Links to press releases and documents:

 IP/12/736  Date:  03/07/2012
Commission proposes legislation to improve consumer protection in financial services  
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MEMO/12/516  Date:  03/07/2012
Revision of the Insurance Mediation Directive - Frequently Asked Questions 

MEMO/12/515  Date:  03/07/2012
Undertakings for collective investment in transferable securities (UCITS) – improved requirements for depositaries and fund managers – Frequently asked questions 

MEMO/12/514  Date:  03/07/2012
Key Information Documents (KIDs) for packaged retail investment products - Frequently asked questions  

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The Regulation of the PRIPS contains the following stipulations concerning the Key Information Document:

Drawing up the KID (Article 5):

The investment product manufacturer shall draw up a key information document for each investment product it produces and shall publish the document on a website of its choice before the investment product can be sold to retail investors.

Form 

Structure of the KID Article 6/7

·         The KID shall be accurate, fair, clear and not misleading.

·         KID shall be a stand-alone document, clearly separate from marketing materials.

·         KID shall be drawn up as a short document which is: o presented and laid out in a way that is easy to read, using characters of readable size; o clearly expressed and written in language that communicates in a way that facilitates the retail investor’s understanding of the information being communicated;

·         The KID shall be written in the official language, or one of the official languages of the Member State where the investment product is sold, or in a language accepted by the competent authorities of that Member State, or where it has been written in a different language, it shall be translated into one of these languages.

 Content

Key Elements of the KID Article 8

The title “Key Investor Document” shall appear prominently at the top of the first page of the KID

·         KID should include among other things: under a section at the beginning of the document, the name of the investment product and identity of the investment product manufacturer; under a section titled “What is this investment?”, the nature and main features of the investment product, including

·      the type of the investment product;

·      its objectives and the means for achieving them;

·      an indication of whether the investment product manufacturer targets specific environmental, social or governance outcomes, either in respect of his conduct of business or in respect of the investment product, and if so, an indication of the outcomes being sought and how these are to be achieved;

·      where the investment product offers insurance benefits, details of these;

·      insurance benefits;

·      the term of the investment product, if known;

·      performance scenarios, if this is relevant having regard to the nature of the product;

·         under a section titled “What is it for?” an indication of the recommended minimum holding period and the expected liquidity profile of the product including the possibility and conditions for any disinvestments before maturity, having regard to the risk and reward profile of the investment product and the market evolution it targets;

·         under a section titled “What are the risks and what might I get back?”, the risk and reward profile of the investment product, including a summary indicator of this profile and warnings in relation to any specific risks that may not be fully reflected in the summary indicator;

·         under a section titled “What are the costs?”, the costs associated with an investment in the investment product, comprising both direct and indirect costs to be borne by the investor, including summary indicators of these costs;

·         under a section titled “How has it done in the past?”, the past performance of the investment product, if this is relevant having regard to the nature of the product and the length of its track record;

·         for pension products, under a section titled “What might I get when I retire?”, projections of possible future outcomes.

Marketing communications Article 9

Marketing communications that contain specific information relating to the investment product shall not include any statement that contradicts the information contained in the key information document or diminishes the significance of the key information document. Marketing communications shall indicate that a key information document is available and supply information on how to obtain it.

Review of KID Article 10

The investment product manufacturer shall review the information contained in the key information document regularly and revise the document where the review indicates that changes need to be made.

Civil Liability Article 11

Where an investment product manufacturer has produced a key information document which does not comply with the requirements of Articles 6, 7 and 8 on which a retail investor has relied when making an investment decision, such a retail investor may claim from the investment product manufacturer damages for any loss caused to that retail investor through the use of the key information document.

Provision of the KID

Good time Article 12

·         A person selling an investment product to retail investors shall provide them with the key information document in good time before the conclusion of a transaction relating to the investment product.

·         By way of derogation from paragraph 1, a person selling an investment product may provide the retail investor with the key information document immediately after the conclusion of the transaction where: o the retail investor chooses to conclude the transaction using a means of distance communication; o the provision of the key information document in accordance with paragraph 1 is not possible; o the person selling the investment product has informed the retail investor of this fact.

 Free of charge Article 13

·         The KID shall be provided free of charge to retail investors

·         The person selling an investment product shall provide the key information document to the retail investor in one of the following media: on paper; using a durable medium other than paper, where the conditions laid down in paragraph 4 are met; or by means of a website

Brussels, 3 July 2012

Commission proposes legislation to improve consumer protection in financial services

The financial crisis has become a crisis of consumer confidence. Lack of transparency, low awareness of risks, and poor handling of conflicts of interest have meant that consumers across the EU have been repeatedly sold investment and insurance products that were not right for them. Consumers have had their faith in the financial sector shaken. In addition, existing legislation has not developed fast enough to reflect the growing complexity of financial services.

Only by taking steps to tackle these shortcomings can low consumer confidence be tackled, laying strong foundations for growth in the EU. Strong, well-regulated retail markets that place the best interests of consumers at their heart are necessary for consumer confidence and economic growth in the medium and longer term. That is why today, the Commission has presented a legislative package that raises standards and removes loopholes for the benefit of consumers. Specifically, the package proposes new, consumer-friendly standards for information about investments, raises standards for advice, and tightens certain rules on investment funds to ensure their safety.

Internal Market and Services Commissioner Michel Barnier said: "In the aftermath of the biggest financial crisis in recent memory, the financial sector must place consumers at its heart. Retail products must be safer, information standards must become clearer, and those selling products must always be subject to the highest standards. That is why we have adopted a package solely dedicated to consumers, so that they can choose financial products based on clear and sound information and professional advice which puts the consumer's interests first."

Key elements of the package

The package is composed of three legislative proposals: a proposal for a regulation on key information documents for packaged retail investment products (PRIPS), a revision of the Insurance Mediation Directive (IMD), and a proposal to boost protection for those who buy investment funds (currently governed by the Directive on Undertakings for Collective Investment in Transferable Securities (UCITS).

Packaged retail investment products (PRIPS)

The Commission's PRIPS proposal improves the quality of information that is provided to consumers when considering investments. Investment products are complex and it can be difficult to compare them or fully grasp the risks involved.

The consequences of taking unexpected risks and facing consequent losses can be devastating for consumers, given that investments often form the backbone of a consumer's life savings. Given an EU retail investment market of up to 10 trillion euro, buying wrong or unsuitable products can quickly become a major problem.

The Commission proposal aims to inform consumers in a format easy to understand by introducing a new, innovative standard for product information, one that is short and plain-speaking, and thus far more consumer-friendly. This document is called the 'Key Information Document' (KID). The proposal foresees that every manufacturer of investment products (e.g. investment fund managers, insurers, banks) will have to produce such a document for each investment product.

Each KID will provide information on the product's main features, as well as the risks and costs associated with the investment in that product. Information on risks will be as straight-forward and comparable as possible, without over-simplifying often complex products. The KID will make clear to every consumer whether or not they could lose money with a certain product and how complex the product is.

The KIDs will follow a common standard as regards structure, content, and presentation. In this way, consumers will be able to use the document to compare different investment products and ultimately choose the product that best suits their needs.

The products for which a KID will be required include all types of investment funds, insurance-based investments and retail structured products, in addition to private pensions.

Insurance Mediation Directive (IMD) Revision

The Commission is proposing a revision of the IMD, which currently regulates selling practices for all insurance products, from general insurance products such as motor and household insurance to those containing investment elements. Consumers are often not aware of the risks associated with the purchase of insurance cover. Whilst accurate professional advice is crucial for insurance sales, recent surveys¹ show that more than 70% of insurance products are sold without appropriate advice. The current EU legislation does not deal in detail with the sale of insurance products, rules differ across Member States, and apply solely to intermediaries.

The goal of the Commission's proposal is to upgrade consumer protection in the insurance sector by creating common standards across insurance sales and ensuring proper advice. It will do so by improving transparency and establishing a level playing field for insurance sales by intermediaries and sales by insurance undertakings. To achieve this, the following changes are proposed:

·         The same level of consumer protection will apply, regardless of the channel through which consumers purchase an insurance product. Whether a consumer purchases a product directly from an insurance undertaking or indirectly from an intermediary (e.g. an agent or a broker), the consumer will receive the same level of protection. This does not exist today as the current IMD only covers sales provided by intermediaries.

·         Consumers will be provided in advance with clear information about the professional status of the person selling the insurance product. Rules will be introduced to address more effectively the risks of conflict of interest, including disclosure of the remuneration received by sellers of insurance products.

·         Insurance product sales will have to be accompanied by honest, professional advice.

·         It will be easier for intermediaries to operate cross-border, thus promoting the emergence of a real internal market in insurance services.

Undertakings for Collective Investment in Transferable Securities (UCITS) V

The original UCITS Directive created the internal market for investment funds in Europe. The current EU legislation for investment funds (the UCITS Directive) has been the basis for an integrated market facilitating the cross-border offer of collective investment funds. Managing almost €6 trillion in assets², UCITS have proved successful and are widely used by European retail investors. UCITS are also regularly sold to investors outside the EU where they are valued due to their high level of investor protection.

The Commission's proposed amendments to the current UCITS rules are based on the experience from the financial crisis, so as to continue to ensure the safety of investors and the integrity of the market. In particular, the proposal will ensure that the UCITS brand remains trustworthy by ensuring that the depositary's (the asset-keeping entity) duties and liability are clear and uniform across the EU³.

Today's proposal addresses three areas:

·         a precise definition of the tasks and liabilities of all depositaries acting on behalf of a UCITS fund;

·         clear rules on the remuneration of UCITS managers: the way they are remunerated should not encourage excessive risk-taking. Remuneration policy will be better linked with the long-term interest of investors and the achievement of the investment objectives of the UCITS; and

·         a common approach to how core breaches of the UCITS legal framework are sanctioned, introducing common standards on the levels of administrative fines so as to ensure they always exceed potential benefits derived from the violation of provisions.

See also MEMO/12/514 (PRIPS), MEMO/12/516 (IMD) and MEMO/12/515 (UCITS)

More information:

http://ec.europa.eu/internal_market/finservices-retail/investment_products_en.htm

http://ec.europa.eu/internal_market/investment/ucits_directive_en.htm

http://ec.europa.eu/internal_market/insurance/consumer/mediation/index_en.htm

Brussels, 3 July 2012

Key Information Documents (KIDs) for packaged retail investment products - Frequently asked questions

1. What are Packaged Retail Investment Products (PRIPs)?

PRIPs are at the core of the retail investment market. They cover a range of investment products that are marketed to retail investors which, taken together, make up a market in Europe worth up to €10 trillion. These are the investment products retail investors would typically be offered by their bank when they want to make an investment, e.g. to save for retirement or some other target like buying a house or paying for their children's education.

Although there is no rigid definition of PRIPs and they take a variety of legal forms, they can be distinguished by the broadly comparable functions they perform for retail investors. They typically combine exposures to multiple underlying assets; they are designed to deliver capital accumulation over a medium- to long-term investment period; they entail a degree of investment risk, although some provide capital guarantees; and they are normally marketed directly to retail investors. Broadly speaking, they can be categorised into four groups: investment funds, insurance-based investment products, retail structured securities and structured term deposits.

2. What problems are being addressed?

The retail investment market is a difficult market for consumers to navigate. There is a gulf in understanding between providers and distributors on the one hand and retail investors on the other. This is particularly the case for PRIPs which, while offering considerable benefits for retail investors, are often complicated and opaque. The information that is available to investors can be overly laden with jargon, complex and difficult to use for comparisons between different investment products. There are also conflicts of interest in the sales and advice process which may not result in outcomes that are in the best interests of the investor.

It can be difficult to quantify precisely the impact of these problems on retail investors, although evidence gathered through the consultation process¹ indicated that it can be substantial. Consumers were not always fully aware of the scale or nature of the risks they are taking on, or they purchase investments which are not well-suited to their needs, or which represent poor value for money. These problems can lead not only to financial losses for the investor, but, when taken together, a wider loss of confidence in the retail investment markets. The problems have implications for the efficiency of the market and the ability of retail investors to make appropriate use of their savings.

3. What are Key Information Documents (KIDs) and what will they include?

KIDs are short, plainly-worded documents – no more than a few pages long – that will provide investors with answers to the key questions they have about the features, risks, and costs of investment products.

They are designed for the retail investor rather than the professional. They will help the retail investor make a more informed decision on whether an investment is right for them.

So the investor can better compare investment products, every KID will follow the same structure. They will answer a standard set of questions, such as: What is the investment? Can I lose money? What are the risks and what might I get back? What are the costs?

Information that is vital for comparing different investments – on how risky the investment is, on whether it has guarantees and what these are, on the costs of the investment – will be carefully selected and presented so as to make comparisons as easy and as accurate as possible.

4. Why do we need KIDs?

A very wide range of investment products are sold to EU consumers. However, these investment products are often complex, and information about them is written in a very technical way or presented so it is difficult to compare different investments. Because of this, consumers can fail to properly appreciate the risks, costs or features of products. The financial crisis has underlined the impact of this: retail investors lost on investments, sometimes in a personally devastating fashion, where the possibility of these losses was not understood beforehand. Investments believed to be safe were not always as safe as they appeared.

This has undermined consumers' trust in financial services. A recent consumer market monitoring survey from 2011² showed low levels of consumer confidence specifically in financial services – which scored lowest for services - and this lack of confidence itself undermines sound and effective investment and growth in the EU. Clear and transparent information is a vital foundation for sound markets, a necessary building block, which can also be a foundation for empowering consumers themselves.

5. Why is the EU taking action on KIDs rather than leaving the issue to the Member States?

The EU has a unique vantage point for creating a consistent approach – something that is crucial for comparisons across products, including where these are sold across the EU and not only in one Member State.

This proposal from the Commission is an effective and proportionate way to ensure consumers can rely on strong rules for different products throughout Europe and across all industry sectors. Consumer-friendly documents about investments should always be available that are easy to compare.

6. What investments will the KIDs cover?

All the key investment products are covered. This includes structured products, whatever the underlying legal form these take, insurance-based investments (including unit-linked and 'with-profit' products), and all kinds of funds. These products carry particular risks for the investor or are more complex to understand and compare. To allow for comparisons, KIDs will also be required for products that have guarantees, for instance for the invested capital, as long as the returns on the investment vary (are 'at risk').

Some of these investments might be used for private pensions. KIDs will be needed for these too so consumers can compare them. However, a KID has only to be produced when the products are to be sold to retail investors: this is not a document for professional investors. However, the proposal does not apply to occupational pension schemes or to pension products for which the employer is required by law to contribute financially and where the employee has no choice as to the pension provider.

7. Why are some direct investments or simple savings not covered?

For direct investments, the investor is buying assets such as shares in companies themselves. In this case, banks, insurers and fund managers are not 'packaging' the investment into a 'shrink-wrapped' product to be marketed and sold to retail investors as a convenient way of investing.

This packaging of investments raises costs and complexity and makes investments more difficult to compare. All these aspects warrant stronger investor protection and transparency measures for packaged investments compared with direct investments. The Commission's impact assessment work³ also suggests that packaged investments make up the important core of the retail investment market in the EU, so focusing on these to begin with makes good sense.

Simple savings products are not covered because these are easier to compare and understand; the saver generally only has to consider different interest rates. In general, the information needed to compare these differs from that needed for the products covered by the KID.

8. Does the Commission plan on expanding the type of investment products covered by KIDs?

Once the KID has been established for packaged investment products, it should be reviewed to see whether the scope of the document can be practically extended to cover a wider range of investment products. Assessing whether to extend the scope of the KID also depends on future innovation in the financial markets.

9. What about other disclosures that investment product manufacturers or distributors might be required to produce or provide?

The KID is a new concept that is innovative. It places a new emphasis on keeping information short and focused on the key features of the products. For this reason it has been designed to stand on its own. In the future, we will assess whether other disclosures produced under different regulations – which can provide more detailed information than in the KID, or information for other purposes – should be amended or adjusted in the light of the development of the KID.

Additionally, proposals on how investment products are sold are being examined separately, through the revision of the Insurance Mediation Directive (see MEMO/12/516) and of the Markets in Financial Instruments Directive (see IP/11/1219 and MEMO/11/716).

10. How are UCITS (Undertakings for Collective Investment in Transferable Securities) funds being treated?

A similar document to the KID has only just been introduced for UCITS – the key investor information document. UCITS however also fall within the scope of the KID proposals.

To allow the key investor information document for UCITS to flourish, we propose that UCITS are exempt from the new requirements for a transitional period of five years. The ultimate aim is however for all investment products to be accompanied by KIDs, and that the documents for all investments products are as comparable as possible. Possible refinements to the UCITS key investor information document will therefore be considered in light of the end of this transitional period.

11. Why are the proposals not exactly the same as the key investor information documents for UCITS?

The UCITS key investor information documents are designed for UCITS. For this reason they contain information that is not relevant for some of the other investments being sold in Europe; and, in some cases other investments have features not found in UCITS – such as insurance benefits, or fixed investment terms. The kinds of risks the products have can also be different.

For these reasons the KID cannot completely follow the UCITS model.

However, key information – for instance on costs, risks and performance amongst others – need to be made as comparable as possible. To take this into account, it is proposed that the KID includes risk information including a risk indicator that can be directly compared with that for UCITS, and information on costs that shows the real costs of different products so they can be compared in a neutral and objective way.

12. Who will have to produce the KID?

Because investment product manufacturers know their investment products best and are responsible for creating them, we propose that they should be responsible for producing the KID. They may delegate production but would remain ultimately responsible for the document.

13. Who will have to provide the KID to investors and when?

The proposals require that whoever is selling an investment to a retail investor is responsible for giving the document to them. This would often not be the investment product manufacturer themselves, but an intermediary.

The KID is designed to help retail investors make an investment decision; for this reason it is vital they are given it while they are weighing their investment options, before they make a decision.

14. Why do you cover private pensions? Are these not very different from investments? Does the proposal not take too much of a 'one size fits all' approach?

Investments made for the purposes of a private pension are often the same or extremely similar to other kinds of investments, so it is important to be able to compare them.

There are some features of private pensions that are different however. For this reason our proposal is to include specific information for these products, e.g. on what to expect as a possible pension when you retire.

In general, the proposal is for a high degree of standardisation of KIDs, but the goal is not to impose a 'one size fits all' approach. Differences between products need to be reflected too. For this reason, the proposal allows for implementing measures to clarify how differences can be handled, and for some flexibility so that KIDs can be produced for all the different products that are within its scope.

15. What are the costs of KIDs?

Our proposal was developed after an extensive consultation period and is supported by a robust impact assessment of different options, supported by studies designed to show what kind of approach might be most effective for retail investors⁴. This work showed that simplifying and standardising information is vital for investors, since it would encourage them to use documents and to understand and compare different investment products. These findings have therefore been central to the approach developed.

Evidence from the introduction of the key investor information document for UCITS can be used for a best estimate for the retail investment market as a whole – Commission impact assessment work suggests possible one-off costs of around €171 million, and ongoing costs of around €14 million per year.⁵ Given that new products have typically dominated sales to retail investors, costs would likely be absorbed relatively quickly as the new regime settled in. Consistency in approaches between industry sectors and national markets would also potentially reduce costs over time.

The impact assessment shows that the benefits of bringing in the KID will outweigh the costs over the longer term. Clearer, simpler, and more comparable information about products will be a strong basis on which to develop better investor confidence, trust in financial services, and sounder investment decisions. Greater trust will also contribute to more effective capital markets in the EU – markets capable of driving stable, long-term growth in the real economy.

Consistency in requirements between different industry sectors and different Member States will also help competition and the growth of the single market.

16. When will the KID be in place?

The Commission's proposal will now go to the European Parliament and the Council for their consideration under the codecision procedure. Once they reach agreement, detailed work would be done by the Commission with the input of experts, consumers and stakeholders on the implementing measures. The full proposal could be expected to be in place by the end of 2014.

17. Are there any examples of the problems the KID will tackle?

The Commission's consultation and impact assessment work have identified many examples of the problems faced by investors. For example, the Ombudsman in one Member State recently found 12-year subordinated notes being sold to the very elderly. Risks of exiting these investments were not fully explained. In another example, a study for a consumer affairs ministry in one Member State suggested that up to 50-80% of consumers could be terminating long-term investments prematurely, indicating investments were made that were not suited to their investment or savings needs. On an EU-wide level, a mystery shopping exercise by the Commission indicated that up to 60% of sales of investments could be considered unsuitable or not in the best interest of the consumer.⁶ The quality and neutrality of advice is part of addressing these problems, but so is improved transparency about the investments themselves. Better disclosures about the features, risks and costs of products through the KID are vital. Consumers have themselves called precisely for better, more standardised information, seeing lack of comparability as a key barrier to more informed shopping for investments.⁷

¹ : http://ec.europa.eu/internal_market/consultations/2010/prips_en.htm
² : See http://ec.europa.eu/consumers/strategy/docs/EC_Market_Monitoring_2011_en.pdf p. 31.
³,4,5, : See http://ec.europa.eu/internal_market/finservices-retail/investment_products_en.htm.
6: http://ec.europa.eu/consumers/rights/docs/investment_advice_study_en.pdf.
7: European Commission, 2009 - Commission staff working document: on the follow up in retail financial services to the consumer market scoreboard. http://ec.europa.eu/consumers/rights/docs/swd_retail_fin_services_en.pdf, p.5.

Brussels, 3 July 2012

Revision of the Insurance Mediation Directive - Frequently Asked Questions

1. What is insurance mediation?

Insurance mediation means:

• the act of advising on, proposing, or carrying out any other work preparatory to the conclusion of insurance contracts, or of concluding such contracts, and
• the act of assisting in the administration and performance of insurance contracts, in particular in the event of a claim.

2. What is the Insurance Mediation Directive (IMD) about?

The current IMD regulates the selling practices of all insurance products. It covers the regulation of general insurance products such as motor insurance as well as life insurance policies including those which contain investment elements such as unit-linked life insurance products.

3. Why does it need to be revised?

The financial crisis has underlined the importance of ensuring effective consumer protection across all financial sectors, which can only be achieved with proper regulation and supervision of all financial service providers and agents that deal directly with consumers.

Adopted in 2005, the IMD contains principles that each of the 27 Member States has implemented in substantially different ways. Certain parts of it are in need of modification or clarification, and some important matters proposed today do not fall within its current scope.

Strong concerns have been raised about standards for the sale of life insurance products with investment elements (e.g. unit-linked contracts). Currently, less strict standards apply to those products than to non-insurance investment products (regulated under the Markets in Financial Instruments Directive (MiFID), currently under revision – see IP/11/1219 and MEMO/11/716). This means that there is cross-sectoral inconsistency, since market participants are offering insurance-based investments in place of other investments.

Concerns have also been raised about the limited scope of the IMD, particularly that it does not regulate direct selling – that is sales of insurance products directly by insurance undertakings (without the intervention of intermediaries)- so there is not a level playing field for all players involved in the selling of insurance products.

4. How is this revision relevant for the economy?

The revision of the IMD is part of a 'Consumer retail legislative package', together with the PRIPs (Packaged retail investment products) proposal on investment products' disclosures and UCITS V (Undertakings for Collective Investment in Transferable Securities) (see IP/12/736) and aims to:

• 1. Improve competition and create a level-playing field in the insurance markets.
• 2. Provide European consumers with better advice on the insurance products most suited to their needs, and clear information in advance on the status of the people who sell the insurance product and the remuneration which they receive.
• 3. Introduce simplified, less burdensome rules on free provision and establishment of insurance services. The new directive foresees the establishment of a single European registry for insurance intermediaries who want to provide cross-border services.

5. What exactly will change?

Currently, only agents and brokers are covered by the IMD. With the new proposal:

(1) The scope of the revised IMD will be extended to all sellers of insurance products, including insurance companies that sell directly to consumers. Other market players who sell insurance products on an ancillary basis (e.g. car rental companies) will be included in a proportionate manner in the scope of the revised IMD.

(2) Rules that address more effectively the risk of conflicts of interest, including rules mandating the disclosure of remuneration by intermediaries, will be introduced.

(3) Improved requirements would apply to life insurance products with investment elements, covering sales standards, conflicts of interest, and a ban on commission for independent advice.

(4) There would be mutual recognition of professional knowledge and ability, as evidenced by registration and proof of professional qualifications acquired in another Member State.

(5) Special information requirements would apply where suppliers adopt the practice of bundling products together by informing the customer that it is possible to buy the two products separately.

(6) Effective, proportionate, and dissuasive administrative sanctions and measures by competent authorities in respect of breaches would be required by providing guidelines to Member States.

6. What does a seller of insurance products need to disclose? How will the transparency rule work in practice?

The IMD revision proposes several improvements to deal with conflicts of interest between the seller of the insurance product and the potential client.

For instance, customers need to understand the status of the person who sells the insurance product. The salesperson will thus have to clearly demonstrate the role in which he is acting (agent, broker, direct writer, etc.) by presenting a business card when selling the product.

The seller will need to disclose the nature (based on a fee, commission or salary) and the structure (financed directly by the client or an undertaking) of his /her remuneration and what the premium encompasses in terms of services (claims handlings, advice, administration, etc.). At the same time, rules will be introduced to more effectively address the risk of conflicts of interest, including disclosure of remuneration by intermediaries.

7. What is the difference between mandatory disclosure and on-request disclosure? How is this regulated in different Member States? How the transitional period will work?

"Mandatory disclosure of remuneration" means that the intermediary should disclose his remuneration to the customer. "On request regime" means that the intermediary needs only to disclose his remuneration if a customer specifically requests so.

The situation is very different in Member States. Some Nordic markets (Finland and Denmark) have prohibited intermediaries from receiving commissions from insurance firms, and therefore went further than introducing simple transparency requirements. Other countries (such as Sweden and the UK) already require mandatory disclosure for some insurance policies.

As for the remuneration disclosure, the Commission proposes a five-year transitional period. This means that a mandatory 'full disclosure' regime is envisaged for the sale of life insurance products and an 'on–request' regime (i.e. on customer's demand) for the sale of non-life products with a transitional period of five y