As the Distance Marketing Directive (DMD) looms near, with European Union nations required to adopt the rules by October 2004, the financial services industry will face tougher terms before they can secure business with clients residing overseas.
For financial advisers based in the EU, whose services also fall under the remit of the directive, the headache will reside with the cooling off period that consumers will be entitled to before committing to a contract, and consumers' right to cancel.
The Financial Services Authority in the UK has just released a consultation document tackling the DMD (CP196), and, in brief, summarises the aim of the directive as being: 'Once the DMD is implemented, consumers will have the right to a core set of information whenever they deal with a firm by distance means and, in most cases, the right to cancel a contract.
'But they will not have the right to cancel some types of contracts entered into by distance means, for example, for a collective investment scheme or a unit-linked life policy entered into by distance means.'
For UK firms conducting designated investment business, the existing rules will remain largely unchanged. 'But we propose changes to the detailed rules for terms of business, product disclosure, cancellation rights and cancellation arrangements,' CP196 noted. 'We also propose that firms that provide services such as investment management, stockbroking and investment advice should give retail consumers the right to cancel a contract, if it is entered into at a distance.'
Paul Bruns and Elaine Parkes
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