— Mediator
The creation of the office of mediator in France is relatively new (September 1, 2015) and followed a recommendation of the EU authorities to all branches.
• Insurers’Ombudsman: It was established to provide insured with a prompt and cheap way to force a resolution of a litigious situation with an insurer, thus avoiding the delays and cost of a court action.
The French insurance mediator has received close to 15,000 requests from insured in 2016, thefigure represent an increase of 53% over the previous year.
In 56% of the appeals, most of the files were resolved with the help of the
mediation and before a formal opinion was written. On the average 28% of the opinion conclude in favour of the insured.
56% of the appeals were concerned with property insurance, and 44% with personal insurance. In this second segment, files concerned automobile insur- ance (37%) and borrower (24%).
The mediator’s action impact was to limit the number of judiciary action. Part of this is due to a high level of acceptance of the mediator’s opinion by the insurers (99%) and only two claimants had to go to court after his opinion was delivered.
To avoid conflicts, the mediator has requested the insurers to ask potential clients to answer a questionnaire so that false declaration could be proved if it happened; but also to use pedagogy to educate on the subtleties of insurances like the consequences of driving under the influence or the proper way to cancel a contract.
On the other hand, life insurance subscribers are encouraged to be weary of the beneficiary provision, so that the avoid the situation of escheat, which is the case of a contract the capital of which cannot be paid out due to the fact that beneficiaries cannot be identified (see AGIRA 1 & 2 in paragraph 1.2.7 here above)
• Banks’Ombudsman: The French federation of banks (FBF) noted that there is a significant increase in the number of clients entering a petition with the mediator before even trying to settle their conflict with their bank.
The mediator with the FBF has received 5593 mails in 2016 a 34% increase over the previous year. The increase seems to be linked to a very early appeal.
“Early appeals have risen from 626 in 2015 to 1837 in 2016. These letters are sent by angry customers who go straight to the mediator without even tryingfirst to settle the situation with their bank.
However, this creates a problem as the mediator is not to analyse this type offile as long as the consumer has not enteredfirst a discussion with his/her bank. It is important also to note that the mediator is not competent for intervening in matters concerning the commercial policy of the banks such as the level of fees charged or the refusal of a loan. In such a case, the mediator can only encourage the consumers who have deteriorated relations with their branch to try and settle the issue directly with the customers’ relations service of the bank, before entering a claim with the FBF mediator.
Nevertheless, the issue is whether the dialogue is possible. A survey by the service academy published in 2016 concludes that 71% of bank employees in contact with customers are regularly victims of verbal aggression.
As far as thefiles that fall within the missions of the FBF mediator, they have slightly increased from 2368 in 2015 to 2567 in 2016 (+8.4%). For 898 of them a solution was found, of which 408 required an in depth analysis by the mediator’s legal team. This evolution is an illustration of the growing accep- tance of mediation as a recourse mechanism of bank customers when they have difficulties with their provider. As a consequence, 15 new banks have joined the
service of the mediator of the FBF (as a reminder, a number of large banks have chosen to have their own internal mediator).
The issues submitted to the mediator include the operation and the closing process for a bank account, the mean of payment and fraudulent use of a credit card, renegotiating credit terms and early reimbursement. Of thefiles analysed by the mediator, 1183 were not quantified, in the absence offinancial com- pensation requested by the customer of because it was not possible to quantify it. In 545files, the conflict indemnity was estimated to an amount between€500 and 1500, and in 418 between€100 and 500.
Of the written opinion, the mediator concluded in favour of the bank in 77% of the cases. This outcome may seem reasonable to the extent that the conflict was examined twice before: at the level of the branch, and then at the central clients’ relations department, and then a third time when the mediation gets involved.
4 Financial Consumers ’ Protection for the Weakest Groups
The act n° 72-1137 of December 22, 1972, introduced in the French legal system the offence of abuse of weakness which represented an important step in con- sumers’protection against door step selling and hard sale. These provisions were later modifies to comply with EU legislation, notably the n° 25-577/CEE of December 20, 1985.
The main protection mechanism resulting from this directive and the con- sumption code consist in a right to repentance for the benefit of consumers. This right is set out in article L. 121-25 of the consumption code; it is a discretionary right that benefits any consumer; they have 7 days to unilaterally withdraw from a contract without motivation. Whereas this delay is a strong protection for most consumers, it might prove a little short for the elderly.
Too often they are in a state of weakness when confronted with doorstep selling and are not really protected by the provisions of the consumption code to the extent that courts seems to have a restricted reading of the provision and do not accept the victim’s age as the sole evidence for weakness in the criminal law.
This the reason why legislators have deem reasonable to extend the withdrawal delay for elderly so that they have enough time to talk the matter over with next in kin and also send a certified mail with acknowledgement of receipt mentioning their intention to withdraw. Thus, the legislators proposed to extend the delay to 30 days for consumer above the age of 70. The issue fond another solution in a law enacted in 2011 and regardingfinancial contrast the following applies:
• for insurance contracts the delay is extended to – 30 days for life insurance
– 14 days for property and casualty insurance.
• For most consumers’credit 14 days.
• For purchase of real estate 10 days.
5 Current Issues in the Financial Product Market
The Financial crisis that the developed world experienced in 2007/2008 has trig- gered a breach of trust in consumers confronted with complexfinancial products, the risks of which are not clearly understood and for duration that are often beyond their planning horizon.
Protecting individuals’savings is a crucial component of economic health. The role played by banks and insurance companies ha considerably changed over the last decade as a result of multiple drivers: the arrival of new competitors on the markets, financing channels lacking in regulation, new emerging risks, increasing complexity of financial products, and digitisation not always compatible with current regulations.
The context is rendered even more difficult in view of the present conjuncture where social security and pension fundingfinancial disarray require the authority to take drastic actions that will impact both current workers and retirees, governments have tofind ways back to budget balance, public has a growing aversion to risks.
Although these issues might seem technical, they have an immediate impact on public perception offinancial markets operations when there is already mistrust as mentioned above. Individual savers have difficulties discerning the right financial decisions for them. In such a context,financial regulation can play a crucial role.
This is the reason why, in addition to strengthening prudential control over banks and insurance companies, public authorities in France as in other E.U.
countries have set up, through the transposition of European Directives, new reg- ulations for the marketing offinancial products, i.e. securities, security investment shares (organisme de placements collectif en valeurs mobilières—OPCVM) and life insurance contact.
Within this scope, the Prudential Control Authority (ACP), in charge of both insurance and banks, has created a common pole (ACPR) with the AMF to ensure the marketing offinancial products by all players in the field is compliant. As a reminder, the act on bank an insurance regulation (October 22, 2010) has unified the provisions forfinancial intermediation.
Within the current environment, and in spite of the improvement already enacted, three issues remained to be addressed:
• Are current market structures, designed to receive these activityflows, capable of accommodating this evolution?
• Are current regulations strong enough to protect savers?
• How to face the new challenges stemming from disintermediation and competition?
Complexity is not forbidden infinance but it must be carefully regulated when it reaches a given level. When a financial product is too complex, it should be reserved for professionals. This principle must be applied with an objective assessment of complexity. Is complexity inherent in the products used to manu- facture thefinancial products marketed? The AMF position is that complexity must be evaluated from the point of view of the investor, in other terms is the investor in a position to have a good understanding of the binomial risk/return.
It is essential that consumers do not take risk and complexity as synonyms.
Investors, even individuals, must take risks as a condition for optimal financial performance for their own savings and as afinance fuel for the economy. But the decision to take risk must be informed and accepted: excessive complexity may create a veil that prevents the consumer to fully appreciate the situation.
Therefore, the definition of non-complex products, those that can be executed and received through simple orders must be refined. The AMF position is that complexity should be assessed with simple criteria and ideally uniformly applied to the whole range offinancial products marketed to non-professionals.
The definition of complex and non-complexfinancial products according to the MiFID12 directive will have to be revised to limit the field of “non-complex” to make sure that consumers really understand. As far “too complex” products are concerned it is essential that all agencies involved find a common definition to restore the public’s trust.
The ensuing request for complete and transparent information and the com- plexity of applicable regulations has led to aflurry of communication; all the more that national and international regulations overlap. However, it is not easy to reduce the information produced as each piece of information is related to a specific expectation of the reader and the requirements of normative agencies and regula- tors. However, the quality might be improved s that each bit of information is drafted so that it makes clearfinancial meaning. There are four calls for action to improve the legal and regulatory context for the development and marketing of financial products:
• Review all laws and regulations at the National level, and in the European Union authorities,
• Insure real time updating of the information provided,
• Develop a summarized strategic vision, and
• Strive for simplification and transparency.
6 Final Comments
Some of the areas that are problematic in Europe have also been vexing US bank supervisors: inadequate corporate governance and risk management processes and procedures, particularly as they relate to integrating a risk-appetite framework into a bank’s strategic planning and operations, and inadequately involved boards of
directors with limited understanding of their risk management responsibilities.
Coming from very different starting points, it seems the regions are eventually converging toward common principles.
Although bank profitability slightly improved in 2015 and capital positions have further strengthened, European banks continue to struggle with diminished prof- itability in the ultra-low (or even negative) interest-rate environment. This is forcing banks to transform their business models as they search for alternative sources of income and re-base their cost structures.
Banks need to demonstrate that they can promptly adapt their strategy to material changes in the macroeconomic and competitive environment. To achieve this, the annual strategic-planning and budgeting process will need to become more dynamic. The coherence and consistency of the scenarios (baseline and stressed) used for strategic planning and budgeting must be continually tested and a new iteration needs to be triggered whenever such scenarios do not hold.
As far asfinancial services for individuals are concerned, there is still no inte- grated European market as harmonisation is extremely difficult to undertake as national realities still prevailing. A recent report stresses the specificity of the French market which makes it different to the other European markets. Specifically, the French model of universal banking offering a wide range of products based on a long term relationship differs widely from the English model where customers purchasefinancial markets like in a supermarket.
Also the education level offinancial agents in France is higher than the European average. The operation of a bank account represents 57% of household revenues. It is above the European average when coupled with the cost of credit cards, but interest rates, especially for financing housing (mortgage), remain the lowest in Europe in spite of a recent trend upward since the end of the second quarter of 2017.
The channel of distribution are becoming more and more complex with an increasing number of players that makes it hard to control all the commercial documents issued, especially as the ACPR has a limited budget and recently a control official13mentioned:“We will make sure that the existing regulations are fully complied with in terms of the duties of advice, information and warning. We are also keeping a constant watch on all advertising practices and on the intro- duction of new products, while keeping abreast with an ever changing and growing regulation.”
Notes
1. “systèmes multilatéraux de négociation”—SMN.
2. Source European Insurance—Key Facts—August 2016.
3. For more information go to https://www.aviva-partenaires.com/Document/
fonctionnalites/MEMENTO_JURIDIQUE_ET_FISCAL/ppriv.f.02.03.htm.
4. Also called Mutual without intermediary or MSI.
5. The French Consumption code also defines:
• Non-professional: all legal person acting for purposes that are not in the scope of commercial, industrial, craft, liberal, or agricultural activity;
• Professional: any physical or legal person, private or public, acting for purposes within the scope of commercial, industrial, craft, liberal, or agri- cultural activities, even when he/she is acting on behalf of another professional.
6. See July 1, 2017consolidted version—https://www.legifrance.gouv.fr/affichCode.
do?cidTexte=LEGITEXT000006072026.
7. See further: Consumer protection in the EU http://www.europarl.europa.eu/
RegData/etudes/IDAN/2015/565904/EPRS_IDA(2015)565904_EN.pdf.
8. The GEMA representing the Mutual Insurers has now merged with the FFSA.
9. http://www.legislation.gov.uk/ukpga/2015/4/contents/enacted.
10. Code des Assurances et Code de la consommation.
11. On 4 May 2016, the official texts of the Regulation and the Directive have been published in the EU Official Journal in all the official languages. While the Regulation will enter into force on 24 May 2016, it shall apply from25 May 2018. The Directive enters into force on 5 May 2016 and EU Member States have to transpose it into their national law by6 May 2018.
12. MiFID—Investment services and regulated markets—Markets in financial instruments directive—is the EU laws aimed at makingfinancial markets more efficient, resilient and transparent, and at strengthening the protection of investors.
13. Fabrice Pesin then Deputy Secretary-General of the ACPR at Patrimonia 2014;
he is now National Credit Mediator.
14. 1 Euro = 655 CFA.
15. CIMA—Conférence Interafricaine des Marchés d’Assurance.
16. Conférence Internationale des Contrôles d’Assurances.
17. Benin, Burkina-Faso, Cameroon, Center-African Republic, Congo - Brazzaville, Ivory Coast, Gabon, Mali, Niger, Senegal, Chad, Togo, Madagascar and France.
18. BENIN, BURKINA, CAMEROON, CENTER-AFRICAN REPUBLIC, COMORES, CONGO, IVORY COAST, GABON, EQUATORIAL GUNIEA, MALI, NIGER, SENEGAL, TCHAD, TOGO.