Germany remains an attractive market for financial service providers.
Harmonisation at a European level and the opportunities European passporting offers facilitates writing business at a pan-European level. Indeed, according to current figures of the German regulator (BaFin), more than 900 foreign insurers are active in Germany, including Maltese carriers.
At the same time, compliance with German domestic laws and the knowledge of the application of European regulations by the German authorities and courts remain crucial for the success in a business as highly regulated as the financial service industry.
Niche carriers will not have the resources to establish a German-based subsidiary and will therefore opt to write their business using intermediaries or offer their products online. Indeed, the large majority of foreign insurers in the German market use the advantages of freedom of services. This is the case for both life and non-life business. German insurance supervisory law distinguishes between the regulation of insurers and intermediaries.
Whereas insurers fall under the centralised supervision by the Bundeanstalt für Finanzdienstleistungsaufsicht (BaFin), the regulatory regime for intermediaries is rather patchy. It is left to the Chamber of Commerce (Handelskammer) to supervise the intermediaries in their area. In consequence, 80 different Chambers have such supervisory powers. At the same time, BaFin has only (limited) indirect regulatory powers in respect of intermediaries, as insurers are obliged to use compliant intermediaries.
Insurers doing business in Germany through intermediaries have to be licensed. This is not the case where insurance is exclusively offered online or via introducers.
Against this background, a carrier should decide at an early stage on its distribution strategy, as such choice will impact on the pertaining regulatory regime and hence the respective costs. Key to determine the regulatory regime is the role of the respective person or entity promoting the Maltese carrier in the underwriting process.
The pertaining German case law may be of interest in this regard. In various instances, German courts had to decide in the past whether supermarket chains or internet-platforms were to be qualified as intermediaries requiring a respective licence or as mere introducers. In all these decisions, the court required a licence as intermediary. The courts argued that in light of the pertaining European legislation on insurance mediation, minimum standards on the mediation services and its insurance had to be fulfilled in cases where the services were aimed at the conclusion of a particular insurance contract.
It remains still with the Bundesgerichtshof (BGH) as the court of last instance to further clarify the legal regime. In all the above mentioned cases, the courts decided under notions of competition law.
Indeed, the role of competition law cannot be underestimated. Financial service providers actively promoting their products online have to ensure compliance with the pertaining regime due to their visibility. For the insurance industry, the relevant German associations have developed a code of conduct indicating what distribution methods are considered to violate competition law (Wettbewerbsrichtlinien der Versicherungswirtschaft).
Although said rules are not legally binding as such, they are indicative to what the relevant public considers to be in line with the pertaining competition rules. For example, said rules prohibit insurers from promoting the existence of a regulation of its activities as a specific feature (implying quality and safety of the carrier).
Under Art. 6 (1) of the Rome-II-Regulation, it is for the law of the country where competitive relations or the collective interests of the consumers are, or are likely to be, affected. A Maltese registered financial service provider has to consider said rules, once it targets the German market. Whether this is the case has to be determined on a case-by-case-basis. In both German (and European) case law various factors in this regard have been developed, such as language, the country code of the top level domain used or the indication of (German) telephone numbers.
Moreover, German case law suggests that a financial service provider may be in breach of (German) competition law when it violates information obligations in the legal notices of its website (Impressum), for example on its seat, its legal form, or the competent regulator.
In the interest of consumer protection, it is held that an insurer has to abide to said rules once it aims at the German market although European law recognises the Home Country Control. In most cases, a Maltese carrier will already comply with said information obligations, as they correspond by and large to respective information obligations under Directive 2002/65/EC of the European Parliament and of the Council of September 23 , 2002, concerning the distance marketing of consumer financial services.
Having said that, it may be noteworthy that German courts have ruled that commercial Facebook users have to provide a legal notice (Impressum) in their accounts.
christian.pisani@pisani-partner.de
Christian Pisani is a lawyer based in Munich. He advises Malta-based financial service providers on their activities in Germany.