Introduction

The Government's second attempt to transpose the Insurance Mediation Directive must this time give full effect within the Irish jurisdiction to the rights and obligations vested in service providers and consumers under the directive. Sinead O'Loghlin and Tom Carney consider some basic legal issues, which should be borne in mind when interpreting the transposing Irish legislation.

European law required Ireland to transpose Directive 2002/92/EC of 9 December 2002 on insurance mediation ("the directive") by 15 January 2005. The Government's priority of meeting the directive's January transposition deadline yielded to a second attempt to do it properly and to revoke the earlier European Communities (Insurance Mediation) Regulations, 2005 ("the regulations"), which entered into force on 14 January last.

The Government's adoption of the European Communities (Insurance Mediation) (No.2) Regulations ("the No. 2 regulations") and revocation of its earlier regulations must be interpreted as an admission that it improperly transposed the directive in January. Not to transpose the directive properly a second time could leave the State further exposed to European Commission infringement proceedings before the European Court of Justice. The Government's transposition "take-two" may imply the State's exposure during the intervening period between the two sets of regulations.

General Considerations for Transposition

The rights of and duties on service providers and consumers under the directive must be given full effect in the No. 2 regulations. Resulting from improper transposition, service providers might be able to challenge future enforcement proceedings of the Financial Regulator successfully and consumers/service providers might be denied legal rights guaranteed by the directive. Further, where either service providers or consumers (denied through improper transposition rights guaranteed by the directive) in commercial relationships amongst themselves suffer financial loss or damage, the State might be found liable for such loss and damage.

The proposed adoption of the No 2 regulations gives us an opportunity to examine the State's duty under EU and Irish constitutional law when transposing EU directives and to consider why, - 2 - as a matter or law, a second attempt was required to give full effect to the directive. The Government's consultation process on the No. 2 Regulation offered us all an opportunity to identify the challenges that face the draft transposition text.

Article 249 of the EC Treaty provides that any EU directive is binding as to the objective (as stated in the directive) to be achieved, but leaves to each Member State a choice as regards the means or method by which the directive is to be implemented in national law.

Once a directive is fully and properly transposed into national law, the legal rights guaranteed to citizens flow not from the directive itself but from the transposing national law. Failure to transpose a directive properly, therefore, can result in confusion as regards the source of rights before the national courts and the denial of rights between parties (like consumers and service providers) who otherwise might have enjoyed rights under national law. EU law operates in some cases to punish a Member State for incorrectly transposing a directive by transferring liability for loss caused to private parties by improper transposition to the State's coffers. Additionally, the doctrine of effectiveness in EU law prohibits a State regulator from relying on improperly transposed directive provisions in any enforcement proceeding against a service provider.

The Substantive Requirements of the Directive

In the directive, Europe's legislators state clearly that the inability of insurance intermediaries to operate freely throughout the Community hinders the proper functioning of the single market in insurance. The directive, in attempting to facilitate the free movement of insurance services, imposes a balance between the need to remove state obstacles faced by insurance mediation service providers and the need to protect EU consumers of their services. It requires Ireland to ensure that, as a matter of national law, consumers are vested with knowledge regarding the types of intermediary with whom they deal. In particular, consumers must be told whether the intermediary:

  • is advising on products from a broad range of insurance undertakings or;
  • is merely advising on products provided by a specific number of insurance undertakings.

The directive requires that where an intermediary is giving advice on products from a broad range of insurance undertakings, he/she should carry out a fair and sufficiently wide-ranging analysis of the products available on the market giving underpinning reasons for the advice proffered. This implies that tied intermediaries advising on a narrower range of products are not faced with the same duties.

Central to consumer protection is the issue of registration. Kernel to the right of free movement and establishment of categories of insurance mediation service provider too is the issue of registration. A provider not required/entitled under national law to register on the national register for insurance intermediaries could be interpreted as (i) undermining consumer protection guarantees under the directive and (ii) denying rights of free movement and establishment to providers who might otherwise be entitled to benefit from rights pursuant to the directive.

Nowhere are the challenges posed by the issue of registration more visible in the consultation draft circulated by the Government for the No 2 Regulations than in the treatment of "tied insurance intermediaries". In the draft No. 2 Regulations, a tied insurance intermediary is defined as any person (a) who undertakes insurance mediation for and on behalf of one or more insurance undertakings in the case of insurance products that are not in competition, and (b) for whose acts the undertaking or undertakings are fully responsible. The definition of "insurance intermediary" in the draft No. 2 Regulations specifically states that it "...does not include a tied insurance intermediary". Article 5 of the draft No. 2 Regulations consequently denies tied insurance intermediaries rights guaranteed under the directive insofar as Article 5 states that "[a] person shall not in the State or in any other Member State undertake or purport to undertake insurance mediation or reinsurance mediation, unless that person is registered as an insurance intermediary or reinsurance intermediary". A "tied insurance intermediary" excluded from the definition of "insurance intermediary" cannot benefit from the rights flowing from registration under Article 5 of the draft regulations.

This approach appears to conflict with the clear, precise and unconditional nature of the directive itself.

Article 3(1)(i) of the directive requires the registration of insurance and reinsurance intermediaries. Ireland is enabled by Article 3(1)(ii) of the directive to provide for the registration of "tied insurance intermediary" by insurance or reinsurance undertakings under the supervision of our competent authority and may legally choose not to apply either paragraphs (i) or (ii) of Article 3(1) to natural persons who work in an insurance undertaking and pursue (re)insurance activities. However, Article 3(1)(iv) places a clear obligation on the State to register legal persons who engage in "tied insurance mediation activities" and to specify the persons within the management of such companies who are responsible for mediation business. The specific text of the Directive, in Article 3, obliges Ireland to ensure that the registration of insurance intermediaries - including tied ones- and reinsurance intermediaries is made subject to the fulfillment of the professional requirements laid down in the Article 4 of the Insurance Mediation Directive. Likewise, Ireland must ensure that those insurance intermediaries – including tied ones- and reinsurance intermediaries who cease to fulfill these requirements are removed from the register.

More serious though is the issue of criminal sanction. Article 8 of the directive obliges Ireland to provide for appropriate sanctions to ensure compliance with obligations flowing into national law from the directive. The No. 2 regulations create a number of criminal offences. Article 5(2) for instance purports to criminalize any person who undertakes unregistered insurance mediation services in the State or in any EU Member State. A legal person found guilty of such an offence is liable upon conviction to a fine not exceeding €5,000 while a natural person (including directors) may be liable to a fine up to €3,000 or a term in prison up to twelve months. The Financial Regulator is given far ranging powers.

Given the very serious criminal and civil consequences arising, the Government must ensure that every care is taken to ensure that the substantive obligations of the directive are given full effect. As a matter of EU law, in the prosecution of matters under ministerial regulations not necessitated by any directive neither the Financial Regulator nor the courts can purport to rely on the State's failure to transpose the directive's requirements properly.

Article 5(1) of the draft No. 2 Regulations must be questioned too from another perspective. The purpose of transposition of any directive is to give full effect to its provisions within the domestic legal sphere. Directives are not intended to confer extra-territorial jurisdiction on any Irish court or regulator. Article 5(1) and 5(2), however, purports to criminalize any person undertaking or purporting to undertake insurance mediation or reinsurance mediation in any other Member State unless that person is registered. The lack of specificity in the draft article must be viewed as constitutionally dubious, given the fact that the State's creation of the criminal offence is by way of ministerial regulation as opposed to Act of the Oireachtas.

Both ministerial regulations purporting to transpose the Insurance Mediation Directive are made by the Minister for Finance pursuant to Section 3 of the European Communities Act 1972 (as amended). To address the issues raised more fully, we must explore the EU law and constitutional obligations on Government ministers when transposing EU directives. The general views expressed can be applied as appropriate to the specific transposition of the directive on insurance mediation.

As we said earlier, as a matter of EU law a directive is binding in its entirety as to the objective to be achieved but the means and method of giving effect to its provisions within the national sphere is left to the Irish State. European law is in fact "supreme" over Irish law. No person including the any organ or department of State may rely on a national provision or administrative practice to set aside a superior requirement of EU law. Further, the Government is under a positive obligation to ensure the effectiveness of European law within the Irish legal system.

The supremacy of EU law is reflected in Article 29.4.10 of our Constitution which states that "[n]o provision of this Constitution invalidates laws enacted, acts done or measures adopted by the State which are necessitated by the obligations of membership of the European Union or of the Communities, or prevents laws enacted, acts done or measures adopted by the European Union or by the Communities or by institutions thereof".

The European Communities Act 1972 (as amended)("the Act") provides the statutory framework for transposing EU directives into Irish law. The Act recognizes that the State may rely on two ways of giving full effect to EU directives within the domestic sphere:

  • Acts of the Oireachtas; or
  • Statutory Instruments (Regulations) adopted by Government Ministers pursuant to its Section 3(2) of the Act.

The Minister for Finance has chosen to transpose the Insurance Mediation Directive pursuant to Section 3(2) of the Act.

Before the Act and an amendment to our Constitution in 1972, the sole power to make legislation in the State was vested in the Oireachtas, per Article 15.2.1 of our Constitution. Government Ministers could not adopt nor amend legislation in breach of the exclusive right vested in the Oireachtas by Article 15.2.1.

The amendment of our Constitution to insert Article 29.4.10 provides for an exception to the ban on non-parliamentary law-making in Article 15.2.1, solely in matters relating to EU law. Empowered by the Act, any Government minister can make regulations to give full effect to any EU legislative requirement even where the minister repeals or amends existing Acts of the Oireachtas. The only fetter on the Minister is that his/her exercise of law-making power must be necessitated by superior specific EU legislative obligations. The Supreme Court's decision in Meagher v. Minister for Agriculture in the early 1990s clarified in the case of directives that ministerial law making powers under Article 29.4.10 of the Constitution should be viewed as - 6 - necessitated constitutionally where it is appropriate to give full effect to the substantive requirements of a directive. Where the ministerial law-making provision is neither necessitated nor appropriate, such law making should be considered invalid having regard to the provision of Article 15.2.1 of the Constitution.

Conclusion

Where a Government Minister, purporting to transpose a directive into national law, implements provision of an EU directive incorrectly or in any way which is not necessitated by EU law within the meaning of Article 29.4.10 of the Constitution, such Ministerial law-making may be open to challenge before the Irish and European Courts. Importantly from the point of view of legal certainty, any State enforcement body (e.g. a regulator) purporting to rely on ministerial regulatory provisions not necessitated by EU law could be successfully challenged before the courts on the grounds that its actions are unconstitutional or ultra vires.

The directive on insurance mediation is clear as regards its ambit. Persons practicing insurance mediation as an ancillary activity fall outside its scope provided certain strict conditions set out in its Article 1(2) are met. Tax experts and accountants who provide advice on insurance cover on an incidental basis in the course of their main professional activity fall outside its scope as do persons merely providing information of a general nature on insurance products (provided they are not assisting consumers to conclude insurance contract and involving (i) the professional management of claims for (re)insurance undertakings or (ii) loss adjusting or (iii) expert appraisal of claims).

In the interests of legal certainty and effective compliance, the enforcement of the transposing regulations must clearly identify those persons who enjoy rights or suffer obligations within the scope of the directive. The treatment of tied insurance intermediaries, in particular, must be comprehensively addressed in the transposing Irish legislation in strict accordance with the directive's requirements.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.