Ongoing attempts to harmonize the regulation of cross-selling practices

Harmonizing the regulation of cross-selling practices

It was the original intention of 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) to produce guidelines on cross-selling practices that would apply to banking, insurance and investment management. However, the final guidelines, which will apply from 3 January 2017, were issued by ESMA alone and apply narrowly to investment products under the Markets in Financial Instruments Directive (MiFID) II.


The JC has now written to Commissioner Hill asking him to address the legal issues that frustrated achievement of the original objective.

Cross selling guidelines involve investment management

Despite the fact that cross selling is most commonly found in a combination of banking and insurance products, the final guidelines, released only by ESMA, do not apply to packages that involve only banking or insurance products with no element of 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)). 

For further information on ESMA’s guidelines see ‘Major reduction in scope of ESA guidelines on cross-selling practices’ in the January 2016 update.

Common guidelines for banking, insurance and investment management requested

The JC has now written to Commissioner Hill asking him to address the legal issues that prevented it from achieving its original policy intent – common guidelines for all three of the banking, insurance and investment management sectors. It is the view of the JC that these legal issues impede it from establishing the desirable degree of consumer protection, expose consumers to the risk of detriment and prevent a level playing field across the sectors.

By way of example, the JC notes that cross selling between banking and insurance products (such as mortgages, loans or credit cards with payment protection insurance) has in the past caused significant consumer detriment, undermined market confidence, led to unprecedented compensation and litigation pay-outs and fines, and resulted in a loss of confidence in the integrity of the financial system. It observes that consumers do not always distinguish between the three sectors when buying financial products. Therefore, having a greater regulatory articulation of good and bad practice for one sector only does not benefit consumers, results in financial institutions being subject to different requirements depending on which products they are cross selling, and makes the task of supervision more difficult for regulators.

European supervisory bodies looking closely at cross selling practices

It remains to be seen how quickly the Commission will propose the necessary legislative changes to remove the legal barriers that have frustrated achievement of the JC’s objective. However, it is clear that all three of the European supervisory bodies, and many national regulators, are looking closely at cross selling practices. It is therefore important that all firms (not only those subject to the ESMA guidelines) review whether their policies, procedures and practices are in line with the guidelines. 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.

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