Introduction
A few years ago and in a rather controversial manner, the Belgian government decided to extend the scope of MiFID I rules of conduct to the insurance sector via two royal decrees of 21 February 2014:
- the royal decree on the modalities of application to the insurance sector of Articles 27 to 28bis of the law of 2 August 2002 on the supervision of the financial sector and financial services (“level 1”); and
- the royal decree on the rules of conduct and the rules pertaining to the management of conflicts of interests, as set by the law, for the insurance sector (“level 2”).
This initiative mainly affected life insurance service providers, who became subject to regulatory requirements which had been initially developed at the EU level for investment services only.
Fear of MiFID II
At the time of the release of this news, the Belgian government is working on the implementation of MiFID II, i.e. the new enhanced version of the EU directive regulating investment services.
Preparatory works are available on the Chamber’s website [1] (ref. DOC 54, 2658/1).
In light of the initiative of the Belgian government to extend MiFID I rules of conduct to insurance services, the implementation of MiFID II raised concerns within the insurance sector as to the scope of application of the upcoming implementation.
Two-tiered Regulatory System
In practice, it appears from the currently available preparatory works that the government intends to limit the scope of the MiFID II implementation to investment services only.
In other words, there will be a two-tiered system of regulatory requirements, whereby insurance services will remain subject to the MiFID I rules of conduct and investment services to the new MiFID II requirements.
IDD As a Dedicated Regulation
According to the Belgian government, the extension of the MiFID II rules of conduct to insurance professionals would be counterproductive, as insurance services will, in any case, become subject to rules of conduct of their own as from the implementation of the EU Directive 2016/97 on insurance distribution (recast) (the so-called “IDD”).
In practice, the IDD is clearly inspired by MiFID II and is even sometimes referred to as the “MiFID of insurance”. One could, therefore, argue that insurance services will eventually be subject to the same kind of requirements as investment services.
Nonetheless, some key differences between the IDD and MiFID II are worth stressing:
- The IDD is a minimum harmonisation directive (i.e. leaving the Member States at liberty to go further than its requirements when transposing the directive into national law, or “gold-plating”), whereas MiFID II is a maximum harmonisation directive (i.e. prohibiting “gold-plating”);
- The MiFID II new concept of “non-independent” advice is unknown to the IDD;
- MiFID II only allows inducements in the context of non-independent advisory services and insofar these inducements are designed to enhance the quality of the service to the client. The IDD does not go as far and mainly requires that inducements do not have a detrimental impact on the quality of the relevant service to the client;
- Although both directives provide for the same kind of appropriateness and suitability tests, focusing on the client’s financial situation, knowledge and experience, and investment objectives, the IDD also maintains the requirement to meet the client’s “demands and needs” (concepts dating back to the Insurance Mediation Directive of December 2002).
The IDD should be transposed by 23 February 2018 at the latest. It remains to be seen whether the Belgian implementation will reflect the differences between the two directives or if the Belgian Government will “gold-plate” the IDD in a way that will make the nuance with MiFID II almost invisible.
At this stage, we are not aware of any draft law or similar measure aiming to implement the IDD.
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Questions about the implications of the IDD or MiFID II on your business? Please contact Simont Braun’s experts: digitalfinance@simontbraun.eu [2] – +32 (0) 2 543 70 80