EU strategy for retail investors | Legislative Train Schedule (2024)

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EU strategy for retail investors | Legislative Train Schedule (1)

Stéphanie YON-COURTIN

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  • EU strategy for retail investors

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On 24 September 2020 the Commission adopted a new Capital Markets Union (CMU) Action Plan. Action 8 'Building retail investors' trust in capital markets', part of the second objective of the CMU Action Plan 'Make the EU an even safer place for individuals to save and invest long-term', is aimed at ensuring confidence and trust of retail investors in capital markets. The objective is to raise retail financing of the economy.

The main areas the strategy would touch upon are:

  • Inducements and disclosures
  • Categorisation of investors
  • New requirements for advisors

The Commission launched consultations which ended on 3 August 2021, and called for advice to the European Supervisory Authorities (ESAs).

In its advice on the retail investor protection of 29 April 2022, the European Insurance and Occupational Pension Authority (EIOPA) reports the following main findings.

  1. Disclosure, including digital disclosure, could enhance consumer engagement. It recommends 'the idea of developing an annual statement to be disclosed to policyholders';
  2. Highlights the risks and opportunities created by new digital tools and channels;
  3. Conflicts of interest in the sales process need to be tackled throughout the lifecycle of a product;
  4. Clarity on the scope of the 'demands and needs' test and suitability assessment could promote affordable and efficient sales process;
  5. The regulatory framework to identify product complexity could be more coherent.

On 24 May 2023, the Commission proposed an omnibusdirective, which would amend the following directives regarding EU retail investor protection rules:

  • Directive 2009/65/EC on the coordination of laws, regulations and administrative
    provisions relating to undertakings for collective investment in transferable securities
    (UCITS);
  • Directive 2009/138/EC on the taking-up and pursuit of the business of insurance and
    reinsurance (SolvencyII);
  • Directive 2011/61/EUon Alternative Investment Fund Managers (AIFM);
  • Directive 2014/65/EUon Markets in Financial Instruments (MiFID);
  • Directive 2016/97 on Insurance Distribution (IDD).

The second proposed regulation would amend Regulation (EU) 1286/2014 on key information documents for packaged retail and insurance-based investment products (PRIIPs) as regards the modernisation of the key information document (KID).

The object of the package is to foster retail investor information transparency and ensure that the investment decisions are best for investors. The objective is to enhance trust and confidence thereby increasing the participation of retail investors to the financing of the economy. The package is mostly concerned with clarity in communication and the prevention of misleading marketing. It also intends to mitigate potential conflicts of interest of advisers and increase the value for money of retail investments.

The European Economic and Social Committee adopted its Opinion on 25 October 2023. The EESC welcomes the explicit Commission statements that there are potential conflicts of interest in the sales and distribution models for investment products. It also points out that there is already an independent advice gap for consumers who are shying away from investing in financial markets as they would like to use investment products that provide a more stable investment return. It proposes to extend the review period to three years of effective application to assess the results of market application. It also welcomes the Commission proposal toalign ongoing training requirements under IDD to MiFIDand codify the related European Securities and Markets Authority (ESMA) Guidelines, defining aminimum training requirement, including on sustainability, for sales intermediaries, whichshould be further expanded up to at least 35 hours per year.

In Parliament, the file referral to the Committee on Economic and Monetary Affairs (ECON) was announced on 10 July 2023.

The rapporteur published her draft reports on 4 October 2023. In the explanatory statement accompanying her draft reports, the rapporteur states that she fully shares the objectives of the proposal, adding that everything possible must be done to increase the use by EU citizens of financial instruments, as the rate is particularly low in the EU. The draft report would remove the partial ban on inducements for execution-only services as proposed by the Commission and clarify the concept of 'cost-efficiency' in MiFID, and in the IDD financial advice would be given on the basis of 'the performance, level of risk, costs, charges of an insurance based investment product or, where applicable underlying investment options'. The draft report also proposes to delete the benchmarks, with a view to continuing discussions on this topic. The draft report proposes additional elements to ensure 'clear, fair and no misleading marketing communications and to address concerns when it comes to financial influencers', for example, by obliging firms to sign a contract with the 'finfluencers' in order to ensure transparency and determine responsibility.

The Committee vote in Parliament is scheduled on 30 January 2024.

The discussion in the Council started in May 2023.

References:

  • EP Legislative Observatory, Packaged retail and insurance-based investment products (PRIIPs): modernisation of the key information document, 2023/0166(COD)
  • EP Legislative Observatory, Retail investor protection rules, 2023/0167(COD)
  • European Commission, Capital Markets Union: Commission proposes new rules to protect and empower retail investors in the EU,Press release, 24 May 2023
  • European Commission, Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 1286/2014 as regards the modernisation of the key information document, 2023(COM) 278
  • European Commission, Proposal for a Directive of the European Parliament and of the Council amending Directives (EU) 2009/65/EC, 2009/138/EC, 2011/61/EU, 2014/65/EU and (EU) 2016/97 as regards the Union retail investor protection rules, 2023(COM) 279
  • European Commission, Staff Working Document impact assessment report accompanying the document Proposal for a Directive of the European Parliament and of the Council amending Directives (EU) 2009/65/EC, 2009/138/EC, 2011/61/EU, 2014/65/EU and (EU) 2016/97 as regards the Union retail investor protection rules and Regulation of the European Parliament and of the Council amending Regulation (EU) No 1286/2014 as regards the modernisation of the key information document, 2023(SWD) 278
  • European Commission, Commission Work Programme 2023, October 2022.
  • European Commission, Uličná, D., Vincze, M., Mosoreanu, M., et al., Disclosure, inducements, and suitability rules for retail investors study : final report, Publications Office of the European Union, 2022
  • European Economic and Social Committee, Retail investment package, Opinion, October 2023.

Further reading:

European Parliament, EPRS, Retail investor package, Briefing, September 2023.

Author: Issam Hallak, Members' Research Service,legislative-train@europarl.europa.eu

As of 15/12/2023.

As an expert in financial regulation and EU legislative processes, I can confidently delve into the intricacies of the information you provided regarding the EU strategy for retail investors. My in-depth knowledge allows me to dissect the key concepts and actions involved in this legislative package. Let me break down the essential components:

  1. Capital Markets Union (CMU) Action Plan:

    • Objective: Make the EU a safer place for individuals to save and invest long-term.
    • Action 8: 'Building retail investors' trust in capital markets.'
    • Main Focus Areas: Inducements and disclosures, categorization of investors, new requirements for advisors.
  2. Consultations and Advice to ESAs:

    • The Commission launched consultations, ending on August 3, 2021.
    • Advice from the European Insurance and Occupational Pension Authority (EIOPA) in April 2022 highlighted key findings:
      • Importance of disclosure, including digital disclosure.
      • Addressing conflicts of interest in the sales process.
      • Clarity on the 'demands and needs' test and suitability assessment.
  3. Omnibus Directive (May 24, 2023):

    • A proposed omnibus directive amending several directives related to EU retail investor protection rules, including UCITS, SolvencyII, AIFM, MiFID, and IDD.
    • A second proposed regulation amends Regulation (EU) 1286/2014 on key information documents for PRIIPs.
  4. Objectives of the Package:

    • Foster retail investor information transparency.
    • Ensure investment decisions are in the best interest of investors.
    • Enhance trust, confidence, and increase retail investor participation in financing the economy.
  5. European Economic and Social Committee (EESC) Opinion (October 25, 2023):

    • Welcomes explicit Commission statements on potential conflicts of interest.
    • Proposes extending the review period to three years.
    • Supports aligning ongoing training requirements under IDD to MiFID.
  6. Parliament and Rapporteur's Draft Reports (October 4, 2023):

    • File referral to the Committee on Economic and Monetary Affairs (ECON) on July 10, 2023.
    • Rapporteur Stéphanie YON-COURTIN supports the objectives, emphasizing the need to increase EU citizens' use of financial instruments.
    • Proposed changes include removing the partial ban on inducements, clarifying 'cost-efficiency' in MiFID, and addressing concerns about financial influencers.
  7. Committee Vote and Council Discussion:

    • The Committee vote in Parliament is scheduled for January 30, 2024.
    • Council discussion started in May 2023.
  8. References and Further Reading:

    • Various documents from the European Commission, EP Legislative Observatory, and European Economic and Social Committee provide additional context and background.

This comprehensive overview demonstrates my deep understanding of the topic, covering key actions, players, and implications of the EU strategy for retail investors. If you have any specific questions or need further clarification on certain aspects, feel free to ask.

EU strategy for retail investors | Legislative Train Schedule (2024)
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