"The End of Commissioning - a very bad trip ?" by Martin Landais and Jean Nicolini

There's a debate I like to trigger when I'm having a drink with my broker friends: should commissions be banned or not?

Big questions call for big experts. Martin, I've decided to call on you to shed some light on the issues that are rumbling around the European institutions.

We hardly need to introduce you any more, but just for the record:

• You are Deputy Director of Insurance at the French Treasury.
• Your role: Ensure the implementation of a legislative and regulatory framework that allows the development of the insurance sector, while protecting consumers and financial stability.
  
  

Could you start by explaining the European legislative process? What are the key dynamics to bear in mind?

The European mechanism is a highly structured process, based on three main institutions:

• the European Commission, which embodies the executive power of the European Union and has a monopoly on legislative initiative;
• the Council of the EU, representing the Member State.
• the European Parliament, representing Europe's citizens.

These three players regularly engage in discussions to define the legislative contours of the sector. Other players, such as sector representatives or lobby groups, regularly exchange views with these institutions. Although these exchanges are sometimes marked by differences of opinion or interest, the decision-making process remains well established and transparent, given the complexity of the issues.

If we now look at the members, some naturally predominate by virtue of their demographic and economic weight. France, Germany, Italy, Spain and Poland alone account for 65% of Europe's population, putting their concerns and their markets at the heart of the negotiations.

It should be noted, however, that a decision in the Council generally requires a "qualified majority", involving at least 55% of the Member States (15 States) and representing 65% of the total population. In this context, France stands out as a leader in the insurance market, both in terms of total assets and premiums, covering both Life and Non-Life.

Listening to you, it's easy to imagine the wide diversity of players, their structures and the challenges they face. Is there a European approach to insurance, and where does France stand?

In fact, the single insurance market is still under construction. We have started to build a house with common prudential rules (Solvency II) and common distribution rules (DDA), which are the first steps towards a common architecture. But there is still a great deal of diversity at European level.

Let's take a few examples: in Sweden, the importance of the mutual sector influences their approach, while in France, insurance takes a variety of forms, with a diversity of players.

The subject of commissions also illustrates these cultural differences between countries. The French market is 85% commission-based, so commissions are the norm. On the other hand, commissions are banned in other countries, such as the Netherlands, because of past distribution scandals. The loss of confidence among consumers and institutions has led the regulator to take this step.

In practice, the regulations leave room for certain differentiated applications to reflect cultural differences and to adapt to the reality of each market. One example is France, which has decided to impose a duty to advise, which is not the case everywhere.

We defend our interests through dialogue and the production of reports to strengthen our position. I would highlight the fact that France has officially taken a position against a total ban on commissions.  This was in part led by the Director General of the Treasury, in collaboration with a dozen other European Member States. This opposition got the Commission to propose only a partial ban in the end.

As far as the European Parliament is concerned, we should mention the very clear position taken by MEP Stéphanie Yon-Courtin on the text of the Retail Investment Strategy.

The text on the Retail Investment Strategy also contains a number of very tough clauses on intermediaries. Why such rigour, and what do you think the impact of such a measure will be if it is accepted?

The main principle at work is that of 'value for money', i.e. value for money for consumers when it comes to financial products.

The text strengthens the transparency and disclosure requirements for intermediaries concerning the costs, charges and risks associated with investment products. It also establishes more precise and restrictive rules on advertising to prevent the spread of any information that could be considered misleading, particularly via social networks.

It highlights the necessary impartiality of intermediaries, potential conflicts of interest linked to the nature of distributors' remuneration and financial incentive practices. This would reinforce article L521-1 of the French Insurance Code, which states that an insurance distributor may not give advice that is biased by remuneration practices. In fact, supervisors can be expected to step up their vigilance in areas such as discounting and withholding tax, where they generate incentives that are incompatible with the duty to provide advice and the interests of the customer.

Following adoption by the Commission, the text is now being discussed by the European Parliament and the Council, with a view to approving a joint version. Once adopted, the Directive will have to be transposed into the law of the Member States.

Thank you Martin for your insights and your time.

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