Keeping abreast of what’s happening in Brussels and at international level is more essential than ever to anticipate future regulatory changes. Alexandre Giraud outlines some of the most burning regulatory developments for the motor finance industry.
Back in 2010, the G20 leaders identified shadow banking as an area that warranted attention. In this context, the Financial Stability
Board (FSB) was asked to propose an integrated set of policy recommendations to strengthen oversight and regulation of the shadow banking system. The FSB is an organisation established by the G20 to coordinate the work of national financial authorities and standard-setting bodies at international level.
Shadow Banking is defined by the FSB as credit intermediation involving entities and activities outside the regular banking system.
In short, all companies currently not subject to international prudential regulatory standards, or subject to them to a materially lesser
degree, fall within the scope of the FSB initiative.
This includes all types of finance companies involved in the provision of credit for both retail and corporate customers, on a secured or unsecured basis. According to the FSB, this activity may create significant risks in sectors that are cyclical in nature (e.g. real estate, automobiles, construction, etc.).
Risks would increase where companies are heavily dependent on short-term or wholesale funding.
To mitigate the systemic risks associated with this activity, the FSB recently proposed and consulted on a policy toolkit which would impose capital requirements for non-bank lenders as well as limits on asset concentration and liquidity buffers in order to counteract potential stress and risks from short-term liabilities. The proposals were discussed by FSB members in New York on 3 April. We now expect the FSB to refine and confirm its proposal.
The Consumer Credit Directive (CCD) is currently being reviewed by the European Commission.
The review is first and foremost an opportunity to provide an overview of local regulatory frameworks for consumer and motor finance transactions. Did member states transpose the provisions appropriately? What has been the national interpretation of general terms undefined by the Directive? And did national authorities go further than European requirements?
The review will also evaluate the concrete impact of requirements on our business environment and consumer protection. This evaluation will not only require assessing how provisions have concretely been implemented by lending institutions, but also identify whether any new rules should be introduced to respond to market developments.
What’s in it for the motor finance industry? Since the adoption of the CCD in 2008, it’s the first time that this regulatory framework will be formally re-discussed in Brussels.
What do we already know? So far, very little information has transpired. It appears that the provision of pre-contractual information (the famous SECCI (Standard European Consumer Credit Information)) and accompanying explanations are under scrutiny.
Likewise, advertising practices, sales of ancillary products/services, as well as consistency in the calculation and presentation of the Annual Percentage Rate of Charge are also being analysed.
The European Parliament has already called for a prudent approach; priority should be given to the correct transposition and appropriate enforcement of existing rules rather than the introduction of a new binding framework.
We expect a Commission working document in June this year. This document should include the Commission’s findings and outline its intentions.
In July 2012, the Commission released its Proposal for a new Directive on Insurance Mediation. The Proposal is currently being discussed within the European Parliament.
The Proposal would be applicable to almost all types of insurance products by both insurance undertakings and all types of intermediaries. It will therefore directly impact the motor finance business: both finance providers and motor dealers in their capacity as insurance intermediaries. The Directive is built around five main pillars: i) registration or declaration of intermediaries, ii) professional education requirements, iii) pre-contractual information to be provided to the customer, iv) measures to avoid conflicts of interest and v) sanctions for nonadherence to the rules.
A wide range of views have been expressed so far by Members of the European Parliament (MEPs) on some key issues for our industry. This is notably the case for disclosure of remuneration. The Commission foresees the disclosure of the amount of remuneration received by intermediaries. A number of MEPs are calling for this to be limited to the nature and source of remuneration.
Others have called for disclosure on request or even an outright ban on commissions based on the achievement of targets and thresholds. The introduction of formal professional qualifications in the Directive itself is also a contentious issue, as well as the provision of advice to customers and the possibility to carry out execution-only sales.
The current text would leave a number of issues to be determined in more detail at a later stage, through technical standards, developed by the European Insurance and Occupational Pensions Authority, one of the three European supervisory authorities.
The European Parliament is expected to finalise its position before the summer recess. In parallel, the Council should start its discussions on the Proposal in the second half of this year.
Alexandre Giraud is senior legal adviser at Eurofinas. More information on Eurofinas activities is available at www.eurofinas.org
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