Although the implementation of the Insurance Distribution Directive (“IDD”), after a postponement, was finally due to be complied with on 1 October, the IDD transposition in certain EU countries, including Bulgaria, has been further delayed. The Bulgarian transposition law, in the form of amendments to the current Insurance Code, was published on 7 December 2018 and become effective same day, at least on paper. In practice, though the IDD has been well known to the insurance industry and discussed on various forums earlier this year, it is doubtful all players will immediately get in line with the new requirements.
Following the typical for Bulgaria approach of transposing EU directives, Bulgarian lawmakers have maximally kept close to the original IDD language. However, as the IDD contains a number of national discretions and, therefore, its implementation varies among the member states, it may be of interest to summarize how Bulgaria has responded to some of the IDD derogations.
Professional arrangements. Under the IDD, distributors and their employees are required to possess appropriate knowledge and ability in order to complete their tasks and perform their duties adequately. They must also comply with continuing professional training and development requirements. Bulgaria has availed of derogations to these requirements so that these to apply only to distributors’ employees who are directly involved in distribution activities.
Protection of clients’ monies. The IDD aims to, among others, to protect customers against the inability of an intermediary to transfer premiums to an insurance undertaking or to transfer claims’ amounts or return premia to an insured, and in this line lists specific measures. While member states are required to adopt at least one measure, Bulgaria has implemented three of all four measures provided by the IDD. First, monies paid by the customer to the intermediary are treated by law as having been paid to the insurer, whereas monies paid by the insurer to the intermediary are not treated as having been paid to the customer until the customer actually receives them. Secondly, intermediaries may decide to transfer customer’s monies via strictly segregated customer accounts (such accounts not used to reimburse other creditors in the event of bankruptcy) or, alternatively, to maintain permanently financial capacity amounting to 4% of the sum of annual premiums received, but not less than BGN 40,000 (approximately, EUR 20,400). Also, the Bulgarian Parliament has decided to further gold-plate the clients’ money protection rules by introducing payment deadlines for intermediaries and, in certain cases, requirement for notary authorization of intermediaries by their clients.
IBIPs-related derogations. In relation to distribution of insurance-based investment products (“IBIPs”) article 29 of the IDD requires information to be provided to the customer regarding IBIPs and with regard to all costs and related charges and article 30 provides for assessments of suitability and appropriateness and reporting to customers. Bulgarian lawmakers have decided to avail of the derogation which would permit Bulgaria to disapply articles 29 and 30 to professional investors under the meaning of MIFID 2.
Bulgaria has decided not to avail the discretion to make the provision of advice mandatory for the sales of IBIPs. In addition, the lawmakers have decided to avail of a derogation which permits Bulgaria to allow execution only sales (i.e. no advice and without an appropriateness assessment) in relation to IBIPs in limited circumstances.
Finally, the Bulgarian parliament refrained from the possibility to additionally limit or prohibit the acceptance or receipt of third-party inducements in relation to the provision of advice for IBIPs.
Cross-selling. The IDD sets out a number of requirements applicable to cross-selling, e.g. where an insurance product is offered together with an ancillary product or service which is not insurance, as part of a package of the same agreement. Member states have the option of maintaining or adopting stricter measures on cross-selling. In this line the Bulgarian Parliament has exercised this discretion by granting to the Financial Supervision Commission the power to intervene on a case-by-case basis to ban such cross-selling when the regulator can demonstrate that it is detrimental to consumers.
Penalties. Article 31 allows member states to provide for criminal sanctions for breach of the IDD, in addition to administrative sanctions. The Bulgarian parliament has not availed of this discretion.