About
Part of objective 2 of the capital markets union (CMU) action plan, action 8 aims to build retail investors’ trust in capital markets.
In line with this objective the Commission published on 24 May 2023 its retail investment strategy, which puts the consumer’s interest at the centre of retail investing. The proposed set of measures seeks to empower retail investors on EU capital markets, while ensuring that they are treated fairly and are duly protected. As part of the preparatory work on the strategy, the Commission sought feedback from stakeholders and commissioned a study on retail investment in Europe.
In July 2023 the Commission hosted a roundtable on the distribution of retail financial products, gathering key industry and consumer stakeholders. The roundtable aimed to spur industry’s reflections on how the retail investment landscape and market practices in Europe could be improved, in light of current technological and societal trends. A follow-up roundtable is envisaged after six months to take stock of the results.
- Public consultation on the retail investment strategy closed in August 2021
- Comprehensive study on retail investment published in February 2023
- Call for advice to the European Supervisory Authorities on the protection of retail investors published in August 2021
- European Insurance and Occupational Pensions Authority’s (EIOPA) technical advice on retail investor protection in relation to the sale of Insurance-Based Investment Products (IBIPs), published in April 2022
- European Securities and Markets Authority’s (ESMA) technical advice on certain aspects relating to retail investor protection, published in April 2022
- Roundtable on the distribution of retail investment products of 18 July 2023
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, difficult to understand and misleading, therefore not providing retail investors with a good basis for their decisions. Moreover, with the rise of digitalisation, consumers are increasingly exposed to the digital marketing, they see, for example, on social media platforms, including when carried out by financial influencers (‘finfluencers’).
The retail investment strategy tackles these issues by introducing further requirements in relation to the content of marketing advertisements of financial securities, investment firms' liability for any marketing done on their behalf, including by finfluencers, and record-keeping requirements applying to investment firms’ marketing communications and practices.
Secondly, 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, resulting in consumer detriment.
While the retail investment strategy does not put forward a full inducement ban, it introduces a prohibition on inducements for sales of investment products where no advice is provided, as well as increased transparency requirements and additional safeguards relating to advice. For more details, see the frequently asked questions on the strategy.
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 and inconsistent, and may also result in information overload for sophisticated investors who might not need the same safeguards as inexperienced investors.
In order to ensure proportionality and reduce the administrative burden, the retail investment strategy adjusts the eligibility criteria for professional investors upon request, and allows the clients with the relevant experience and knowledge to seek an exemption from the investor protection framework, where they so desire. For more details, see the frequently asked questions on the strategy.
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.
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 on the current framework for qualification of financial advisors in the EU and assessment of possible ways forward. The report is based on desk research and stakeholder feedback, including two surveys carried out by the ESMA and EIOPA, and the public consultation on the retail investment strategy.
The assessment concluded 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, it did 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.
In the retail investment strategy, the Commission proposed amendments to provide retail investors with assurance that the level of knowledge and competence of financial advisors meet the required standards including in relation to sustainability. For more details, see the frequently asked questions on the strategy.