At the end of 2014, the Joint Committee (JC) of the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA) consulted on cross-selling practices guidelines. Cross-selling is the practice whereby firms group and sell two or more separately identifiable products or services in a “package”. The JC noted that this practice can give rise to both consumer benefits and consumer detriment and provided illustrative examples of good and detrimental practices. It was intended that the guidelines would cover banking, insurance and investment products and that all types of authorised firms should review their practices. However, the final guidelines, which will apply from 3 January 2017, are issued by ESMA alone and apply narrowly to investment products under Markets in Financial Instruments Directive II (MiFID II).
When the Joint Committee of EBA, EIOPA and ESMA consulted at the end of 2014 on guidelines for cross-selling practices, these guidelines were intended to apply to a wide range of authorized firms, subject to any of the following directives: Capital Requirements Directive (CRD), MiFID, Solvency 2, Insurance Mediation Directive, Mortgage Credit Directive, Undertakings for Collective Investments in Transferable Securities (UCITS), Alternative Investment Fund Manager Directive (AIFMD), Payments Accounts Directive, Payment Services Directive and Electronic Money Directive.
Despite the fact that such packaging is most commonly found in a combination of banking and insurance products, the final guidelines do not apply to packages that involve only banking or insurance products with no element of an investment service or investment product. The reason given for this significant reduction in scope is that respondents to the consultation raised concerns about the legal basis provided in current insurance and banking directives. MiFID II, on the other hand, requires ESMA, in conjunction with EBA and EIOPA, to issue such guidelines (under Article 24(11)). The final guidelines are therefore addressed only to those national regulators with supervisory oversight of MiFID, the UCITS Directive and AIFMD.
Other than this reduction in scope, the final guidelines are largely unchanged from the draft. The guidelines cover:
Affected firms will need to review their policies, procedures and practices. In some cases, this may require a fundamental review of the way in which a firm’s profit margin is constructed and whether it is consistent with achieving the best outcomes for customers. This might include the identification of any cross-subsidy as between products or types of customers and a reassessment of the justification of continuing such arrangements. It will also require a review of the standard script for telephone operators or counter staff and of the default settings of any on-line provision.