Banks and insurers stop excessive referral commissions in the interest of the client

In recent months, the providers of mortgage loans (banks and insurers) have adjusted or abolished their referral commission schemes. The Netherlands Authority for the Financial Markets (AFM) has concluded this after an investigation of the largest providers.

The AFM considers this a positive development, and finds that the financial sector has taken a good step towards setting its central focus on the interests of the clients, and regaining the confidence of consumers.

Last June, the AFM requested providers to reconsider their referral commission schemes and to adjust them where necessary in line with the Guideline on Appropriate Commission (Press release on referral commission, June 2010). Providers have complied with this request, and have adjusted the referral commission schemes so that the manner and amount of financial compensation is clear to consumers. In addition, the providers have arranged that the amount of compensation is now proportionate to the costs incurred and the efforts made by the referring party.

It is in the interest of the consumer to be aware of the fact that a referring party receives compensation for passing on his name and address details. Providers have to ensure that consumers are able to take note of the amount and manner of compensation. Providers have done so in various ways. For example, text examples are made available to the referring parties, which examples can be used as input for their websites or brochures. In addition, a number of providers oblige their referring parties to have the consumer sign a form, in which the consumer is informed about the amount and manner of compensation. The referring party can only receive compensation after the form has been signed.

The providers investigated have abolished the percentage-based compensations that depend on the amount of the mortgage loan. Providers only make use of (appropriate) compensation per referral. If, for example, a fixed compensation of 100 Euros per referral is paid, it will be easier to demonstrate that undesirable situations do not arise. Compensation will be more proportionate to the costs incurred and the efforts made by the referring party. As a result of the changes implemented, referral commission schemes are now more in line with the Guideline on Appropriate Commission. The AFM expects that, as a result of adjustment of the referral commission schemes, excessive referral commissions will no longer be paid. This will prevent incentives from arising that will lead to actions that are not in the interests of clients.

Level playing field
And finally, the AFM wants to call on market parties to submit a report whenever referral commission schemes are not in the interest of the client. This means that the AFM will be able to encourage non-compliant parties to adjust the referral commission schemes, and a level playing field can be guaranteed.

The AFM promotes fairness and transparency within financial markets. We are the independent supervisory authority for the savings, lending, investment and insurance markets. The AFM promotes the conscientious provision of financial services to consumers and supervises the honest and efficient operation of the capital markets. Our aim is to improve consumers’ and the business sector’s confidence in the financial markets, both in the Netherlands and abroad. In performing this task the AFM contributes to the prosperity and economic reputation of the Netherlands.

The AFM is committed to promoting fair and transparent financial markets.

As an independent market conduct authority, we contribute to a sustainable financial system and prosperity in the Netherlands.

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