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Finance

Action 8: Building retail investors' trust in capital markets

Progress so far on action 8 of the capital markets union 2020 action plan.

About

Part of objective 2 of the capital markets union (CMU) action plan, action 8 aims to build retail investors’ trust in capital markets.

Inducements and disclosures

EU rules have put in place safeguards to protect investors, including through disclosure of information on financial products. The documents produced under different rules are however often perceived as long, complex, difficult to understand, misleading and inconsistent, therefore not providing retail investors with a good basis for their decisions.

Furthermore, there are concerns that inducements paid by investment product manufacturers to distributors may create conflicts of interest that negatively affect the quality and objectivity of financial advisors despite the existing safeguards.

In the 2020 CMU action plan, the Commission committed to assess the applicable rules in the area of inducements and disclosure and, where necessary, propose legislative changes.

Categorisation of investors

EU rules have put in place safeguards to protect investors, including through disclosure of information on financial products. The documents produced under different rules are however often perceived as long, complex, difficult to understand, misleading and inconsistent, therefore not providing retail investors with a good basis for their decisions. These documents may also result in information overload for sophisticated investors who may not need the same information and safeguards as inexperienced investors.

In the 2020 CMU action plan, the Commission committed to amend MiFID II to reduce the administrative burden and information requirements for a subset of retail investors.

New requirements for advisors

Financial advisors play a critical role as gatekeepers to the financial system. However, their level of qualifications, knowledge and skills continues to differ across Member States. In order to reduce the risk of mis-selling, including in relation to sustainability, increase individual investors' confidence in advice and create a level playing field for market operators offering advice in different Member States, certain professional standards for advisors should be set or further improved.

In the 2020 CMU action plan, the Commission committed, subject to a positive impact assessment, to amend MiFID II and the Insurance Distribution Directive to introduce new requirements for advisors.

  • Collection of evidence and preparatory work is ongoing
  • Action to be further refined in the context of the retail investment strategy to be adopted in Q4 2022

Pan-EU label for financial advisors

Financial advisors play a critical role as gatekeepers to the financial system. However, their level of qualifications, knowledge and skills continues to differ across Member States.

The Commission therefore committed in the 2020 CMU action plan to assess the feasibility of introducing a voluntary pan-EU label for financial advisors as a possible way to increase the quality of advice.

On 7 July 2022 the Commission published a report setting out its assessment. The report is based on desk research and stakeholder feedback, including two surveys carried out by the European Securities Markets Authority (ESMA) and the European Insurance and Occupational Pensions Authority (EIOPA), as well as feedback received through the public consultation on the retail investment strategy.

The assessment confirms that, despite some requirements introduced at EU level, the level of qualifications of financial advisors largely continues to differ across Member States and may not be sufficient. Nevertheless, the report does not recommend a pan-EU label: its successful uptake is not guaranteed, while administrative costs linked to its set-up and running are likely to be high. The report then proposes that the future retail investment strategy looks into alternative possibilities to strengthen EU rules for advisors.

 

Back to the list of actions under the 2020 CMU action plan