European regulation of cross-border financial services

Le leasing has become an essential financing tool in the European single market. Its cross-border dimension raises complex legal issues. This article analyses the regulatory framework for financial institutions operating across national borders.

Freedom to provide services in the European Banking Directive

The Second Banking Directive (89/646/EC of 15 December 1989) is the founding text for cross-border financial services. It harmonises the conditions of access to the business of credit institutions, but not the conditions under which they operate.

This text introduces the principle of the "European passport", enabling financial institutions authorised in one Member State to operate throughout the Union. This freedom is exercised either through the establishment of a branch or through the direct provision of services.

Leasing companies benefit from this framework, provided that they qualify as credit institutions under the criteria set out in the directive.

1997 Commission interpretative communication

The Commission Communication (97/C 209/04) of 10 July 1997 clarified the scope of this freedom to provide services. It clarifies the following points:

• The criterion for determining cross-border provision is the "characteristic provision" of the service
• Advertising and remote offers are exempt from prior notification
• An establishment may operate simultaneously as a branch and under the freedom to provide services in the same territory.

This communication states that:

" The host country may not exercise control to verify compliance, by a credit institution intending to operate in its territory as an LPS or through a branch, with the harmonised conditions under which the single licence was granted. "(JurisClasseur Droit bancaire et financier, Fasc. 643)

Notification procedures and competences of the host country

The exercise of freedom to provide services requires prior notification to the supervisory authorities of the country of origin. This notification is not required for:

• Simple advertising
• Remote service offerings
• Canvassing

Failure to notify does not invalidate the contracts entered into, but exposes the establishment to administrative penalties.

The division of responsibilities between home and host countries follows a precise logic:

• Home state supervises authorisation and prudential supervision
• The host country may impose certain rules in the general interest

Notion of general interest and proportionate restrictions

The restrictions imposed by the host country must meet strict conditions in order to be legitimate. An establishment may challenge their application if it considers that they are unlawful:

• Subject to Community harmonisation
• Discriminatory
• Not in the overriding public interest
• Duplicate the rules of the country of origin
• Are disproportionate to the objective pursued

Proportionality is assessed according to:

• The nature of the service
• The level of sophistication of the recipient
• Whether the activity is temporary or permanent

Community law takes precedence over national rules derived from the conflict rules of the Rome Convention.

Directive on electronic commerce and financial services

Directive 2000/31/EC of 8 June 2000 on electronic commerce supplements these provisions. It applies to leasing transactions carried out by electronic means.

This directive enshrines the application of the law of origin to services provided by the service provider. The host State may not restrict the free movement of information society services originating in another Member State.

There are exceptions, in particular for:

• Contractual obligations in consumer contracts
• Contracts creating rights in immovable property
• Security agreements provided by non-professionals

The directive provides for a notification procedure for states wishing to take restrictive measures in the name of consumer protection.

Electronic contracts: legal framework

Article 9 of the e-commerce directive requires Member States to make it possible to conclude contracts electronically. This obligation has transformed the European legal landscape.

The service provider must supply before the order is placed:

• The technical steps involved in concluding the contract
• Archiving the contract
• The means to correct errors
• Languages on offer
• Applicable codes of conduct

These obligations do not apply to e-mail exchanges.

The service provider must also:

• Acknowledge receipt of the order without delay
• Provide means of correcting errors

Implications for financial institutions

Cross-border leasing operators have to deal with several legal frameworks:

1. A prior legal analysis of target marketsIn particular, it takes into account the distinctions between financial and operational leasing;
2. The Banking Directive for conditions of access to the business
3. National rules for the content of contracts
4. The e-commerce directive for online transactions

This legal landscape is also complemented by international instruments, such as the 1988 Ottawa Convention on International Financial Leasingwhich provides a minimum framework for cross-border transactions.

This complexity demands:

• Tailoring contracts to distribution channels
• Ongoing regulatory monitoring, particularly with regard to the impact of the euro on leasing contracts ;
• Expertise on local rules of general interest

Harmonisation remains incomplete. The directive on distance marketing of financial services (in the process of being adopted in 2001) should fill certain gaps, particularly for transactions with private individuals.

Establishments must remain vigilant in the face of this legal patchwork. Specialised legal support can identify the specific constraints of each market and adapt processes accordingly. Our firm offers focused expertise on these cross-border leasing issues.

Sources

• Directive 89/646/EC of 15 December 1989 (OJEC No. L 386, 30 December 1989)
• Commission interpretative communication 97/C 209/04 of 10 July 1997
• Directive 2000/31/EC of 8 June 2000 (OJEC No. L 178, 17 July 2000)
• JurisClasseur Droit bancaire et financier, Fasc. 643: MOBILE LEASING - International leasing and leasing in Europe
• Rome Convention on the law applicable to contractual obligations