DMFSD which are still relevant. With
regard to the effect of repealing the provisions on the right of withdrawal without any
subsequent legislative intervention replied all stakeholders, apart from a small number of
financial services held that it would be very negative or negative. The same views by the same
stakeholder replied that repealing the DMFSD would have very negative or negative effects to
the safety net feature.
On comprehensive revision: Consumer organisations believe that introducing new
comprehensive rules in the DMFSD while modernizing the current rights that would have
positive or very positive effect. With regard to the right to pre-contractual information,
according to the consumer organisations, new rules addressing how the information is to be
presented would have a positive to very positive effect. Business associations and financial
providers oppose a comprehensive revision since they believe it will bring disproportionate
burdens and rated this option as very negative or negative. Public authorities had a nuanced
view and held that what was important is that the DMFSD is not repealed.
74
Repealing the DMFSD and merging with horizontal legislation: Concerning the effect on
consumer protection regarding pre-contractual information and the right of withdrawal if the
DMFSD was to be merged with the horizontal legislation, the majority of public authorities
anticipate that the effects would be very positive or positive. Around half of the consumer
organisations also believe that this policy option is very positive or positive as long as the safety
net is safeguarded. Business associations and financial providers had a nuanced position.
On merging with vertical legislation: Concerning the effect on consumer protection regarding
pre-contractual information and the right of withdrawal if the DMFSD was to be merged with
the vertical legislation, half of the stakeholders from each sector anticipate that the effects
would be negative since the safety net would be lost. The other half anticipate that there would
be no effect or the effect would be positive since the current overlap will be repealed. The rate
of the effect, however, has been varying between the financial services as stakeholders believe
that merging of the DMFSD with the vertical legislation s would be more positive for those
financial services for which the DMFSD is still relevant.
Comparing the options: There does not seem to be a particular policy option that the different
stakeholders seem to like most. While consumer organisations tend to prefer the comprehensive
option, they could live with the option of repealing the DMFSD but inserting modernized
provisions in the Consumer Rights Directive. On the other hand, business associations and
financial providers do not support a comprehensive reform of the right of withdrawal which
would include new provisions not yet found in the DMFSD. The majority of public authorities
would support the modernization of the right to withdrawal.
f. Validation Workshop
The validation workshop started with an introduction of the study objectives, methodology and
the presentation of the Policy Options. After the presentation of the study and the Policy
Options, stakeholders were asked to participate in assessing the impacts of the Policy Options.
The contractor launched the online survey and asked the participants to evaluate each presented
Policy Option in terms of its impact on costs (compliance and enforcement costs), consumer
trust and welfare, and cross-border trade.
Key aspects that were discussed in the Q&A session were related to the usefulness of the
DMFSD, the problems of the DMFSD and the preference of the Policy Options.
Concerning the usefulness of the DMFSD, EU-level consumer organisations have expressed
that DMFSD is an important legislation as it works as a safety for the consumers regarding the
products that are not covered by product-specific legislation.
As for the problems that are associated with the DMFSD, stakeholders seem to be in an
agreement that the current DMFSD is not fully in line with the recent technological
developments. Stakeholders, in general, agreed with the problems proposed by the study team.
However, a consumer organisation mentioned that some additional problems (i.e. issues with
personal data, regulation of the comparison websites, issues related robo-advice) could
potentially be included in the Policy Options 2 (Comprehensive report). A public authority
75
described the problem of overlapping between the DMFSD and other horizontal and product-
specific legislation and explained that the DMFSD lacks legal clarity which then has triggered
difficulties to companies, consumers and national regulatory authorities. Another public
authority noted that it is often difficult to decide which legislation is applicable. Therefore,
according to EU-level consumer organisations, introducing standardised forms of pre-
contractual information and right of withdrawal would bring more certainty and it would
improve the DMFSD. In terms of cross-border trade, a consumer organisation has mentioned
that improvement of the DMFSD would increase the trust from the consumers when purchasing
financial services online, hence, this would also result in higher facilitation of cross-border
trade in online financial services in the EU.
Regarding the preference of the Policy Options, stakeholders had different opinions on which
Policy Option would be the most appropriate. Stakeholders representing consumer
associations noted that they would prefer Policy Option 2 (Comprehensive Reform) as the
improvement of the DMFSD is necessary to ensure higher consumer protection. Stakeholders
from some national regulatory authorities explained that they would prefer Option 3a as
merging the DMFSD with horizontal legislation (the Consumer Rights Directive) would bring
more legal clarity and coherence. Half of the stakeholders belonging to the financial services
industry said that their associations would prefer Option 0 (Baseline), as current DMFSD
operates efficiently as a safety net feature and any additional changes would bring extra costs
to the businesses.
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ANNEX 3: WHO IS AFFECTED AND HOW?
1) Practical implications of the initiative
Overall, consumers would be affected positively. Consumer trust would increase thanks to
measures on how and when information should be presented, and on the reminder of the right
to withdrawal. Additionally, the new Directive would ensure consumer empowerment by
limiting practices exploiting behaviour patterns such as the use of default options. For the same
reasons, the new provisions would have a positive effect on reducing consumer detriment (at
least EUR 200-230 million) and on consumer trust. Moreover, a simplified and more coherent
legal framework and more choice due to increased cross-border offer would also positively
affect consumer trust and the reduction of consumer detriment.
Business will be impacted in terms of costs and adaptation of their infrastructure and personnel
costs (at least round EUR 18 million). On the one hand, they would have to face most of the
implementation costs of the new Directive. The new provisions would incur additional one-off
and (limited) recurrent costs for businesses since the new measures would demand service
providers to familiarise themselves with the improved Consumer Rights Directive, adapt their
IT systems, train staff, update their websites and update contracts. Adopting new rules for
presenting pre-contractual information, removing pre-ticked boxes and updating contracts
would be done in the implementation phase. On the other hand, introducing more robust rules
on the right to withdrawal could create more opportunities for consumers to submit complaints
making slightly higher costs for processing those complaints. However, the repeal would
reduce costs in terms of communications to consumers which are higher because certain
providers seem to send information twice to comply both with the DMFSD and with sector
specific legislation. Nevertheless, the proposal's simplified framework which ensures the safety
net feature would result in a more level playing field for industry across borders. The revised
rules within the Consumer Rights Directive would provide harmonised provisions across all
financial services sectors when the product is bought at a distance: implementing simplified
rules on pre-contractual information and right to withdrawal would mitigate the fragmentation
caused by differences in national regulations.
Public authorities would also face some costs (at least around EUR 6 million). The
introduction of new measures to modernise current DMFSD provisions together with new rules
(such as the prohibition of default options and adaptation of presentational rules for different
distribution channels) would introduce some one-off and recurrent costs for national
authorities, which will have to transpose and implement them. Nonetheless, the burdens would
be low since the new proposed changes are minimal.
2) Summary of costs and benefits
The tables below present the preferred measure's costs and benefits identified and assessed in
the Impact Assessment.
Table 12. Overview of Benefits – Preferred Option
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Description Amount Comments
Direct benefits
Reduced recurrent costs for
communication with
consumers
EUR 97,7 million (M) Figures drawn from VVA supporting study estimates
Beneficiaries: financial services providers
Clarification of the
application of DMFSD
EUR 42-48 M Figures drawn from VVA supporting study estimates
Beneficiaries: consumers
Improve timing provision
key info
EUR 39-45 M Figures drawn from VVA supporting study estimates
Beneficiaries: consumers (reduction in consumers’
financial detriment and monetised time losses).
Adapt information provision
to channel
EUR 36-42 M Figures drawn from VVA supporting study estimates
Beneficiaries: consumers (reduction in consumers’
financial detriment and monetised time losses).
Prohibition default options EUR 42,1-48,1 M Figures drawn from VVA supporting study estimates
Beneficiaries: consumers (reduction in consumers’
financial detriment and monetised time losses).
Cross-border trade: increase
options for consumers
EUR 36-48 M Figures drawn from VVA supporting study estimates
Beneficiaries: consumers (reduction in consumers’
financial detriment and monetised time losses).
Indirect benefits
Not available
Table 13. Overview of costs – Preferred option
Citizens/Consumers Businesses Administrations
One-off Recurrent One-off Recurrent One-off Recurrent
Transposition/Ad
aptation
Direct costs - - - 0,8 M -
Indirect costs Not available
Public
Authorities
monitoring and
enforcement
Direct costs - - - - 5,1 M
Indirect costs Not available
Familiarisation
with new
legislation
Direct costs - 45,2 M - - -
Indirect costs Not available
Cost of
updating/adaptin
g IT systems
Direct costs - 26,1 M - - -
Indirect costs Not available
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Updating
contractual
documentation
Direct costs - 30,1 M - - -
Indirect costs Not available
Staff training Direct costs - 2,0 M - - -
Indirect costs Not available
Complaint
handling
Direct costs - - 13,7 M - -
Indirect costs Not available
3) Impact on Small & Medium Enterprises (SMEs)
The population of SMEs in the financial services differs from the composition of the European
economy in other sectors. In the analysis conducted by the Support Study, SMEs account for
nearly 70% of the overall composition of the business population ranging from 67% of credit
institutions, 79% of pension funds and 76% of insurance companies. Micro companies are a
small proportion, with only 10% of credit institutions having a turnover lower than 2 million
euros and less than 10 employees, 52% of pension funds and 62% of insurance companies104
.
According to the analysis conducted by the Support Study and the feedback received by
consulted stakeholders, SMEs should not be impacted disproportionately in comparison to
larger enterprises. The main types of impacts considered for this assessment would apply
proportionately also to these businesses.
Regarding the compliance costs, in particular the cost of familiarisation with the new
legislation and the consequential cost for the update of documentation and information systems,
the overall costs for SMEs in the financial sectors, would account to 122 million euros for the
initial one-off costs.
Recurring costs, such as staff training, are proportional to the number of employees. In 2020,
approximately 250 thousand of the nearly 2 million employed in the sector, worked in SMEs.
Consequently, the expenses for SMEs would be, proportionally, less burdensome for this
category of businesses. According to our estimates, the overall cost would account for 4 Million
euros in total for the period 2021-2031.
104
For the purposes of this analysis, we have taken into account only enterprises with more than 1 employee and
considered the NACE Rev. 2 classes: Credit institutions excluding central banking (K6419), Insurance
(K651) and Pension funding (K653).
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4) One-in, one-out
The principle of the “one in, one out” approach consists of offsetting any burden for citizens
and businesses resulting from the Commission’s proposal by removing an equivalent existing
burden in the same policy area.
In the assessment, Policy Option 3(a) would entail a repeal of the DMFSD and integration of
the measures aimed at ensuring consumer protection in an already existing directive with
horizontal (cross-industry) application such as the Consumer Rights Directive. This approach,
aimed at creating a simplified and cross-industry framework for consumers’ protection, would
bring a net benefit to consumers without any expected additional cost for citizens: their rights
would remain protected with no detriment to their condition and ensuring the role of “safety
net” in case of emergence of new financial products or services.
In parallel, this simplification would also reduce costs for businesses in the financial services,
one of the sectors with the highest level of regulation. The simplification would reduce the risk
of inconsistencies with other legislative interventions – present or future – reducing the burden
on businesses to ensure that the most recent and relevant norm applies and that mandatory
communications with consumers is streamlined. A regulatory change would entail an initial
one-off cost for business to adapt. These costs would mainly involve familiarisation activities
(i.e. staff training on new regulatory framework) and update of commercial documentation to
reflect the new framework. In the long term, however, the positive effect of a simplified
regulatory framework should outweigh the initial burden
Table 14. One-in, One-out table
Net-in
Amount
(EURm) Description
Businesses 103
Update of non-labelling information (e.g.
financial prospectus) and of IT systems,
familiarisation with the information obligations
and staff training
Net-out
Amount
(EURm) Description
Businesses 98 Simplification of the regulatory framework
Consumers 42 Clarification of regulatory framework
According to the estimates of costs and benefits under policy option 3(a), the regulatory
intervention would very likely generate adaptation costs for businesses, in particular regarding
the update of documentation, information material, IT systems and staff training. In most cases,
these will be one-off costs that businesses would incur in the initial stage to ensure compliance
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with the revised regulatory framework. In the mid-term the costs should be off-set by costs
reduction for both businesses and consumers. In particular, the simplification and clarification
of the regulatory framework should reduce the burden on businesses in terms of communication
and information duties towards their customers. The clarification should also have a positive
effect on consumers, in particular, leading to a reduced consumer detriment.
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ANNEX 4: ANALYTICAL METHODS
1) Partial quantification
The quantitative assessment was carried out for those impacts for which an assessment of costs
and benefits could be made given the complexity of a measure and available data. This
assessment was possible for three main sets of subjects: public administrations, financial
service providers and consumers. These measures, however, do not cover the full amount of
costs and benefits that would be generated by the different policy options but only the ones for
which a reasonable monetary estimation was feasible.
The quantification, for the purposes of this impact assessment, was made for the following
indicators:
For Public Authorities:
 One-off adaptation costs for public authorities (transposition and adaptation costs)
 Recurring enforcement and monitoring costs for public authorities.
For Financial Service Providers:
 One-off costs for financial service providers (including familiarisation costs, updating
of IT systems, staff training, update of contractual documentation)
 Recurrent costs for financial service providers (in particular cost of handling
complaints, rules on use of robo-advisors, comparison platforms).
 Recurrent benefits for financial service providers (specifically the reduction of the
required communication to clients directly due to DMFSD).
For consumers:
 Reduction of consumers’ detriment based on the assessment of the impact on
consumers’ detriment of the measures foreseen by the policy options.
These estimates do not consider the potential indirect effects of the measures e.g. lost revenue
for financial service providers as a result of the measure, degree to which these costs would
then be transferred to consumers, implication regarding competition amongst financial service
providers and other wider structural effects on employment, GDP and environmental.
The estimates of the costs for the baseline scenario for the period 2022-2031 is consistent with
the approach used in the DMFSD Evaluation Study published in 2020 which includes the
detailed approach used for the calculation of these impacts in a dedicated annex.
Calculation approach
For the purpose of better understanding the calculations, a summary table of the main costs and
benefits and how they were estimated is provided below.
For each figure in the calculation of the overall net benefits of the policy options, assumptions
have been made. The main assumption is that the net benefit generated by the DMFSD in 2018
(as calculated in the DMFSD evaluation study, 2020) will continue to be constant in case of no
intervention. This was our baseline of comparison for all the potential benefits brought by the
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individual measures since it was not possible to estimate which of the two main underlying
forces driving the DMFSD net benefits would prevail: one of them is the decreasing relevance
of the DMFSD due to future legislative interventions, the other is the increasing number of
consumers that purchase financial services online.
A second general assumption is that the average costs to adapt to new provisions merged in
other, already existing Directives, would be less costly than adapting to a completely revised
DMFSD. For this reason, and considering that Options 3(a) and 3(b) would implement less
measures than Option 2, these costs have been accounted only by half.
For the purpose of better understanding the calculations, a summary table of the main costs and
benefits and how they were estimated is being provided.
Table 15. Summary of the calculation methods for the monetisation of impacts
Impact Description
Cost for Public Authorities (PA)
One-off costs Transposition costs were calculated assuming a minimum number of days of work by the
PA, at daily wages, for 27 Member States. Implementation costs are based on the estimate
made in the DMFSD evaluation (2020), adapted at current prices, and multiplied by
Member State. The difference between Option 3a and 3b is that, while the first foresees the
transposition of the measures in one “horizontal” Directive, the second foresees the
adaptation of multiple Directive and product specific legislation. However, this kind of cost,
which would weight on the European institutions, has been considered as minimal thanks
to internal procedures that would make these changes less burdensome.
Recurrent costs Monitoring and Enforcement costs were calculated multiplying the number of days of work
(as per DMFSD 2020 evaluation) at daily wage105
and for 27 Member States. A net present
value (NPV) at 4% discount rate was then calculated for the period 2022-2031. These
recurrent costs include the monitoring and enforcement activities that are due to the
additional provisions that are foreseen by the policy options.
Financial Service Providers106
One-off costs The one-off costs include familiarisation with the new provisions, the update of the IT
systems and of internal documentation, and staff training.
Familiarisation costs follow the approach of the DMFSD evaluation (2020) and result from
the multiplication of the full-time equivalent (FTE) that would be involved in the revision
activities, by the daily wage in financial services and the overall number of enterprises in
EU (wages and number of enterprises are taken from Eurostat).
Costs of update of the IT systems are assumed as the lower-bound estimate of the DMFSD
evaluation and multiplied by the number of EU financial service providers with an average
cost of 5.000 euros per company.
Staff training is assumed to be involving between 5% and 20% of the workforce considering
that the revised measures would involve only the staff that is responsible for sales and that
is in direct or indirect contact with customers. The training costs, however, have been
accounted only for a fraction of the overall costs and in proportion to the relevance of the
DMFSD as calculated in the evaluation study for the year 2018 (meaning that staff would
not participate to a full day of training on the revised DMFSD or the updated regulatory
framework, but that of that specific training, only a portion of it would be dedicated to these
topics an in proportion to the estimated relevance of the DMFSD for consumer protection
in financial services).
Recurrent costs Recurrent costs are all costs that financial service providers are expected to face on a yearly
basis (from 2022 to 2031) to comply with the revised DMFSD. These costs include, for
example, handling complaints, comply with rules on provision of robo-advice, etc.
105
Source of data: Eurostat ( EARN_GR_NACE2 ) for Financial Services
83
Table 15. Summary of the calculation methods for the monetisation of impacts
Recurrent benefits Areduction of cost is accounted as an increased benefit for financial services. As mentioned
by some stakeholders, financial service providers provide specific documentation and
information in compliance with the DMFSD provisions. For this reason, a repeal or more
in general a clarification of the application of the scope of the DMFSD, would likely remove
these costs which would entail, mostly, the work of employees in preparing and setting up
such communication (calculated as number of days of work at current cost).
Consumers
Consumer detriment The consumer detriment estimated in the DMFSD evaluation study for 2018 has been
extended for the 2022-2031 period considering a discount rate at 4%.
Consumer benefits A consumer benefit is calculated as a reduction of consumer detriment brought by each
measure considered in the Policy Options.
The DMFSD evaluation study calculates that the net benefits of the DMFSD in the period
2004-2018 were on average 3,7% annually107
. To calculate consumer benefits, we estimated
– based on stakeholders’ feedback - an expected increase of effectiveness brought by each
policy measure and calculated it as the difference of the increased effectiveness in
comparison to the baseline. For example, a measure that would strongly reduce problems
for consumers regarding the right of withdrawal, is expected to increase the overall
effectiveness and thus reduce by 50-80% the consumer detriment due to the ineffectiveness
of the current DMFSD on this aspect. This gain is then calculated for the 2022-2031 period
taking into account the expected increase in number of consumers performing online
purchases of financial services.
The next table presents the allocation of the impacts to the considered policy options. These
impacts are allocated in consideration of the different regulatory provisions foreseen by the
policy options.
Table16. Mapping of the costs and benefits for the assessment of the policy options
Policy
Option 1
Policy
Option 2
Policy
Option
3a
Policy
Option
3b
Costs for Public Authorities
One-off cost: transposition/adaptation   
Recurrent cost: Monitoring   
Recurrent cost: Enforcement   
Costs and benefits for Financial
services
Familiarisation with new legislation    
Cost of updating/adapting IT systems to
pre-contractual information requirements    
Updating contractual documentation    
107
i.e. the difference between the scenario with and without the DMFSD, the result is that the DMFSD generated a
benefit 3,7% higher than the scenario without.
84
Policy
Option 1
Policy
Option 2
Policy
Option
3a
Policy
Option
3b
Staff training (on pre-contractual and
right of withdrawal)   
Recurrent costs of complaints handling   
Measures on robo-advice 
Recurrent benefit of reduced
communications with clients 

 
Costs for Consumers
Consumer detriment (EURm) 
Benefits for Consumers
Clarification of the application of
DMFSD    
Roboadvice (when intermediary/when
not) 
Standardised information form 
Improve timing provision key info   
Specific withdrawal form 
Provision basic financial products 
Adapt information provision to channel  
Prohibition default options  
Cross-border trade   
Both costs and benefits are accounted in comparison to the baseline (Option 0: Keep the
DMFSD as it is). The estimates are coherent with the methodology adopted for the DMFSD
evaluation study (2020) and builds on its results. To be noted that while the expected impact of
the individual policy measures foreseen by the policy options are calculated in terms of reduced
consumer detriment, these policy measures are also accounted in the one-off and recurring
costs for financial service providers.
Based on the mapping of the different impacts for the stakeholders, the policy options can be
compared based on their efficiency. Nevertheless, these estimates are only partial due to the
lack of data on specific measures and on the effective size of the financial services in scope. In
addition, the calculation cannot take into account, in monetary terms, of the value of “safety
net” of having a horizontal legislation which covers current and future financial services. This
limitation is, however, partially covered by the qualitative assessment.
85
The quantitative assessment assumes a range of increased effectiveness of the individual policy
measures: a lower expected effectiveness determines the lower bound, while the higher
expected effectiveness determines the higher one.
Table17. Ranges of increased effectiveness brought by individual policy measures
Policy Option Effectiveness score Assumed increased
effectiveness
measure
Low High Low High
Clarification of the application of DMFSD 2, 3(a), 3(b) ++ +++ 40,0% 60,0%
Roboadvice 2 ++ +++ 40,0% 60,0%
Standardised information form 2 +++ ++++ 60,0% 80,0%
Improve timing provision key info 2, 3(a), 3(b) ++ ++ 40,0% 50,0%
Specific withdrawal form 2 +++ ++++ 60,0% 80,0%
Provision basic financial products 2 ++ +++ 40,0% 60,0%
Adapt information provision to channel 3(a), 3(b) + ++ 20,0% 40,0%
Prohibition default options 3(a), 3(b) ++ +++ 40,0% 60,0%
Cross-border trade: increased choice for
consumers
2, 3(a), 3(b) ++ +++ 40,0% 60,0%
According to the monetary estimates of the efficiency, the policy options perform as reported
in the next table.
86
Table18. Comparison of the efficiency of the policy options (EUR Million, NPV@4%, 2022-2031) – negative in parenthesis
Policy Option 1 Policy Option 2 Policy Option 3a Policy Option 3b
Public Authorities
One-off cost: transposition/adaptation 0,0 (1,6) (0,8) (0,8)
Total one-off costs for PA 0,0 (1,6) (0,8) (0,8)
Recurrent cost: Monitoring 0,0 (6,8) (3,4) (3,4)
Recurrent cost: Enforcement 0,0 (3,4) (1,7) (1,7)
Total recurrent costs for PA 0,0 (10,2) (5,1) (5,1)
Total costs for PA (EURm)(A) 0,0 (11,8) (5,9) (5,9)
Financial Services
Familiarisation with new legislation (90,3) (90,3) (45,2) (45,2)
Cost of updating/adapting IT systems to pre-contractual
information requirements
0,0 (52,1) (26,1) (26,1)
Updating contractual documentation 0,0 (60,2) (30,1) (30,1)
Staff training on pre- contractual information 0,0 (2,0) (1,0) (1,0)
Staff training on right of withdrawal 0,0 (2,1) (1,0) (1,0)
Total one-off costs for FS (90,3) (206,7) (103,4) (103,4)
Recurrent cost: complaint handling (banking) 0,0 (13,7) (6,8) (6,8)
Recurrent cost: complaint handling (Insurance) 0,0 (13,6) (6,8) (6,8)
Measures on robo-advice 0,0 (35,0) 0,0 0,0
Total recurring costs for FS 0,0 62,3 13,7 13,7
Total costs for FS (EURm) (90,3) (269,0) (117,0) (117,0)
Reduced communication 97,7 0,0 97,7 97,7
Total benefits for FS (EURm) 97,7 0,0 97,7 97,7
Net costs for FS (EURm) (B) 7,4 (269,0) (19,3) (19,3)
Consumers
Consumer detriment (EURm) (C) (560)
87
Policy Option 1 Policy Option 2 Policy Option 3a Policy Option 3b
Impact of measures (lower bound)
Clarification of the application of DMFSD 42 21 42 38
Roboadvice (when intermediary/when not) 0 20 0 0
Standardised information form 0 48 0 0
Improve timing provision key info 0 39 39 35
Specific withdrawal form 0 48 0 0
Provision basic financial products 0 42 0 0
Adapt information provision to channel 0 0 36 32
Prohibition default options 0 0 42 38
Cross-border trade: increase options for consumers 0 36 36 32
Total consumer benefits (lower bound) (D) 42 255 195 176
Total estimates (lower bound) (A+B+C+D) 510 26 170 151
Impact of measures (higher bound)
Clarification of the application of DMFSD 48 24 48 43
Roboadvice (when intermediary/when not) 0 23 0 0
Standardised information form 0 54 0 0
Improve timing provision key info 0 45 45 41
Specific withdrawal form 0 54 0 0
Provision basic financial products 0 48 0 0
Adapt information provision to channel 0 0 42 38
Prohibition default options 0 0 48 43
Cross-border trade: increase options for consumers 0 48 48 43
Total consumer benefits (higher bound) (E) 48 297 231 208
Total estimates (higher bound) (A+B+C+E) (504) 16 206 € 183 €
88
Each policy option would generate costs and benefits for the different categories of
stakeholders. In particular:
 Policy Option 1: Repeal of the DMFSD – this policy option would generate a total
cost estimated above 500 Million euros in consumer detriment as a result of the loss of
the expected benefits of the DMFSD (baseline). These costs, however, could be reduced
in case of effective self-regulation of the industry (not monetised) or increase in case of
national law to reduce consumer protection due to the absence of the DMFSD at EU
level.
 Policy Option 2: Improve the DMFSD based on identified issues (Comprehensive
revision) – this policy option, according to our calculations, would generate a positive
net benefit in the period 2022-2031. This policy option foresees an increased burden
for financial services providers which should be compensated by the increase of
consumer protection. This small positive net benefit calculated in our estimates,
however, could easily also be a negative net cost in case of slightly higher costs for
businesses or lower benefits for consumers.
 Policy Options 3(a) and 3(b): Repeal, modernisation of relevant provisions
introduced in horizontal legislation – these policy options are the most balanced in
terms of efficiency amongst the ones taken into consideration. According to the
monetised impacts, these options would generate a moderate level of costs for public
authorities and financial services while bringing a relatively high reduction of consumer
detriment generating a positive net benefit in the period taken into account. Of the two
options, however, the benefits for policy option 3(b) have been accounted not fully (at
90% of their value) to take into account of the absence of the “safety net” feature of the
DMFSD or that a horizontal consumer protection legislation would bring.
The quantitative assessment is complemented by a qualitative assessment of the policy options
resulting from the consultation with several stakeholders directly consulted on the specific
policy options during the validation workshop and taking into account the quantitative
assessment. The qualitative consultation allows for a stronger differentiation of the analysed
policy options.
89
2) Description of the analytical methods
This annex provides a description of the approach to estimate the impacts on consumers,
financial providers and public authorities of the proposed policy options attributable to the
DMFSD in a 10 year timeframe (2022-2031). These approaches are consistent and build on the
assessments made for the evaluation study of the DMFSD published in 2020.
The methodology follows the Better Regulation Guidelines and the accompanying Toolbox
(such as Tool #32 Consumers; Tool #58 Typology of costs and benefits; Tool #59 Methods to
assess costs and benefits; Tool #60 The standard cost model for estimating administrative
costs)108
.
Table 19. Market evolution
Market evolution is based on Eurostat data109
on the percentage of the population aged
between 16 and 74 that has purchased at least one financial service over the internet for
the period 2016-2019 and on the percentage of population aged between 16 and 74 that
has carried out at least one of the financial activities over the internet.
Data have then been estimated for the period 2022-2031 based on a linear regression.
2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031
Online purchase
of FS
6% 6% 7% 7% 7% 8% 8% 8% 8% 9% 9%
Financial
Activities
18% 20% 22% 23% 25% 27% 28% 30% 32% 34% 35%
According to these estimates, the number of individuals that purchase financial services online,
should increase (assuming the same trend of the last 10 years) to 27 million users by 2031.
The impacts that have been taken into account for both the qualitative and quantitative
efficiency assessment are the following:
For Public Authorities:
 One-off adaptation costs for the adaptation and redress activities
 Recurring enforcement and monitoring costs
For Financial Service Providers:
 One-off costs including familiarisation costs, updating of IT systems, staff training,
update of contractual documentation, adaptation of complaint mechanisms
 Recurrent costs including compliance with measures on pre-contractual information
requirements, right of withdrawal, rules on use of robo-advisors, comparison platforms
For consumers:
108
European Commission (2015). Better Regulation Guidelines.
109
Eurostat, Internet purchases by individuals (until 2019) and Financial activities over the internet (until 2019).
90
 Reduction of consumers’ detriment
 Impacts of the measures foreseen in the policy options
These impacts have been assessed mainly in a qualitative manner, and where possible,
complemented with the quantitative assessment. All these impacts can both be considered as
benefits or costs depending on the sign of the impact: a negative impact increases costs while
a positive impact can be considered a benefit causing a reduction of costs in comparison to the
baseline.
Estimates of impacts for public authorities
The impact on public authorities was calculated for the following areas:
 One-off implementation/adaptation costs
 Monitoring activities
 Enforcement activities
The table below describes the methodology and the assumptions adopted in accordance with
the ones adopted for the DMFSD evaluation (2020). The costs are calculated at 2020 prices
and, for recurrent costs, at net present value (4%) for the period 2022-2031.
Table 20.
Methodology Assumptions
Transposition costs Unit cost = No. of people
involved in the task x No. of
days per person x Average
daily wage for the public
sector
Total cost = Unit cost x 27
Member States
 3 officials per
Member state for
10 days per month
for 12 months
 Average daily
wage for the public
sector per
country110
(from
Eurostat)
Recurrent cost: Monitoring Unit cost = No. of people involved
in the task x No. ofdays per person
x Average daily wage for the
public sector
Total cost = Unit cost x 27
Member States
 4 officials per
MemberState for 4
days per month
 Average daily
wage for the public
sector111
(from
Eurostat)
110
Labour cost levels by NACE Rev. 2 activity (online data code: LC_LCI_LEV )
111
Ibid.
91
Recurrent cost: Enforcement Unit cost = No. of people
involved in the task x No. of
days per person x Average
daily wage for the public
sector
Total cost = Unit cost x 27
Member States
 4 officials per
Member State for 2
days per month
 Average daily
wage for the public
sector112
(from
Eurostat)
Estimates of impacts on financial service providers
The impact on financial service provides was calculated for the following areas:
One-off costs:
 Familiarisation with the Directive
 Cost of updating/adapting IT systems
 Staff training on pre- contractual information
 Staff training on right of withdrawal
 Updating contractual documentation
The table below describes the methodology and the assumptions adopted in accordance with
the ones adopted for the DMFSD evaluation (2020). The costs are calculated at 2020 prices
and, for recurrent costs, at net present value (4%) for the period 2022-2031.
Table 21 Methodology Assumptions
Familiarisation with the
Directive
Unit cost = No. of people
involve in the task x No. of
days per person x Average
daily wage for the financial
sector
Total cost = Unit cost x
number of financial
institutions
 2 staff members
per financial
institution for 15
days per staff
member
 Average daily
wage for the
financial sector113
(from Eurostat)
 Number of
financial
institutions114
112
Ibid.
113
Ibid.
114
Annual detailed enterprise statistics for services (NACE Rev. 2 H-N and S95) [sbs_na_1a_se_r2]
92
Table 21 Methodology Assumptions
(from Eurostat)
Cost of updating/adapting IT
systems
Unit cost = Average cost of
updating/adapting the IT
system
Total cost = Unit cost x
number of financial
institutions
 Eur 5,000 per
institution
 Number of
financial
institutions115
(from Eurostat)
Staff training on pre-
contractual information
Unit cost = No. of people
involved x No. of days per
person x Average daily
wage in the financial sector
Total cost = Unit cost x
number of financial
institutions x share of
financial institutions that
needed to adapt to this
requirement
 Communication/tra
ining takes 1 day
 All front office
employees
(assumed to be
20% of workforce
undergo training)
 Average daily
wage for the
financial sector
(from Eurostat)
 Number of
financial
institutions (from
Eurostat)
 Values for
attribution and
compliance
Staff training on right of
withdrawal
Unit cost = No. of people
involved x No. of days per
person x Average daily
wage in the financial sector
Total cost = Unit cost x
number of financial
institutions x share of
financial institutions that
needed to adapt to this
requirement
 Communication/tra
ining takes 1 day
 All front office
employees
(assumed to be
20% of workforce
undergo training)
 Average daily
wage for the
financial sector
(from Eurostat)
 Number of
financial
institutions (from
Eurostat)
115
Ibid.
93
Table 21 Methodology Assumptions
 Values for
attribution and
compliance
Updating contractual
documentation
Unit cost = No. of people
involved x No. of days per
person x Average daily
wage for the financial sector
Total costs = Unit cost x
number of financial
institutions
 2 members of legal
team
 10 days per team
member
 Average daily
wage for the
financial sector
(from Eurostat)
 Number of
financial
institutions (from
Eurostat)
Reduced communication Unit cost = No. of people
involve x No. of days per
person x Average daily
wage for the financial sector
 2 members
 2 days per team
member
 Average daily
wage for the
financial sector
(from Eurostat)
 Number of
financial
institutions (from
Eurostat)
Recurring costs for financial providers are related to the need to comply with the DMFSD and
depend on their level of compliance with the Directive and their need to adjust their operations.
The approach taken to calculate these costs is based on the estimates made for the DMFSD
evaluation study, updated to 2020 prices. The overall costs are calculated at net present value
(at a 4% discount rate) for the period 2022 – 2031.
To the recurring costs, two measures were also taken into account:
 Introduction of rules on robo-advice: which foresee that there is human intervention if
requested by the consumer; consumer not to be exploited due to their relative lack of
knowledge about financial products and their dependence on the product providers;
ensure that robo-advice provides advise that meets best the demands of the consumer
in an honest and transparent manner
 Introduction of independent comparison websites and extended to all financial services.
94
Regarding the comparison websites, the impact assessment study of the Payment Accounts
Directive116
mentioned that, for those services in which data are already collected, the costs for
the implementation of comparison websites is negligible.
Regarding the estimation of cost of the rules on robo-advice, based on the figures provided by
a 2020 study,117
the overall number of users in Europe of these services amount to 10,5 million.
It is possible to estimate that, at a 4% problem rate (as calculated for investment activities for
2018 in the evaluation report) for which the intervention of a ‘human’ operator is required, the
net present value of such provision for the period 2022-2031 would be around 35 million euros.
Benefits are calculated in terms of reduced communication with clients due to DMFSD directly
since some stakeholders mentioned they have specific communication with customers based
on information related to the DMFSD in duplication with the communication due to the product
specific regulation. In general, it is assumed that communication with clients would be
amended and that adaptation of this with DMFSD would be removed with the repeal of the
Directive (which would occur for the policy options 1, 3(a) and 3(b) only).
Estimates of impacts on consumers
The main purpose of the DMFSD is to ensure a better protection of the EU consumers in
distance marketing which in turn leads to a lower consumer detriment (possible due to a lower
incidence rate of problems and a lower magnitude) and to an increase in demand for financial
services;
Our research conducted as part of the DMFSD Evaluation (2020) showed that the DMFSD had
an impact on increasing consumer protection with net benefits ranging between 69 and 427
million euros (at 2018 prices). On the other hand, the evaluation did not find hard evidence that
changes in the demand or supply of consumer credit products can be directly attributed to
DMFSD (including cross-border activities). Consequently, the same assumption is used as part
of this study, and we will quantify the impact of the DMFSD on the reduction of consumer
personal detriment only, while the cross-border effect is estimated in terms of overall potential
percentage increase, but not in monetary terms.
Reduction of personal detriment
Personal detriment refers to loss of welfare experienced by individuals due to problems that
occur after the purchase and that were not expected (based on reasonable expectations).
Personal detriment includes financial and non-financial losses (e.g. time losses, psychological
detriment).
The DMFSD Evaluation (2020) found that due to various factors, consumer detriment was
reduced in most of the EU 28 Member States since 2004. The attribution of such effect to the
DMFSD, however, declined through the years due to the decreasing relevant of the Directive
thanks to products specific and more recent horizontal legislation.
116
Study on EU payment accounts market, 2021. Available at: https://op.europa.eu/en/publication-detail/-
/publication/0854f727-6117-11eb-8146-01aa75ed71a1/language-en.
117
Better Finance (2020).
95
As of 2018, the calculated attribution to the DMFSD in the evaluation study is reported in the
table below.
Table 22. Attribution rates as of 2018 according to DMFSD evaluation (2020)
Attribution on
pre-contractual
information
Rights of
withdrawal
Unsolicited
communication
and services
Banking products 2.6% 3.9% 0.0%
Mortgage 0.0% 1.1% 0.0%
Credit / loans 0.7% 1.0% 0.0%
Insurance 1.7% 2.5% 0.0%
Pensions 6.5% 4.1% 0.0%
Payment services 0.0% 0.0% 0.0%
Investments 0.7% 0.3% 0.0%
As of 2018 the DMFSD was mainly having a relevance for consumers in the banking products
and in the pensions sectors. However, e with the introduction of the PEPP Regulation (PEPP)
in 2022 it may be expected that the DMFSD’s relevance might decrease. Other legislations in
financial services, such as the Proposal to amend the Consumer Credit Directive of 2021 might
further decrease the relevance of the DMFSD.
The DMFSD evaluation study measures the overall net benefit of a scenario with the DMFSD
to be 3,7% higher (for 2018) in comparison to a scenario without the DMFSD. Thus, it is
possible to estimate the baseline effectiveness of the DMFSD, with the assumption that such
effectiveness would not decrease without changes in the Directive, for the period 2022-2031.
At a discount rate of 4%, the overall net benefit of the DMFSD would account to 560 Million
euros.
Assessment of the increased effectiveness of the policy measures
The fundamental assumption adopted to estimate the monetary impact of the proposed
measures, is that an increase effectiveness would also bring a reduction of the consumer
detriment.
Based on qualitative data collected through interviews, open public consultation, survey and
the validation workshop, for each measure a potential percentage increase of the effectiveness
of the policy options has been assigned. The increase effectiveness is then estimated in
proportion to the overall impacted population (as estimated by the DMFSD Evaluation, 2020).
The difference between the NPV of the gained efficiency and the baseline allows for a rough
estimate of the monetary net benefit of the measures. The table below summarise this
assessment in the assumption of a lower effectiveness score (lower bound) and a higher
effectiveness score (higher bound):
96
Table 23. Estimate of impact on consumer benefit of proposed policy options (lower and higher bound)
LOWER
BOUND
Effectiveness
score
Assumed
increased
effectiveness
measure
Overall
increase
of
Consumer
protection
Impacted
population
Annual
decrease
consumer
detriment
NPV(4%)
Baseline
(NPV
4%)
Net
benefit
(EURm)
Clarification
of the
application of
DMFSD
++ 40.0% 5.2% 21,788,452 104.69 € 849.11 € 807 € 42 €
Roboadvice ++ 40.0% 5.2% 10,500,000 102.00 € 827.31 € 807 € 20 €
Standardised
information
form
+++ 60.0% 6.0% 21,788,452 105.43 € 855.13 € 807 € 48 €
Improve
timing
provision key
info
++ 40.0% 5.2% 21,788,452 104.69 € 849.11 € 807 € 42 €
Specific
withdrawal
form
+++ 60.0% 6.0% 21,788,452 105.43 € 855.13 € 807 € 48 €
Provision
basic financial
products
++ 40.0% 5.2% 21,788,452 104.69 € 849.11 € 807 € 42 €
Adapt
information
provision to
channel
+ 20.0% 4.5% 21,788,452 103.95 € 843.10 € 807 € 36 €
Prohibition
default
options
++ 40.0% 5.2% 21,788,452 104.69 € 849.11 € 807 € 42 €
Cross-border
trade
++ 40.0% 5.2% 21,788,452 104.69 € 849.11 € 807 € 42 €
HIGER
BOUND
Effectiveness
score
Assumed
increased
effectiveness
measure
Overall
increase
of
Consumer
protection
Impacted
population
Annual
decrease
consumer
detriment
NPV(4%)
Baseline
(NPV
4%)
Net
benefit
(EURm)
Clarification
of the
application of
DMFSD
+++ 60.0% 6.0% 21,788,452 105.43 € 855.13 € 807 € 48 €
Roboadvice +++ 60.0% 6.0% 10,500,000 102.36 € 830.21 € 807 € 23 €
Standardised
information
form
++++ 80.0% 6.7% 21,788,452 106.17 € 861.14 € 807 € 54 €
Improve
timing
++ 50.0% 5.6% 21,788,452 105.06 € 852.12 € 807 € 45 €
97
The net benefit attributed to these measures is then used to estimate the overall impact of the
analysed policy options under these two scenarios.
provision key
info
Specific
withdrawal
form
++++ 80.0% 6.7% 21,788,452 106.17 € 861.14 € 807 € 54 €
Provision
basic financial
products
+++ 60.0% 6.0% 21,788,452 105.43 € 855.13 € 807 € 48 €
Adapt
information
provision to
channel
++ 40.0% 5.2% 21,788,452 104.69 € 849.11 € 807 € 42 €
Prohibition
default
options
+++ 60.0% 6.0% 21,788,452 105.43 € 855.13 € 807 € 48 €
Cross-border
trade
+++ 60.0% 6.0% 21,788,452 105.43 € 855.13 € 807 € 48 €
98
ANNEX 5. PROBLEM TREE
Drivers Consequences
Driver 1: Lack of legal clarity:
(a) Over-lap with specific
horizontal (need to define the
lex specialis/lex generalis
relationship);
(b) some definitions or terms in
the Directive are too vague
Problem 2: Consumers taking out financial services by
means of distance communication are not sufficiently
protected and face detriment
Problems
Problem 1: Lack of coherence and decreased relevance
of the DMFSD due to overlap with product-specific and
horizontal legislation
Driver 3: Emergence of new
distribution channels and
financial services due to
increased digitalisation (e.g. fax
machine no longer preferred
channel)
Sub-problem 2.1: Limited consumer awareness of key elements
and costs of some financial services (e.g. pre-contractual
information is not presented in a clear way))
Sub-problem 2.3: New market practices exploiting patterns in
consumer behavior (pre-ticked boxes)
Driver 2: Developments in
consumer behavior, often
exploited by providers, making
regulatory framework
inadequate (e.g. pre-ticked
boxes)
Consumers who suffer
detriment have less trust
in the market
Consumers (without
detriment) do not take
financial products
because they have
limited trust (loss of
welfare)
Unfair competition as not
all suppliers play by the
same rules
Not realized potential of
the internal market (loss
of welfare)
Unnecessary compliance
costs for businesses
Problem 3: The competitiveness of the internal market
for financial services sold by means of distance
communication is not fully achieved due to barriers to
the provision of financial services across borders
Sub-problem 2.2: sub-optimal use of the right of withdrawal
99
ANNEX 6 INTERACTION OF DMFSD WITH EXISTING LEGISLATION AND ON-GOING
INITIATIVES
(i) Since DMFSD was enacted in 2002, the EU legislators have adopted several product-
specific and horizontal legislations that have directly or indirectly impacted the relevance of
DMFSD. The following table presents the main legislations and ongoing initiatives which
interact with the scope of application of the DMFSD.
Table 24. Interaction with existing legislation and upcoming initiatives
Year
of
implementation
Consumer
credit
Mortgages
Insurance
products
Payment
accounts
Investment
products
Payment
services
Personal
pension
products
Other
Financial
Products
Product-specific legislation
Consumer Credit Directive (CCD, 2008/48/EC) 2010 ✓
Mortgage Credit Directive (MCD, 2014/17/EU) 2016 ✓
Payment Accounts Directive (PAD, 2014/92/EU) 2016 ✓
Payment Services Directive (PSD II, 2015/2366) 2018 ✓ ✓
Solvency II Directive (Solvency II, 2009/138/EC) 2016 ✓
Insurance Distribution Directive (IDD, 2016/97) 2018 ✓
Market in Financial Instruments Directive (MiFID,
2014/65/EU)
2017 ✓
Undertakings for the collective investment in
transferable securities Directive (UCITS, 2009/65/EC)
2011 ✓
Prospectus Regulation (2017/1129) 2019 ✓
Alternative investment fund managers Directive
(AIFMD, 2011/61/EU)
2013 ✓
EU Regulation 1286/2014 on packaged retail and
insurance-based investment products (PRIIPs)
2018 ✓ ✓
100
Directive on deposit guarantee schemes (2014/49/EU) 2016 ✓
Pan-European personal pension product (PEPP) 2020 ✓
Crowdfunding Regulation (2020/1503) 2020 ✓
Horizontal legislation
e-commerce Directive (ECD) 2002 ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓
ePrivacy Directive (EPD) 2003 ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓
Unfair Commercial Practices Directive (UCPD) 2007 ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓
Consumer Rights Directive 2014
General Data Protection Regulation (GDPR) 2018 ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓
Geo-blocking Regulation 2018
Ongoing Negotiations of Product Specific Legislation
Proposal to Revise the Consumer Credit Directive
(CCD,)
2021 ✓
Proposal for a Regulation on Markets in Crypto-assets
(MICA,)
2021
✓
Revision of Solvency II 2021 ✓
(ii) Interaction and interplay between the rights laid down in the DMFSD and product-specific
legislation: an example for one of the financial services sector (insurance)
To complement the example set out in the box in Section 1.2 concerning the interaction
between the DMFSD and product-specific legislation, which concerned the consumer loan
sector, the following example, from the insurance sector, may serve as a model to explain the
interaction with regard to the right of pre-contractual information and the right of withdrawal.
Insurance sector:
The main pieces of legislation in the insurance sector are Solvency II, EU Regulation
1286/2014 on packaged retail and insurance-based investment products (PRIIPs) and the
Insurance Distribution Directive.
With regard to pre-contractual information, the requirements set out in the sectoral
legislations are equal or more detailed than the ones laid down in the DMFSD. Thus,
whenever sectoral legislations apply, the respective product-specific legislation applies.
However, in insurance products that do not fall under these product-specific legislation, the
DMFSD would apply.
101
With regard to the right of withdrawal, neither the PRIIPs nor the IDD provide a right of
withdrawal. The rules concerning the right of withdrawal stem from the DMFSD (Article
6). Thus, by way of example, the right of withdrawal for packaged retail and insurance-based
investment products stems from the DMFSD.
The Commission proposal to revise Solvency II proposes to exclude small insurance firms
from the scope of application of Solvency II, thus meaning that, whenever these excluded
insurance firms provide insurance products contracted by means of distance communication,
the DMFSD would apply.
EIOPA, in the Consumer Trends Report 2019, has remarked that financial innovation
created by digitalisation has presented challenges to identify what is within and outside the
scope of the IDD. Considering the relevance of the DMFSD in this sector, in particular as
regards the right of withdrawal, this trend might require additional attention in order to
ensure a high level of consumer protection and the fostering of the provision of insurance
products cross-border.
Likewise, a number of innovative insurance products sold online are appearing on the
market, sold by Bigtech companies, such as by Amazon in Germany. In case these products
do not fall under one of these three product-specific legislation, the DMFSD, through its
safety net, would apply.
102
Figure 3 Overview of the evolution of the attribution of achievements related to the
provision of pre-contractual information
Source: ICF (2020)
Figure 4 Overview of the evolution of the attribution of achievements related to the
provision on right of withdrawal
Source: ICF (2020)
Achievements mostly attributable to DMFSD
Achievements partially attributable to DMFSD
Achievements mostly non-attributable to DMFSD
Achievements non-attributable to DMFSD
Achievements mostly attributable to DMFSD
Achievements partially attributable to DMFSD
Achievements mostly non-attributable to DMFSD
Achievements non-attributable to DMFSD
103
ANNEX 7 EXAMPLES OF INDUSTRY MISLEADING AND UNFAIR PRACTICES AT ADVERTISING
AND PRE-CONTRACTUAL STAGES
Table 25. Examples of misleading and unfair practices at advertising and pre-contractual stages
Practice Advertisement
stage
Pre-contractual
stage
Way in which information is provided
Benefits emphasised while costs are hidden or given lower prominence  
Key information missing or difficult to find  
Information complex and difficult to understand e.g. because of use of
jargon or complex terms

Information layered and located in places that can be overlooked 
Information format not adapted to the medium used 
Features which may accelerate consumer's purchase decision
Speedy or ‘one-click’ products (a fast purchasing process, e.g. in under
15 minutes)
 
Promotional offers and consumer incentives, sometimes of a time-limited
nature
 
Design of the offers
Pre-ticked boxes, with recommended add-on products 
Product bundling, e.g. a bank account offered with travel insurance 
Consumer targeting and personalisation
Targeting and personalisation i.e. content targeted to specific audiences
or personalised based on individual characteristics
 
Price discrimination i.e. charge consumers differently depending on their
characteristics, in a way that may not be clear from the pricing structure

Tools made available to consumers to assist their decision-making
process
Positive consumer reviews displayed prominently to create the
impression of a highly desirable product
 
Product-tailored contact sections: lack of product-specific contact
information sections
 
Source: LE Europe (2019)
104
ANNEX 8 BACKGROUND INFORMATION ON FINANCIAL SERVICES PRODUCTS SOLD AT A
DISTANCE
Figure 5. Distribution of the total distance purchases in the last 5 years per type of product
Figure 6. How was the distance contract negotiated?
105
ANNEX 9 GLOSSARY
Term or acronym Meaning or definition118
Bank A financial institution one of whose principal activities is to take deposits
and borrow with the objective of lending and investing and which is within
the scope of banking or similar legislation.119
Behavioural biases Individuals' choices may vary systematically according to specific aspects
of the decisions they face and/or the context in which their decisions are
made. In such cases, market forces will not achieve an efficient outcome.120
Chatbot A computer program that simulates human conversation through voice
commands or text chats or both.121
Cold calling A technique in which a salesperson contacts individuals who have not
previously expressed interest in the offered products or services. Cold
calling typically refers to solicitation by phone or telemarketing, but can
also involve in-person visits, such as with door-to-door salespeople.122
Comparison tools All digital content and applications developed to be used by consumers
primarily to compare products and services online, irrespective of the
device used (e.g. laptop, smartphone, tablet) or the parameter(s) on which
the comparison is based (e.g. price, quality, user reviews).123
Consolidator website Websites that sell products or services from a variety of suppliers directly
to consumers.
Consumer A natural person who in a contract or transaction acts for purposes which
are outside his trade, business or profession
Consumer Credit Loans granted to households, which in the case of these transactions are
acting for purposes outside their business and profession. Mortgage loans
for financing house building or buying (amongst others bridging loans) are
excluded. It is the intention that consumer credit relates exclusively to
credits used for buying goods and/or services which are consumed by the
households individually.124
Consumer detriment A measure of harm that consumers may experience when market outcomes
fall short of their potential. Consumer detriment can be structural or
personal.125
Cybercrime Criminal acts that are committed online by using electronic
communications networks and information systems.126
Credit Agreement An agreement whereby a creditor grants or promises to grant to a consumer
credit in the form of a deferred payment, loan or other similar financial
accommodation, except for agreements for the provision on a continuing
118
Most of the definitions in this section were taken directly from the referenced sources (text is in italic).
119
IASCF, Key term list; Commission Regulation (EC) No 1126/2008 (international accounting standards).
120
European Commission, 2015. Better Regulation Toolbox [SWD (2015) 111].
121
https://www.investopedia.com/terms/c/chatbot.asp
122
https://www.investopedia.com/terms/c/coldcalling.asp
123
https://ec.europa.eu/info/sites/info/files/key_principles_for_comparison_tools_en.pdf
124
Eurostat, "European System of Accounts - ESA 1995", Office for Official Publications of the European Communities,
Luxembourg, 1996
125
European Commission, 2015. Better Regulation Toolbox [SWD (2015) 111].
126
https://ec.europa.eu/home-affairs/what-we-do/policies/cybercrime_en
106
basis of services or for the supply of goods of the same kind, where the
consumer pays for such services or goods for the duration of their provision
by means of instalments.127
Credit Card A card entitling the owner to use funds from the issuing company up to a
certain limit. The holder of a credit card may use it to buy a good or service.
When one does this, the issuing company effectively gives the card holder
a loan for the amount of the good or service, which the holder is expected
to repay.128
Credit institution An undertaking the business of which is to take deposits or other repayable
funds from the public and to grant credits for its own account.129
Cross-selling practice The practice of offering of an investment service together with another
service or product as part of a package or as a condition for the same
agreement or package.130
Crowdfunding The practice of funding a project or venture by raising monetary
contributions from a large number of people. It is often performed via
internet-mediated registries that facilitate money collection for the borrower
(lending) or issuer (equity).131
Cryptocurrencies A virtual currency that is secured by cryptography, which makes it nearly
impossible to counterfeit or double-spend.132
Digital literacy The ability to use digital technology, communication tools and/or networks
appropriately to solve information problems in order to function in an
information society.133
Digital wallet or e-wallet An electronic device, website, software system, or database that facilitates
commercial transactions by storing a consumer's credit card, shipping
address, and other payment data.134
Distance contract Any contract concerning financial services concluded between a supplier
and a consumer under an organised distance sales or service-provision
scheme run by the supplier, who, for the purpose of that contract, makes
exclusive use of one or more means of distance communication up to and
including the time at which the contract is concluded.135
Durable medium Any instrument which enables the consumer to store information addressed
personally to him in a way accessible for future reference for a period of
time adequate for the purposes of the information and which allows the
unchanged reproduction of the information stored.136
127
Consumer Credit Directive (2008/48/EC).
128
Farlex Financial Dictionary, 2012.
129
Regulation (EU) no 575/2013 of the European parliament and of the council of 26 June 2013 on prudential
requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012
130
Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial
instruments and amending Directive 2002/92/EC and Directive 2011/61/EU.
131
European Banking Authority, Glossary for financial innovation.
132
https://www.investopedia.com/terms/c/cryptocurrency.asp
133
Knobel, M. and Lankshear, C., 2006. Digital literacy and digital literacies: Policy, pedagogy and research
considerations for education. Nordic Journal of digital literacy, 1(01), pp.12-24.
134
https://www.dictionary.com/browse/e-wallet
135
Distance Marketing of Financial Services Directive.
136
Distance Marketing of Financial Services Directive.
107
Digital onboarding The process by which a prospective consumer, without physically meeting
the supplier and in a totally digitalised manner, is on-boarded by the
supplier and becomes a client of the said supplier.
Financial literacy Capability of consumers and small business owners to understand retail
financial products with a view to making informed financial decisions.137
Financial service Any service of a banking, credit, insurance, personal pension, investment
or payment nature.138
Fintech Technologically enabled financial innovation that could result in new
business models, applications, processes, or products with an associated
material effect on financial markets and institutions and the provision of
financial services.139
Full harmonisation (maximum
harmonisation)
In the case of full harmonisation Member States must implement the EU
measures but may not enact or retain any rules which depart from them.140
Implementation The process of making sure that the provisions of EU legislation can be
fully applied. For EU Directives, this is done via transposition of its
requirements into national law, for other EU interventions such as
Regulations or Decisions other measures may be necessary (e.g. in the case
of Regulations, aligning other legislation that is not directly touched upon
but affected indirectly by the Regulation with the definitions and
requirement of the Regulation). Whilst EU legislation must be transposed
correctly it must also be applied appropriately to deliver the desired policy
objectives.141
Incremental costs and benefits Costs and benefits that would occur if a particular course of action is taken,
compared to those that would have been obtained if that course of action
had not been taken.142
Information asymmetries Situations in which some agent in a trade possesses information that other
agents involved in the same trade do not.143
Insurance A contract, represented by a policy, in which an individual or entity receives
financial protection or reimbursement against losses from an insurance
company.
Intermediary A natural or legal person who is not acting as a supplier and who, in the
course of his trade, business or profession: (a) presents or offers financial
service agreements to consumers; (b) assists consumers by undertaking
preparatory work in respect of financial service agreements; and/or (c)
concludes financial service agreements with consumers on behalf of the
supplier.144
137
European Commission. (2007). Survey of Financial Literacy Schemes in the EU27. Available at:
http://ec.europa.eu/finance/finservicesretail/docs/capability/report_survey_en.pdf.
138
Distance Marketing of Financial Services Directive.
139
European Banking Authority, Glossary for financial innovation.
140
European Parliamentary Research Service, 2015, Competence in private law - The Treaty framework for a European
private law and challenges for coherence.
141
European Commission (2017), Better Regulation Guidelines, Glossary.
142
https://financial-dictionary.thefreedictionary.com/Incremental+costs+and+benefits
143
https://siteresources.worldbank.org/DEC/Resources/84797-1114437274304/Asymmetric_Info_Sep2003.pdf
144
Based on the definition of intermediary in the Consumer Credit Directive. The main difference is that in this case the
intermediary does not have to receive a fee.
108
Means of distance communication Any means which, without the simultaneous physical presence of the
supplier and the consumer, may be used for the distance marketing of a
service between those parties.145
Mortgage loan Consumer real estate credit, usually extended on a long-term basis with the
mortgaged property as security.146
Mystery shopping The activity of pretending to be a normal customer when you are employed
by a company to check how its products or services are being sold.147
Non-banks In general, these are non-monetary financial corporations. More
specifically, they include insurance corporations and pension funds,
financial auxiliaries, and other financial intermediaries.148
Non-credit institution Any creditor that is not a credit institution.149
Peer-to-peer lending (or P2P
lending)
A consumer credit service that allows businesses and individuals to borrow
money, from many individuals who are ready to lend, instead of borrowing
it from a single source. Peer-to-peer platforms used for P2P lending set out
the rates and terms of transactions and enable the completion of these
transactions.150
Payday loan A small amount and short-term (up to one year) personal loan.151
Payment accounts Means an account held in the name of one or more consumers which is used
for the execution of payment transactions.152
Payment services services enabling cash to be placed on a payment account as well as all the
operations required for operating a payment account; services enabling cash
withdrawals from a payment account as well as all the operations required
for operating a payment account; execution of payment transactions; issuing
of payment instruments and/or acquiring of payment transactions; money
remittance; payment initiation services; and account information
services.153
Personal loan Credit granted to a private person for non-commercial purposes solely on
the basis of that person's creditworthiness, income, and financial
circumstances.154
Personal pension product A product which: (a) is based on a contract between an individual saver and
an entity on a voluntary basis and is complementary to any statutory or
occupational pension product; (b) provides for long-term capital
accumulation with the explicit objective of providing income on retirement
and with limited possibilities for early withdrawal before that time; (c) is
neither a statutory nor an occupational pension product.155
145
Distance Marketing of Financial Services Directive.
146
American State Bank, Banking Glossary.
147
Cambridge Business English Dictionary, 2011.
148
European Central Bank, 2016, Bank lending survey for the euro area, Glossary.
149
Directive 2014/17/EU of the European Parliament and of the Council of 4 February 2014 on credit agreements for
consumers relating to residential immovable property.
150
https://www.investopedia.com/terms/p/peer-to-peer-lending.asp
151
European Credit Research Institute (ECRI), 2019, Price rules in consumer credit: should the EU act?
152
Payment Accounts Directive.
153
Payment Services Directive.
154
Dictionary of Banking, UBS 1998 – 2019.
155
Pan-European Personal Pension Product Regulation.
109
Product bundling or Bundling
practice
The offering or the selling of a credit agreement in a package with other
distinct financial products or services where the credit agreement is also
made available to the consumer separately but not necessarily on the same
terms or conditions as when offered bundled with the ancillary services.156
Right of withdrawal Consumer's right to terminate a contract without reason within a specified
time period, provided certain conditions are fulfilled.157
Robo-advice The provision of advice through digital platforms that provide automated,
algorithmic investment services with minimal human supervision
Savings accounts Is an interest-bearing deposit account held at a bank or another financial
institution which provides a small interest rate. The financial providers may
limit the number of withdrawals that consumers can make from their
savings account each month.158
Savings accounts provide instant (“sight
deposits”) or time-limited (“time deposits”) access to funds.159
SECCI (Standard European
Consumer Credit Information)
A standardised form designed to show exactly what a finance agreement
contains. The form will include key details such as type of credit, Annual
Percentage Rate (APR), number and frequency of payments, and total
amount owed.160
Stakeholder Any individual citizen or an entity impacted, addressed, or otherwise
concerned by an EU intervention.161
Stakeholder consultation A formal process of collecting input and views from citizens and
stakeholders on new initiatives or evaluations/ fitness checks, based on
specific questions and/or consultation background documents or
Commission documents launching a consultation process or Green Papers.
When consulting, the Commission proactively seeks evidence (facts, views,
opinions) on a specific issue.162
Sweeps A set of checks carried out on websites simultaneously to identify breaches
of EU consumer law in a particular sector. The sweeps operate in in a two-
step action process, comprising of (a) screening websites to identify
breaches of consumer law in a given online market, and (b) enforcement in
which national authorities ask traders to take corrective actions. Sweeps are
coordinated by the European Commission and carried out simultaneously
by national enforcement authorities in participating countries. 163
Trading platform The software that enables investors and traders to place trades and monitor
accounts through financial intermediaries. Oftentimes, trading platforms
will come bundled with other features, such as real-time quotes, charting
tools, news feeds, and even premium research. 164
156
Directive 2014/17/EU of the European Parliament and of the Council of 4 February 2014 on credit agreements for
consumers relating to residential immovable property.
157
IATE EU terminology database, COM-Terminology Coordination, based on: European Commission > Rights &
principles applicable when you buy goods or services online.
158
Investopedia. Savings account. Available at: https://www.investopedia.com/terms/s/savingsaccount.asp.
159
European Commission (2006). Current accounts and related services. Available at:
http://ec.europa.eu/competition/sectors/financial_services/inquiries/interim_report_2.pdf.
160
Credit Plus, 2019, Glossary, available at https://www.creditplus.co.uk/car-finance-glossary/secci/.
161
European Commission (2017), Better Regulation Guidelines, Glossary.
162
European Commission (2017), Better Regulation Guidelines, Glossary.
163
https://ec.europa.eu/info/live-work-travel-eu/consumers/enforcement-consumer-protection/sweeps_en.
164
https://www.investopedia.com/terms/t/trading-platform.asp
110
Transposition Describes the process of incorporating the rights and obligations set out in
an EU Directive into national legislation, thereby giving legal force to the
provisions of the Directive. The Commission may take action if a Member
State fails to transpose EU legislation and/or to communicate to the
Commission what measures it has taken. In case of no or partial
transposition, the Commission can open formal infringement proceedings
and eventually refer the Member State to the European Court of Justice.165
Virtual currencies A type of unregulated, digital money which is issued and usually controlled
by its developers and used and accepted among the members of a specific
virtual community.166
Virtual currencies are digital representations of value
are not issued nor guaranteed by a central bank or public authority and
consequently they are not (conventional) fiat currency (FC).
165
European Commission (2017), Better Regulation Guidelines, Glossary.
166
ECB (2012): “Virtual Currency Schemes”. European Central Bank, Frank.