On 24 May, Mairead McGuinness, the European Commissioner for financial services, that aims to make it safer for EU citizens to invest in the long term and encourage their participation in EU capital markets.
In a joint statement dated 6 June, eight industry groups, including the European Fund and Asset Management Group (Efama), said that while they “strongly support the objective of boosting retail participation in financial markets,” many measures in the proposals are “far-reaching” and raise “multiple concerns.” The Luxembourg Bankers Association (ABBL) have also .”
The 6 June statement outlines four key concerns, among them measures that prohibit investment product manufacturers from paying financial advisers commissions for selling their products.
Last year, the European Commission said it would fully ban incentive payments to remove conflicts of interest and protect consumers. However, it soon backtracked on its plans, limiting the ban on inducement payments to so-called “execution-only” sales. But industry groups feel the Commission’s proposals will still have “major disruptive consequences” for the European financial sector and consumers’ access to investment and insurance protection.
The industry said it also held reservations on the new ‘best interest of the client’ test. “The proposed approach, which disproportionately focuses on costs, may lead clients to prioritise the ‘cheapest’ product over others that could potentially offer them greater value,” the statement said, adding that such an outcome would be “contrary to the client’s best interest,” it said.
More burdensome investment process
The EU’s retail investment strategy is also expected to increase the number of processes and compliance obligations that investment firms need to undertake, according to the statement. “The overwhelming volume of requirements adds complexities that are highly likely to discourage consumer engagement, as the laudable ambition of turning European depositors into investors would be impeded by an even longer, more complex and more burdensome investment process.”
The proposals are said to also introduce a one-size-fits-all, quantitative “value for money” benchmark. “This contradicts the core goal of the investment process, which is to offer tailored solutions to different clients’ needs,” the statement said, adding that “value encompasses more than just costs and has diverse meanings for different consumers, depending on their circumstances, objectives and personal values.”