What issues do I need to be aware of when distance marketing financial services?

The Financial Services (Distance Marketing) Regulations

The Financial Services (Distance Marketing) Regulations first came into effect in 2004 and are designed to give effect to the European Union’s Directive on the Distance Marketing of Financial Services.

What is the reason for the regulations?

The reason for the Regulations being implemented is to enable the consumer to be protected by ensuring that the supplier discloses sufficient information both before and after the contract is concluded.

Furthermore the consumer must also be provided with the opportunity to withdraw  from the concluded contract without any liability being imposed on them during a specific cancellation period – this cancellation period is referred to as a cooling-off period.

What is meant by financial services for the purpose of the Regulations?

Examples of financial services for the purpose of the Regulations can include the following things:

  • Pensions

  • Mortgages

  • Insurance

  • Banking services

  • Any other services concerned with finance

The definition of financial services used by the Regulations is a wide definition so those individuals who are marketing services which they believe may be regarded as financial by the Regulations should pay particular attention to the wording of the Regulations to decide whether this is the case.

What is meant by marketing by distance communication?

Marketing by distance communication includes the following things:

  • On-line sales

  • Telephone sales

  • Sales communicated by fax

  • Sales communicated by post

  • Any other form of contract that is concluded whereby the parties do not meet face to face

Do the Regulations apply to all kinds of financial contracts concluded by distance marketing methods?

The Regulations only apply to consumer contracts for financial services concluded by distance marketing methods.

What must I do in order to comply with the Regulations?

Some of the most important aspects of the Financial Services (Distance Marketing) Regulations which must be adhered to by businesses marketing financial services by distance methods relate to the information which must be provided before the conclusion of the contract.

Information provided before the conclusion of the contract

What information must be provided before the conclusion of the contract?

The information which must be provided to a consumer prior to the conclusion of the contract can be broken down into the following three categories:

  • The identity of the supplier

  • The details of the product

  • The particulars of the contract

The identity of the Supplier

The following information in relation to the identity of the supplier must be provided to the consumer before they will be bound by the terms of the contract:

  • The name and main business of the supplier

  • The geographical address whereby the supplier is established

  • Any other address relevant to the relationship with the supplier

  • If the supplier is not based in the same European Union Member State as the customer the identity and address of any representative they do have in that EU Member State

  • Company registration details

  • Details of any supervisory authority such as the Financial Services Authority (FSA) and any applicable registration number

  • Description of the main characteristics of the financial service

The Details of the Product

The following details of the product should be provided to the consumer before they can become bound by the terms of the contract:

  • The total price which will be paid by the consumer

  • Details of any possible fluctuations in price

  • Any extra taxes which may be imposed on the consumer

  • Any limitations of the period for which the information provided is valid

The Particulars of the Contract

The following information regarding the particulars of the contract must be provided to the consumer before they can be bound by the contract:

  • Arrangements for the payment and performance of any additional costs in using distance communication

  • Details regarding a right of cancellation

  • The minimum duration of the contract

  • The laws of the Member State whose laws are being used as the basis of the contract by the supplier

  • The language the contractual clauses will be written in

  • The existence of guarantee funds or other compensation agreements 

How can I make sure this information is provided to the consumer?

If you are offering financial services using distance marketing methods you must ensure that this information is provided in a clear and comprehensible manner on paper or some other kind of durable medium. This can include post, email etc.

What happens if I distance market my financial services over the telephone and it is not possible to provide all of this information?

One of the most successful ways in which financial services can be marketed to consumers is over the telephone using a system of cold calling. Clearly not all of the above information can be fired out over the telephone before the consumer loses interest and decides to hang up.

Accordingly there are various aspects of good practice which must be followed. For example the individual making the call should first give their name and state the fact that they are a sales representative on behalf of a specific company selling financial services. Once they have done this they will be able to explain the product giving key details such as the price and minimum duration.

If the consumer is interested then this will enable the sales representative to continue to give more and more of the above details over the phone as the conversation continues.

If the consumer expresses an interest in the product them the above information should be sent to them by post or email before they become bound by the contract.

Terms and Conditions of Sale

Once the consumer expresses a desire to conclude a contract the individual providing the services must ensure that the terms and conditions of the contract are provided to the consumer in a durable medium which again can include email. Only once the consumer agrees to the terms and conditions of sale will the contract be concluded. Once the contract is concluded certain issues identified in the terms and conditions such as the process of cancellation will come into effect.