OPINION OF ADVOCATE GENERAL
CAMPOS SÁNCHEZ-BORDONA
delivered on 21 November 2017 (1)
Case C‑542/16
Länsförsäkringar Sak Försäkringsaktiebolag,
Jan-Herik Strobel,
Mona Strobel,
Margareta Nilsson,
Per Nilsson,
Kent Danås,
Dödsboet efter Tommy Jönsson,
Stefan Pramryd,
Stefan Ingemansson,
Lars Persson,
Magnus Persson,
Anne-Charlotte Wickström,
Peter Nilsson,
Ingela Landau,
Thomas Landau,
Britt-Inger Ruth Romare,
Gertrud Andersson,
Eva Andersson,
Rolf Andersson,
Lisa Bergström,
Bo Sörensson,
Christina Sörensson,
Kaj Wirenkook,
Lena Bergquist Johansson,
Agneta Danås,
Hans Eriksson,
Christina Forsberg,
Christina Danielsson,
Per-Olof Danielsson,
Ann-Christin Jönsson,
Åke Jönsson,
Stefan Lindgren,
Daniel Röme,
Ulla Nilsson,
Dödsboet efter Leif Göran Erik Nilsson
v
Dödsboet efter Ingvar Mattsson,
Länsförsäkringar Sak Försäkringsaktiebolag
(Request for a preliminary ruling from the Högsta domstolen (Supreme Court, Sweden))
(Directive 2002/92/EC — Insurance and reinsurance mediation — Directive 2004/39/EC — Investment advice — Activity of an insurance intermediary who has no intention of actually concluding an insurance contract — Delimitation between insurance mediation activities and investment advice — Mediation and advice in relation to capital life assurance — Unit-linked life assurance)
1. In this request for a preliminary ruling, the Högsta domstolen (Supreme Court, Sweden) groups together the doubts it entertains as to the application of the provisions of EU law in two cases with differing features, on which it is required to give judgment. Although both concern insurance mediation, in one (2) the issue is solely the civil liability attributable when the director of an insurance mediation undertaking misappropriates the sums transferred to him by his clients.
2. The other case (3) is more complex. The issues addressed in that case concern the difference between insurance mediation and mediation in the field of financial products.
3. The ceaseless development of financial markets has led to a significant increase in investment instruments, which now encompass traditional life assurance. Insurance companies offer a wide variety of models (including, inter alia, savings insurance, life and savings insurance, capital life assurance and unit-linked life assurance) (4) which seek to channel clients’ savings, combining the traditional insurance element with the more or less guaranteed return on the financial products. With such models, the premiums paid by the policyholder are invested by the insurance company in financial instruments, and the policyholder bears the risk associated with the development of that investment, which may, obviously, rebound on him.
4. In replying to the questions referred for a preliminary ruling in relation to this second case, the Court must decide whether intermediaries selling insurance with those features are subject to the legislation applicable to insurance mediation, or whether the financial component and the increased risk, or even volatility, of that kind of product means that such activity must instead be treated as investment mediation.
5. The legal arrangements for the two types of mediation are different, and are governed by different directives, which have recently undergone amendments which will be applicable only with effect from 2018. However, the judgment of the Court in these proceedings may be helpful for the purpose of interpreting the provisions which, now and from 2018, concern insurance-based investment products.
I. Legal framework
A. EU law
6. Insurance mediation is governed by Directive 2002/92/EC, (5) as amended and recast by Directive (EU) 2016/97. (6)
7. Investment advice is an activity subject to Directive 2004/39/EC, (7) repealed by Directive 2014/65/EU. (8)
1. Directive 2002/92
8. Recitals 8, 9, 14 and 17 state:
‘(8) The coordination of national provisions on professional requirements and registration of persons taking up and pursuing the activity of insurance mediation can therefore contribute both to the completion of the single market for financial services and to the enhancement of customer protection in this field.
(9) Various types of persons or institutions, such as agents, brokers and “bancassurance” operators, can distribute insurance products. Equality of treatment between operators and customer protection requires that all these persons or institutions be covered by this Directive.
…
(14) Insurance and reinsurance intermediaries should be registered with the competent authority of the Member State where they have their residence or their head office, provided that they meet strict professional requirements in relation to their competence, good repute, professional indemnity cover and financial capacity.
…
(17) Cooperation and exchange of information between competent authorities are essential in order to protect customers and ensure the soundness of insurance and reinsurance business in the single market.’
9. Article 1(1), concerning the scope of the directive, provides:
‘This Directive lays down rules for the taking-up and pursuit of the activities of insurance and reinsurance mediation by natural and legal persons which are established in a Member State or which wish to become established there.’
10. According to Article 2(3):
‘For the purposes of this Directive:
…
(3) “insurance mediation” means the activities of introducing, proposing or carrying out other work preparatory to the conclusion of contracts of insurance, or of concluding such contracts, or of assisting in the administration and performance of such contracts, in particular in the event of a claim.
These activities when undertaken by an insurance undertaking or an employee of an insurance undertaking who is acting under the responsibility of the insurance undertaking shall not be considered as insurance mediation.
The provision of information on an incidental basis in the context of another professional activity provided that the purpose of that activity is not to assist the customer in concluding or performing an insurance contract, the management of claims of an insurance undertaking on a professional basis, and loss adjusting and expert appraisal of claims shall also not be considered as insurance mediation.’
11. Pursuant to Article 4(3) and (4):
‘3. Insurance and reinsurance intermediaries shall hold professional indemnity insurance covering the whole territory of the Community or some other comparable guarantee against liability arising from professional negligence, for at least EUR 1 000 000 applying to each claim and in aggregate EUR 1 500 000 per year for all claims, unless such insurance or comparable guarantee is already provided by an insurance undertaking, reinsurance undertaking or other undertaking on whose behalf the insurance or reinsurance intermediary is acting or for which the insurance or reinsurance intermediary is empowered to act or such undertaking has taken on full responsibility for the intermediary’s actions.
4. Member States shall take all necessary measures to protect customers against the inability of the insurance intermediary to transfer the premium to the insurance undertaking or to transfer the amount of claim or return premium to the insured.’
12. In accordance with Article 12(2) and (3):
‘2. When the insurance intermediary informs the customer that he gives his advice on the basis of a fair analysis, he is obliged to give that advice on the basis of an analysis of a sufficiently large number of insurance contracts available on the market, to enable him to make a recommendation, in accordance with professional criteria, regarding which insurance contract would be adequate to meet the customer’s needs.
3. Prior to the conclusion of any specific contract, the insurance intermediary shall at least specify, in particular on the basis of information provided by the customer, the demands and the needs of that customer as well as the underlying reasons for any advice given to the customer on a given insurance product. These details shall be modulated according to the complexity of the insurance contract being proposed.’
2. Regulation (EU) No 1286/2014 (9)
13. According to Article 1, the regulation lays down ‘uniform rules on the format and content of the key information document to be drawn up by PRIIP manufacturers and on the provision of the key information document to retail investors in order to enable retail investors to understand and compare the key features and risks of the PRIIP.
14. Article 4(2) of this regulation defines ‘insurance-based investment product’ as ‘an insurance product which offers a maturity or surrender value and where that maturity or surrender value is wholly or partially exposed, directly or indirectly, to market fluctuations’.
3. Directive 2016/97
15. Recital 56 is worded as follows:
‘Insurance-based investment products are often made available to customers as potential alternatives or substitutes to investment products subject to Directive [2014/65]. To deliver consistent investor protection and avoid the risk of regulatory arbitrage, it is important that insurance-based investment products are subject, in addition to the conduct of business standards defined for all insurance products, to specific standards aimed at addressing the investment element embedded in those products. Such specific standards should include provision of appropriate information, requirements for advice to be suitable and restrictions on remuneration.’
16. Article 2(1)(1) and (17) contains the following definitions:
‘(1) “insurance distribution” means the activities of advising on, proposing, or carrying out other work preparatory to the conclusion of contracts of insurance, of concluding such contracts, or of assisting in the administration and performance of such contracts, in particular in the event of a claim, including the provision of information concerning one or more insurance contracts in accordance with criteria selected by customers through a website or other media and the compilation of an insurance product ranking list, including price and product comparison, or a discount on the price of an insurance contract, when the customer is able to directly or indirectly conclude an insurance contract using a website or other media;
…
(17) “insurance-based investment product” means an insurance product which offers a maturity or surrender value and where that maturity or surrender value is wholly or partially exposed, directly or indirectly, to market fluctuations …’.
4. The MiFID I
17. Article 1(1) reads:
‘This Directive shall apply to investment firms and regulated markets.’
18. Article 2(1) provides:
‘This Directive shall not apply to:
(a) insurance undertakings as defined in Article 1 of Directive 73/239/EEC or assurance undertakings as defined in Article 1 of Directive 2002/83/EC or undertakings carrying on the reinsurance and retrocession activities referred to in Directive 64/225/EEC;
…
(c) persons providing an investment service where that service is provided in an incidental manner in the course of a professional activity and that activity is regulated by legal or regulatory provisions or a code of ethics governing the profession which do not exclude the provision of that service;
…
(j) persons providing investment advice in the course of providing another professional activity not covered by this Directive provided that the provision of such advice is not specifically remunerated;
…’
19. These definitions are set out in Article 4(1):
‘(1) “Investment firm” means any legal person whose regular occupation or business is the provision of one or more investment services to third parties and/or the performance of one or more investment activities on a professional basis;
…
(2) “Investment services and activities” means any of the services and activities listed in Section A of Annex I relating to any of the instruments listed in Section C of Annex I;
…
(4) “Investment advice” means the provision of personal recommendations to a client, either upon its request or at the initiative of the investment firm, in respect of one or more transactions relating to financial instruments.’
5. The MiFID II
20. Recital 87 states:
‘Investments that involve contracts of insurance are often made available to customers as potential alternatives or substitutes to financial instruments subject to this Directive. To deliver consistent protection for retail clients and ensure a level playing field between similar products, it is important that insurance-based investment products are subject to appropriate requirements. Whereas the investor protection requirements in this Directive should therefore be applied equally to those investments packaged under insurance contracts, their different market structures and product characteristics make it more appropriate that detailed requirements are set out in the ongoing review of Directive [2002/92] rather than setting them in this Directive. Future Union law regulating the activities of insurance intermediaries and insurance undertakings should thus appropriately ensure a consistent regulatory approach concerning the distribution of different financial products which satisfy similar investor needs and therefore raise comparable investor protection challenges. The European Supervisory Authority (European Investment and Occupational Pensions Authority) (‘EIOPA’), established by Regulation (EU) No 1094/2010 of the European Parliament and of the Council and ESMA should work together to achieve as much consistency as possible in the conduct of business standards for those investment products. Those new requirements for insurance-based investment products should be laid down in Directive [2002/92].’
21. Article 91 of the MiFID II contains the amendments to Directive 2002/92. The second paragraph of Article 2(3) of the latter directive is replaced by the following:
‘With the exception of Chapter III A of this Directive, those activities, when undertaken by an insurance undertaking or an employee of an insurance undertaking who is acting under the responsibility of the insurance undertaking shall not be considered to be insurance mediation or insurance distribution.’
22. A point 13 is added to Article 2 of Directive 2002/92, which defines ‘insurance-based investment product’ as ‘an insurance product which offers a maturity or surrender value and where that maturity or surrender value is wholly or partially exposed, directly or indirectly, to market fluctuations’, subject to certain exceptions.
23. The MiFID II also inserted into Directive 2002/92 a Chapter IIIA, concerning ‘Additional customer protection requirements in relation to insurance-Based investment products’. Pursuant to Article 13a of that chapter, entitled ‘Scope’:
‘Subject to the exception in the second subparagraph of Article 2(3), this Chapter lays down additional requirements on insurance mediation activities and to direct sales carried out by insurance undertakings when they are carried out in relation to the sale of insurance-based investment products. Those activities shall be referred to as insurance distribution activities.’
B. Swedish law
24. The Lagen (2005:405) om försäkringsförmedling (Law (2005:405) on Insurance Mediation) transposed Directive 2002/92 into Swedish law.
25. Under Chapter 1, Paragraph 1, subparagraph 2, of that Law, insurance mediation is defined as a professional activity consisting of (1) introducing or proposing insurance contracts or carrying out other work preparatory to the conclusion of insurance contracts, (2) concluding insurance contracts on behalf of third parties, or (3) assisting in the administration and performance of insurance contracts. (10)
26. Under Chapter 2, Paragraph 1, insurance mediation, with certain exceptions not relevant here, may be carried out only after authorisation from the Finansinspektionen (Swedish Financial Supervisory Authority).
27. One of the requirements for obtaining that authorisation is that there must be professional indemnity insurance in place, covering any obligation to pay compensation which may be imposed on an insurance intermediary in the event that he fails to fulfil his obligations (Chapter 2, Paragraph 5(4) and Paragraph 6(2), of Law 2005:405).
28. Chapter 5 contains rules on the conduct of insurance mediation activity. In particular, it states (Paragraph 4) that an insurance intermediary is, in his work, to follow best practice in insurance mediation and to exercise due care in acting in the interests of his clients. It further states that the insurance intermediary is to adapt his advice to the client’s wishes and needs and to recommend suitable solutions to the client. The intermediary must also dissuade clients (where these are natural persons and have mainly non-commercial purposes) from taking out products which cannot be regarded as suitable for their needs, economic situation or other circumstances.
29. Under Chapter 5, Paragraph 7, an insurance intermediary who deliberately or negligently fails to fulfil his obligations under Paragraph 4 thereof must make good any purely financial harm facing, inter alia, a client, arising as a result of that failure.
II. Proceedings before the national courts
30. In the two sets of proceedings that the referring court is hearing and determining, the persons concerned claim compensation from Länsförsäkringar Sak Försäkringsaktiebolag (‘Länsförsäkringar’), a company with which certain insurance intermediaries in Sweden had taken out professional indemnity insurance policies.
1. Case T 2761-15, Länsförsäkringar v Dödsboet efter Ingvar Mattsson
31. As part of capital life assurance, Ingvar Mattsson invested SEK 500 000 in an investment certificate, which was a structured financial instrument). He made that transaction in January 2010 on the advice of an employee of European Wealth Management Group AB (‘EWMG’), which was a registered insurance mediation undertaking.
32. Mr Mattsson lost the whole amount invested and brought a claim against EWMG, which subsequently went into liquidation. EWMG had taken out professional indemnity insurance with Länsförsäkringar, as required under Law 2005:405, which covered his activities and included the obligation to pay compensation provided for in Chapter 5, Paragraph 7, thereof.
33. Mr Mattsson brought an action against Länsförsäkringar, claiming from it payment of SEK 500 000 plus interest. He argued that EWMG had, deliberately or negligently, (11) failed to fulfil its obligations under Chapter 5, Paragraph 4, of Law 2005:405 and that therefore the insurer was liable to pay compensation, because that failure constituted an act giving rise to a claim covered by the professional indemnity insurance which EWMG held with Länsförsäkringar.
34. Länsförsäkringar accepted that the mediation of the capital life assurance fell within the scope of Law 2005:405 and was therefore covered by the professional indemnity insurance. However, it submitted, principally, that EWMG’s advice did not concern the capital life assurance but the investment in the financial instrument embedded in the capital assurance. Thus, there was no insurance mediation but rather advice on investment in financial instruments, which falls within the scope of other provisions. (12)
35. Länsförsäkringar submitted that it was the financial advice and not the mediation of the capital assurance which caused the harm. Alternatively, it argued that EWMG had not acted negligently.
36. The court of first instance upheld the action. It found that the advice at issue in the proceedings was covered by both Law 2005:405 and the Law on the securities market. However, it also found, referring to, inter alia, certain statements of the European Commission, that the aim was not that those provisions should be cross-applicable. Having regard to consumer protection considerations and the fact that the Financial Supervisory Authority did not appear to have required EWMG to hold any particular authorisation for the pursuit of financial activities, the court of first instance considered that Mr Mattsson was entitled to rely on the fact that the professional indemnity insurance was applicable.
37. Länsförsäkringar lodged an appeal with the court of appeal, which confirmed the judgment of the lower court. Länsförsäkringar has appealed against that judgment before the Högsta domstolen (Supreme Court). It insists that the advice provided by EWMG did not constitute insurance mediation and that it is not, therefore, covered by the professional indemnity insurance. However, it now accepts that EWMG acted negligently.
38. Mr Mattsson has died and his estate contends that the judgment of the court of appeal should not be overturned.
2. Case T 25-16, Jan-Erik Strobel and Others v Länsförsäkringar
39. The insurance mediation undertaking Connecta Fond och Försäkring AB (‘Connecta’), which was active principally between 2004 and 2010, had held, with Länsförsäkringar, professional indemnity insurance as required under Law 2005:405, which covered its activity and included the obligation to pay compensation under Chapter 5, Paragraph 7, thereof.
40. A certain number of persons transferred, over several years, sums of money to Connecta in order to have those sums invested in what was called ‘Connecta’s corporate bond product’, to be placed in capital life assurance. In return, those persons received certain documents issued by Connecta and its employee, later managing director, Per Rytterborg. During the period 2004 to 2010, Connecta had also carried out true insurance mediation activity.
41. It later became apparent that Mr Rytterborg had misappropriated the amounts transferred by the clients. He was reported to the police and Connecta’s licence was withdrawn. Mr Rytterborg died in November 2010. Insolvency proceedings were opened against his estate and Connecta in December 2010.
42. A group of investors brought an action against Länsförsäkringar, claiming compensation under Connecta’s professional indemnity insurance for damages corresponding to the amounts they had transferred to the latter company so that, in their submission, it could invest those amounts in capital life assurance.
43. The claimants argued that there was insurance mediation and that Connecta had incurred liability, in accordance with Chapter 5, Paragraph 7, of Law 2005:405, on account of Mr Rytterborg’s conduct. Therefore, Connecta’s insurer had to cover payment of the compensation due.
44. Länsförsäkringar argued, inter alia, that the harm had not arisen as a result of the insured activity, because fictive products were involved. Therefore, Mr Rytterborg’s conduct did not constitute insurance mediation and, consequently, was not covered by Law 2005:4005 and so it was not covered by the professional indemnity insurance either.
45. The court of first instance held that the damage was covered by the professional indemnity insurance and, therefore, it essentially upheld the action. That court found that the applicants had intended to take out capital life assurance and that, owing to Mr Rytterborg’s conduct towards them, had reason to believe that there had been mediation of real insurance contracts. From a consumer-protection perspective, the well-founded understanding which the applicants had of Mr Rytterborg’s intentions strongly suggests that it was insurance mediation.
46. Having regard to the fact that the expression ‘insurance mediation’ includes preparatory work and that Connecta had also carried out real insurance mediation activity, the court of first instance held that the facts as they occurred were covered by the term ‘mediation’ on objective grounds.
47. However, the court of appeal found that the conduct at issue did not constitute insurance mediation and it therefore quashed the first-instance judgment and dismissed the action. The fact that the consumer-protection interest must be taken into account in the interpretation of the provisions did not mean that the consumer’s subjective understanding of what insurance mediation is should be given any weight. Looked at objectively — regardless of the consumer’s opinion — there was no insurance mediation. Accordingly, the claim brought was not covered by the professional indemnity insurance.
48. The injured parties appealed in cassation to the Högsta domstolen (Supreme Court). They continue to argue that what happened constitutes an insured event covered by the professional indemnity insurance. They submit, inter alia, that Mr Rytterborg’s conduct constituted insurance mediation, because it was closely connected to the proper, licensed activity carried out by Connecta.
III. The questions referred for a preliminary ruling
49. In the light of the legal disagreement in the two sets of proceedings, the Högsta domstolen (Supreme Court) seeks a ruling from the Court on the following questions:
‘T 25-16
1(a) Does Directive 2002/92 cover activity where an insurance intermediary had no intention of concluding an actual insurance contract? Is it relevant whether such an intention was absent before the activity was commenced or came into being only subsequently?
1(b) In the situation envisaged in question 1(a), is it relevant if the intermediary has also carried out proper insurance mediation activity alongside the fictive activity?
1(c) Also in the situation envisaged in question 1(a), is it relevant that the activity appeared, prima facie, to the client to be work preparatory to the conclusion of an insurance contract? Is the client’s understanding, be it well founded or unfounded, of whether insurance mediation was involved of any relevance?
T 2761-15
2(a) Does Directive 2002/92 govern advice, economic or other, given in connection with insurance mediation but which as such does not concern the actual signing or continuation of an insurance contract? In that regard, what does apply, in particular, as regards advice concerning the placing of capital in the context of capital assurance?
2(b) Is advice such as that referred to in question 2(a), where, by definition, it constitutes investment advice under Directive 2004/39, also or instead covered by the provisions of that directive? If such advice is also covered by Directive 2004/39, does one set of rules take precedence over the other?’
50. Four groups of applicants submitted written observations solely on Strobel and Others v Länsförsäkringar, whilst Länsförsäkringar, the Swedish Government, the Czech Government and the Commission submitted written observations on both cases.
51. The hearing was held on 14 September 2017 and oral argument was presented by Länsförsäkringar, the Swedish Government, the Czech Government and the Commission.
IV. Analysis of the questions referred for a preliminary ruling
52. The questions submitted by the referring court can be summarised as two problems relating to the interpretation of Article 2(3) of Directive 2002/92, completely distinct and differing in terms of their difficulty. The first can be answered briefly whereas the second calls for a more detailed analysis, given its complexity.
A. First question: application of Directive 2002/92 to mediation of insurance contracts performed with fraudulent intent
53. By the questions submitted in Case T 25-16, the referring court seeks to ascertain whether the activity of insurance mediation, as defined in Article 2(3) of Directive 2002/92, includes the activities of an intermediary who, in providing his services to certain clients, involving preparatory work before the conclusion of insurance contracts with them, actually intended to deceive them and to misappropriate their money.
54. The referring court asks whether, for that purpose, the moment at which the insurance intermediary’s fraudulent intent came into being, the performance by the intermediary of lawful mediation with other clients, and the client’s perception of the fraudulent mediation are of any relevance.
55. Länsförsäkringar puts forward a subjective interpretation of the definition of insurance mediation laid down in Article 2(3) of Directive 2002/92: there is no mediation if the alleged mediator had no intention of concluding a genuine insurance contract. In its view, criminal activities with the appearance of insurance mediation do not come within that definition and compensation for losses incurred by the clients should be dealt with by applying the rules on civil liability derived from criminal offences, not the rules applicable to activities involving the provision of insurance services.
56. In the same vein, Länsförsäkringar submits that the time when the intermediary’s criminal intent came into being, whether this was at the beginning of his relationship with the client or later, during the work preparatory to the insurance contract, is irrelevant. Once the intention to defraud has arisen, that of concluding the insurance contract disappears and there is no longer a mediation activity covered by Directive 2002/92. It is also irrelevant whether the person committing the fraud carries out other lawful insurance mediation activities at the same time because it is not reasonable that these should render the fraudulent conduct lawful.
57. In contrast, the four groups of appellants in those proceedings, the Czech Government and the Commission put forward an objective interpretation of that term. In their submission, Directive 2002/92 covers any work preparatory to the conclusion of an insurance contract, irrespective of the intermediary’s subjective intention.
58. I concur with the latter argument, for I believe that an objective interpretation of the term ‘insurance mediation’ is appropriate. That assessment may not be based on the intentions or perceptions of natural persons acting in their capacity as employees or directors of an undertaking providing insurance mediation to the public. If those subjective factors were taken into account, the application of the provision would be unforeseeable, contrary to the requirements of the principle of legal certainty.
59. The first criterion of interpretation for establishing the definition of insurance mediation is the literal criterion. In accordance with Article 2(3) of Directive 2002/92, that term means ‘the activities of introducing, proposing or carrying out other work preparatory to the conclusion of contracts of insurance …’.
60. The definition places the emphasis on the activity, not on the subjective intentions of those performing that activity. It will be enough if an undertaking whose object is insurance mediation (and which has been licensed for that purpose by the administrative authorities) provides its professional services to clients for there to be a presumption that the undertaking operates in that capacity, and clients are entitled to expect that it will actually carry out work prior to the signature of an insurance contract. That work definitely includes activities preparatory to the conclusion of that contract (13)
61. As the referring court explains, all the indications are that Connecta portrayed itself as what it was: an insurance mediation undertaking, that was registered and had operated lawfully in Sweden since 2004. It was that undertaking that provided mediation services to clients, meaning that it is irrelevant that one or more of its employees (or even its managing director) (14) used the typical activities of mediation to devise and commit fraud to the detriment of its clients and appropriate their money.
62. Systematic interpretation of Directive 2002/92 leads to the same conclusion. Article 4(4) (‘Member States shall take all necessary measures to protect customers against the inability of the insurance intermediary to transfer the premium to the insurance undertaking’) includes in the definition of insurance mediation situations in which intermediaries do not transfer premiums to insurance undertakings, which is what occurs in cases of fraud like that of Connecta.
63. Teleological interpretation of Directive 2002/92 too forms the basis for an objective definition of the activity of insurance mediation. The aim of the harmonisation effected by that directive is to promote the protection of insurance consumers, as explicitly stated in recitals 7, 8 and 17. (15) A subjective interpretation of the concept of insurance mediation, which made it dependent on the intentions of the intermediary, would lead to a limitation of the guarantees which Directive 2002/92 lays down for the benefit of insurance consumers.
64. As the Commission has argued in its observations, if the activity of mediation depended on the intermediary’s intentions, it would lead to the paradoxical situation in which the intermediary could rely upon his fraudulent intentions in order to escape the scope of Directive 2002/92 and evade the responsibilities it imposes on him.
65. It will be enough, therefore, if the activities of the mediation undertaking are explained to clients in objective terms, with the appearance of being activities preparatory to the conclusion of an insurance contract. The intention of the employee (or director) of that undertaking who was involved in those activities is, I repeat, irrelevant, both if that person was genuinely seeking to act in accordance with his obligations and if he took advantage of the opportunity of defrauding the client. It is also irrelevant whether the employee’s concealed intentions existed from the start of his relationship with the client or came into being during the course of the preparatory work for the subsequent contract.
66. The liability of the mediation undertaking covers harm caused by its employees or directors, when the latter appear to third parties to be the responsibility of the undertaking and there is a connection between the unlawful act they commit and the usual activity of the undertaking. I believe that both criteria are satisfied in this case, for the appropriation of money attributed to the director misusing his powers was connected to the mediation activity of a person portraying himself to clients as a representative of the undertaking, to which, on that condition, those funds were transferred.
67. The interpretation of the term ‘insurance mediation’ that I propose also renders the client’s understanding irrelevant for the purposes of whether or not work preparatory to an insurance contract can be classified as mediation. This is also acknowledged by Länsförsäkringar, which argues that, otherwise, a complex, well-constructed fraud might be perceived by a consumer as genuine mediation, whereas a minor, less sophisticated fraud would not be regarded as such because the fraudulent intention is patently obvious. I find that argument logical but, to my mind, it is not consistent with the fact that that same company regards the intermediary’s intention as decisive when it comes to determining whether or not there is insurance mediation.
68. Accordingly, Article 2(3) of Directive 2002/92 covers the activities of an intermediary who carries out, on behalf of various clients, preparatory work with a view to the conclusion of insurance contracts, regardless of whether or not he does so with fraudulent intent and whatever the understanding which clients may have of his work. The liability which mediation undertakings may incur in the performance of such activities, where they commit professional misconduct, must be covered by their professional indemnity insurance.
B. Second question: is the mediation of capital life assurance insurance mediation or financial mediation?
69. In Case T 2761-15, Mr Mattsson took out capital life assurance, which combines life assurance with investment in a structured financial instrument, after receiving advice from EWMG.
70. In the light of those events (and subsequent events culminating in the loss of the sum invested), the referring court asks the Court of Justice to determine whether the advice given by EWMG must be construed as insurance mediation falling within the scope of Directive 2002/92 or whether, instead, it must be classified as investment advice covered by the MiFID I. The national court also refers to the possibility of the two directives being applied together.
71. Before proposing a reply to that complex question, I believe it necessary to make a preliminary observation and to examine the features of and the legislation applicable to capital life assurance.
1. Preliminary observation
72. It is for the referring court to categorise the advice provided in this case and to establish what, exactly, the nature of the contractual relationship between EWMG and Mr Mattsson was. That relationship could concern life assurance linked to an investment product or a simple financial instrument not connected to insurance. In the latter situation, EWMG would not have performed an insurance mediation activity but would instead have provided investment advice (for which purpose, according to the case file, it did not have the required authorisation from the Financial Supervisory Authority).
73. The Swedish Government and Länsförsäkringar submit that Mr Mattsson purchased a complex financial product covered by life insurance and they therefore argue that the MiFID I is applicable. The Commission and the Czech Government, by contrast, submit that the contract in question was a life assurance contract with an investment component, governed by Directive 2002/92.
74. Some of the particulars provided by the referring court suggest that, through the mediation of EWMG, Mr Mattsson took out deposit life insurance, that is, a variant of the unit-linked insurance contracts or contracts linked to investment funds that are common in many Member States.
75. If that is the case, the type of contract at issue comes within the scope of insurance (and may, therefore, be the subject of insurance mediation). The Court has referred to such contracts, stating that ‘contracts that are “unit-linked” or “linked to investment funds” … fall within a class of life assurance, as is clear from Annex I, point III to the Life Assurance Directive, read in conjunction with Article 2(1)(a) of that directive’. (16) The contract examined in that judgment had features which made it similar to the contract now at issue. (17)
76. I shall, therefore, proceed on that basis, with the reservation that, as I have observed, the national court alone is in a position to rule, with full knowledge, on the nature of the contract at issue in the proceedings.
77. At this juncture, I must make an additional observation, in case it may be helpful to the referring court. The undertaking EMWG and the employee who advised Mr Mattsson were insurance intermediaries, licensed by the Swedish authorities to conduct only insurance business, not financial mediation. If what they advised Mr Mattsson to sign was actually a mere structured financial instrument, with the appearance of capital life assurance (that is if they really acted as financial intermediaries), they will have infringed, to the detriment of the client, the legislation restricting their work to the field of insurance. As a result of that serious professional misconduct, clients who have suffered losses would be entitled to seek damages for the losses caused. If the undertaking were unable to cover those losses (in this case, owing to the insolvency of EMWG), its compulsory professional indemnity insurance (18) would, in principle, be required to cover them.
2. The development of the legal rules applicable to unit-linked life assurance contracts in EU law
78. These contracts are a form of life assurance that has become widespread as a result of financial globalisation. They differ from traditional life assurance with regard to the assumption of the risk, which makes them much more ‘dangerous’ for consumers. (19)
79. With traditional life assurance, the insurer receives the premiums and invests them at its own risk, providing the policyholder with a minimum return, calculated technically. With unit-linked life assurance, however, the premium paid is invested by the insurer in securities or funds chosen by the policyholder himself, who bears the risk associated with their development (the return fluctuates as it depends on the value of the assets invested at the time the benefit is received).
80. It is essential that this kind of insurance involve a hybrid life-assurance-plus-investment product, because if it involves a financial investment alone it will not be a proper insurance contract. (20)
81. The widespread use of unit-linked life assurance may be due to, inter alia, the fact that it leads to more favourable tax treatment of investments (that appears to be the case in Sweden, according to information provided by the Swedish Government). In addition, there is the ever increasing involvement of banks in insurance activities and the search by insurance companies for better investment opportunities for the capital they receive.
82. In the case of life assurance linked to investment, the work of insurance intermediaries is very important for retail clients who lack specialist financial knowledge and may not be aware of the risks or costs they will bear if they take out such insurance. Owing to the negative consequences of cancellation and the higher cost of the products, unsuitable advice may mean that retail clients pay more commission and are tied into products that include a divestment penalty. (21)
83. The full force of those risks to consumers not having been felt until the outbreak of the 2008 financial crisis, Directive 2002/92 contained no specific provisions on mediation relating to the sale of complex life assurance products with an investment component. Capital life assurance was sold under the general provisions applicable to mediation relating to the sale of all insurance products, even though it represents a greater risk to non-professional policy holders. Special provisions on capital life assurance were not included in the MiFID I either.
84. However, the MiFID II, whose period for transposition into national legal systems expired on 3 July 2017 and which will take effect from 3 January 2018, has dealt specifically with contracts of insurance linked to investment. In particular, the provisions governing such contracts were drafted by reference to the amendment of Directive 2002/92, which was underway at that time.
85. Article 91 of the MiFID II has simply amended Directive 2002/92 to include, in point 13 of Article 2, the definition of ‘insurance-based investment product’ (22) and to add a new Chapter IIIA which lays down additional customer protection requirements with which mediation and activities relating to the direct sale (by insurance undertakings) of those products must comply. (23)
86. Following on from the MiFID II, Regulation 1286/2014 (24) defines ‘insurance-based investment product’ as ‘an insurance product which offers a maturity or surrender value and where that maturity or surrender value is wholly or partially exposed, directly or indirectly, to market fluctuations’. Capital life assurance contracts are caught by that definition and Article 2 provides for the application of the regulation to persons who manufacture, sell or advise on such contracts, including insurance intermediaries.
87. The final step in the regulation of capital insurance contracts was taken by Directive 2016/97, which recasts and repeals Directive 2002/92. Recital 56 (25) refers again to the task set out in the MiFID II and emphasises that insurance-based investment products (26) must be subject, in addition to the conduct of business standards defined for all insurance products, to ‘specific standards [relating to] provision of appropriate information, requirements for advice to be suitable and restrictions on remuneration.’
88. Directive 2016/97 lays down the additional conditions to be fulfilled by insurance intermediaries and insurance undertakings in relation to insurance-based investment products. Those conditions relate, inter alia, to the prevention and management of conflicts of interest (Articles 27 and 28); information to customers (Article 29); and ‘[a]ssessment of suitability and appropriateness and reporting to customers’ (Article 30).
89. That complex legislative history shows that the legislature wished to make the sale, via intermediaries, of capital insurance contracts subject to the provisions applicable to insurance distribution and insurance business.
90. That legislative choice was accompanied by the establishment of standards for the protection of consumers, similar, but not identical, to those which the MiFID II imposes on undertakings selling financial instruments. That is logical, for, in reality, they are hybrid contracts which combine life insurance with a financial product.
91. The alternative rejected by the EU legislature was, therefore, to make the transactions concerned subject to the same conditions as those imposed on undertakings carrying out financial mediation under the provisions of the MiFID II.
92. That argument also excludes the possibility of making the mediation of capital life assurance cumulatively subject to the provisions of Directive 2016/97 and to those of the MiFID II. No article of those directives provides for their joint application to that activity.
3. The reply to the question referred for a preliminary ruling
93. If the facts of the main proceedings had occurred in 2018, I conclude they would have been covered by Directive 2016/97 and the rules it contains on the mediation and distribution of insurance-based investment products, a category which, subject to the conditions referred to above, includes a contract like that concluded by Mr Mattsson. (27)
94. However, that contract was signed in 2010, wherefore the referring court asks the Court to clarify whether mediation aimed at the conclusion of a capital life assurance contract was at that time covered by Directive 2002/92 or the MiFID I, or whether both provisions were applicable to it.
95. I shall proceed on the basis (again, with the warning set out above) that, on account of its features, the object of the contract was unit-linked capital life assurance or a type of contract very similar to that. If that is the case, the mediation leading to the conclusion of that contract is covered by Directive 2002/92 alone, which precludes the application of the MiFID I.
96. Like all the parties, I believe that the joint application to an insurance intermediary of Directive 2002/92 and the MiFID I is impossible, because they are intended to govern different activities with different levels of risk. (28)
97. To my mind, the fact that insurance-based investment products are not covered by the MiFID II and are governed by Directive 2016/97 confirms that the — now explicit, previously implicit — choice made by the EU legislature was to make capital insurance intermediaries subject only to the legal arrangements laid down in the directives on insurance mediation. In that connection, it is necessary to reject the argument put forward by the Swedish Government at the hearing, to the effect that a capital life assurance contract actually entails two distinct types of advice, one (on insurance) governed by Directive 2002/92 and the other (on investment) by the MiFID I. Capital life insurance constitutes an indivisible whole and the legal provisions governing the mediation of this type of contract were those of Directive 2002/92 alone.
98. I should point out that, as the Swedish Government indicates in its observations, there is nothing to prevent an intermediary operating with ‘two hats’ and complying with the requirements of Directive 2002/92, as an insurance intermediary, and with the provisions of MiFID I. In that situation, the intermediary will have double professional indemnity insurance cover which will be activated on the basis of his involvement in transactions relating to insurance mediation or to investment advice, as may be inferred from Article 8 of Directive 2006/49/EC. (29) However, that did not occur in the instant case.
99. To my mind, a number of arguments support the solution I propose. In the first place, Article 2(3) of Directive 2002/92 provides a broad enough definition of insurance mediation by including ‘the activities (30) of introducing, proposing or carrying out other work preparatory to the conclusion of contracts of insurance, or of concluding such contracts, or of assisting in the administration and performance (31) of such contracts, in particular in the event of a claim.’ Advice prior to the conclusion of a capital life assurance contract and subsequent assistance provided to the policyholder in relation to the financial development of that contract come within the activity of insurance mediation.
100. In the second place, Directive 2016/97 confirms that mediation in relation to capital life assurance is covered by Directive 2002/92. Directive 2016/97, which recasts and supplements Directive 2002/92, retains in Article 2(1)(1) the same definition of insurance mediation (although it now calls it insurance distribution) while increasing the cases to which the definition applies. Without amending the definition of insurance mediation, the directive introduces expressly into its scope ‘insurance-based investment products’ and sets out, in Chapter VI, the additional conditions with which insurance intermediaries must comply when they advise on those products, which, as I have already explained, include capital life assurance contracts. The MiFID II did not include those products in its scope, which means that the MiFID I did not include them either.
101. In the third place, an examination of the MiFID I does not suggest that advice on a capital life assurance contract is covered by that provision but rather the opposite. To that end, the exclusions provided for in Article 2(1)(a), (c) and (j) are relevant; those exclusions refer respectively to:
– Insurance undertakings as defined in Article 1 of Directive 73/239/EEC or assurance undertakings as defined in Article 1 of Directive 2002/83 and undertakings carrying on the reinsurance and retrocession activities referred to in Directive 64/225/EEC. Although insurance intermediaries governed by Directive 2002/92 are not expressly referred to, the exclusion of the insurance sector from the scope of the MiFID I is clear.
– Persons providing an investment service where that service is provided incidentally in the course of a professional activity and that activity is regulated by legal or regulatory provisions or a code of ethics governing the profession which do not exclude the provision of that service. An insurance intermediary falls into that category if his main activity is focused on advising on and administering insurance contracts, so that financial advice, where it concerns investments linked to insurance, becomes a merely instrumental, that is, incidental, activity. (32)
– Persons providing investment advice in the course of providing another professional activity not covered by the MiFID I provided that the provision of such advice is not specifically remunerated. An insurance intermediary who receives remuneration exclusively from the holder of a capital life assurance policy or from the insurance company would come within that category and be excluded from the scope of the MiFID I.
102. In the fourth place, the MiFID I cannot be considered to apply to capital life assurance contracts solely because the investment component of those contracts may be covered by one of the categories of financial instrument referred to in Section C of Annex I to the MiFID I. That will depend on each type of capital life assurance contract and the financial instrument chosen, which may not be included in that section. (33)
103. In the fifth and last place, the demand for greater protection of consumers (policyholders/investors) does not justify making mediation in relation to capital life assurance subject to the MiFID I either, although it is true that that directive imposes more requirements on investment firms and lays down stricter provisions for the protection of investors (Articles 19 to 24) than those in Directive 2002/92.
104. As I observed above, the greater financial risk borne by clients holding financial instruments justifies higher protection than that required for holders of insurance policies. Nevertheless, with regard to life insurance, Article 12 of Directive 2002/92 also provides the latter with a level of protection appropriate to their specific risks. (34) It would be disproportionate to impose on insurance intermediaries the requirement to comply with all the MiFID provisions on that subject. Although Directive 2016/97 increases the protection of holders of capital life assurance policies and, symmetrically, the obligations of insurance intermediaries who advise them, it does not apply to the latter all the requirements imposed by the MiFID II on companies authorised to provide investment advice.
105. In short, it is my view that mediation in relation to capital life assurance of the kind at issue in these proceedings is governed by Directive 2002/92, not by the MiFID I.
V. Conclusion
106. In the light of the foregoing considerations, I propose that the Court reply as follows to the questions referred by the Högsta domstolen (Supreme Court, Sweden):
(1) Article 2(3) of Directive 2002/92/EC of the European Parliament and of the Council of 9 December 2002 on insurance mediation covers the activities of an intermediary who is properly authorised to act in that capacity and performs for various clients preparatory work with a view to the conclusion of insurance contracts, even if his intention is fraudulent and whatever the subjective perception that clients may have of his activities may be.
(2) If the contracts at issue in the main proceedings can be classified as unit-linked capital life assurance contracts or capital life insurance contracts linked to insurance-based investment products, a matter which it falls to the referring court to determine, the insurance intermediary who advises the persons who conclude those contracts carries on an activity governed by Directive 2002/92, and does not provide investment advice subject to Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments amending Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the European Parliament and of the Council and repealing Council Directive 93/22/EEC.