BIPAR UPDATE - July 2007, no 14

Editor:
BIPAR Secretariat

In this issue

  • Update on IMD implementation
  • Update on Commission sector inquiry into business insurance
  • VAT treatment in financial services
  • BIPAR views on the Commission Green Paper on Retail Financial Services
  • Next BIPAR meetings

Update on IMD implementation

All EU Member States have now implemented the IMD. Germany was the last EU country to do so in May.
In the context of the IMD implementation, BIPAR, together with the European Commission and the expert group on insurance mediation (IMEG) of the Committee of European Insurance and Occupational Pensions Supervisors, (CEIOPS), has been working on how to determine the triggering element of the FOS activities of an intermediary. This issue has to be discussed mainly because of the matter of general good rules and stricter information requirements of the host Member State that must be complied with by the intermediaries when they are considered as doing FOS. After months of work and discussion, CEIOPS seems to have agreed on a definition of FOS that would be based on the intention of the intermediary and the location of the policyholder/head office. This definition meets BIPAR's requests. This proposal allows activities that are essentially local not to be defined as cross- border activities and allows avoiding unlevel playing field situations between large intermediaries who are actively carrying out FOS activities, and small local intermediaries who would be carrying out FOS activities without wanting it (ex: ski pass, holiday house etc...). CEIOPS will now submit its proposal to the Commission which will discuss it with the Member States. Once the Commission agrees on a final definition, it may decide to publish it in an interpretative Communication or to include it in a possible revised IMD which, as announced in the Green Paper on Retail Financial Services, the Commission will be working on in 2008-2009 with the aim of ensuring that the IMD is achieving its objectives of protecting consumers while promoting the Single insurance market.
In the context of the possible IMD revision and further to the request of the Commission, CEIOPS IMEG is now working on possible amendments to the IMD. It is expected that it will issue its report in September 2007. BIPAR has already discussed the issue with IMEG and strongly requests that any revision or amendments that may be considered by the European Commission or CEIOPS be first properly assessed so that they do not lead to unjustifiable costs on market practitioners and ultimately, consumers. The consolidation phase is of crucial importance. Member States must be given the appropriate time to properly implement and enforce the IMD.

Update on Commission sector inquiry into business insurance

At the end of July, the European Commission's DG Competition published the (44) replies to the public consultation on its interim report on the Business Insurance sector inquiry. These replies are available on the following website: http://ec.europa.eu/comm/competition/antitrust/others/sector_inquiries/financial_services/business.html.
BIPAR is studying and analysing all answers and will send a memo to its Member Associations by the end of the summer.
The Commission's inquiry into business insurance, that is part of a wider inquiry in the financial sector and that was launched in June 2005, aims at identifying any specific restrictive practices or distortions of competition. The Commission's man-date covers the entire scope of insurance products. Insurance intermediation is also part of the inquiry. The Commission's final report is expected to be issued end of September 2007.

VAT treatment in financial services

The Sixth VAT Council Directive 2006/112/EEC on the harmonisation of the laws of the Member States relating to turnover taxes stipulates in Article 135.1(a) that "insurance and reinsurance transactions, including related services performed by insurance brokers and insurance agents" are VAT exempt. In March 2006, the European Commission launched a consultation on possible changes in the VAT treatment of financial services. BIPAR answered to this consultation and its initial comments were submitted to the European Commission on 15 June 2006. The objective is to have a new, modernised VAT regulation on financial services implemented by early 2009.
There seems to be a general consensus that intermediation activities should remain exempt. However, it seems difficult to draft a definition that distinguishes between exempt and non-exempt services related to insurance. BIPAR is extremely vigilant in this respect.
BIPAR actions
BIPAR promotes the general principle that intermediation activities should continue to be exempt. In general terms, we promote a pre-Andersen judgment situation in terms of tax treatment. Since June 2006, the BIPAR VAT working party met several times with European Commission officials (TAXUD). In December 2006, upon the suggestion of the European Commission, it submitted a working document outlining the boundaries of exempt and non-exempt activities. This working document was adapted according to the new developments in the dossier and sent again to the European Commission in early June 2007.
Latest developments
Over the last four weeks, the European Commission has sent out two different draft proposals for the Directive. The last proposal includes an option to tax. In this regard, BIPAR has sent a letter to Commissioner Kovacs to express its surprise about the procedure. We also informed the Commissioner that, in our opinion, the current text does not provide the necessary clarity and certainty to the industry or the Member States.
As it stands, the Directive would be accompanied by a regulation, determining in a non-exhaustive way, examples of services covered by the exemptions and examples which are excluded. The regulation will be binding and directly applicable in all Member States.
Next steps
Members of the BIPAR VAT working party will participate in a meeting organised by the European Commission on 31 July. The meeting is considered by the European Commission as an opportunity for "a final roundtable discussion with representatives of the industry concerned". On this occasion, BIPAR will -once again- express its position on some unresolved issues.

BIPAR views on the Commission Green Paper on Retail Financial Services

On 2 May, the European Commission published a Green Paper on Retail Financial Services asking interested parties for comments. The Commission sets out in this Green Paper the overarching objectives of its policy in the area and proposes binding and non-binding measures for a further integration of the retail financial services and further competition. In its response to the Green Paper, BIPAR made the following main points:
1. It particularly welcomes the Commission's commitment to only pursue initiatives where there is evidence of clear and concrete benefit for citizens and a strong economic rationale.
2. With regard to the Commission's planned revision of the IMD, BIPAR is of the opinion that it is too early to assess whether it will fully achieve its twin objectives of enhancing consumer protection and creating a Single market in insurance intermediation. The IMD enjoys overwhelming support from intermediaries throughout the EU. The consolidation phase is of crucial importance. The Commission should ensure that once the IMD has been correctly absorbed by national legislation, the profession and the wider industry will be allowed an adequate period without having to further adapt to a fluctuating legislative environment.
3. With regard to the Commission's planned cross- sector study on information requirements in financial services legislation in 2008 and revision of the DMD, BIPAR requests that the Commission ensure coherence between those planned initiatives and any revision of the IMD, and in particular, of its information requirements. Indeed coherence or rather the lack of coherence in EU legislation has been an issue for BIPAR and intermediaries for some time. Several unjustified divergences in recent EU legislation (e.g. IMD/MIFID, IMD/E-commerce/DMD) have caused confusion and legal uncertainty for intermediaries. Where possible, inconsistencies should be removed. In particular, the differing requirements on consumer information in these different Directives create considerable administrative burdens for intermediaries. The situation for intermediaries needs an overhaul and needs to be rationalised, but rationalisation must not lead to an accumulation of all existing requirements.
BIPAR will participate in the public hearing that the Commission is organising on 19 September 2007 in Brussels and which aims at drawing the conclusions of the consultation and discussing with all stakeholders which initiatives are needed to bring about a more efficient internal market for retail financial services. The results of the consultative process will be incorporated into the Single Market Review, to be published in the autumn.

NEXT BIPAR MEETINGS

The BIPAR mid-term meetings will take place in Madrid on 3 and 4 March 2007.

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