EU Council Enhances Retail Investor Protection Regulations

Giuseppe de vita

Brussel (Brussels Morning) – The European Council has strengthened retail investor protection regulations, enhancing transparency and information disclosure for individual investors in the EU’s capital markets.

The European Council today on 12 June 2024 reached an arrangement on strengthening the EU’s regulations on retail investor protection. The retail investment package strives to support individual consumers who desire to invest in the EU’s capital markets, by better safeguarding their investments, providing them with more precise information about investment products and assuring more transparency and disclosure.

What Changes Are Proposed for Investor Safeguards?

The retail investment package strives to offer retail investors the same level of information, treatment and safeguard regardless of which investment products, marketing and distribution channels they utilise. To this end, the package seeks to modernise and streamline investor protection rules so that they are readable across the different sectors and EU laws.

The EU Council also determined to remove the proposed ban on ’inducements’ (often referred to as “commissions” or “retrocession fees”) accepted for execution-only sales (where no advice is supplied to the investor). A ban is already in position for independent investment guidance and portfolio management with limited exceptions.

What Are the Overarching Principles for Inducements?

In addition, the Council further strengthened the safeguards by introducing ‘overarching principles’ to be appreciated when paying or receiving inducements. These overarching codes are not part of the inducement test as such, but companies should respect those principles at all times when paying or receiving incentives to or from a third party, and be able to show this to national competent authorities.

According to these overarching regulations, inducements should not incentivise businesses to recommend particular products over others, they should not be excessive to the value offered and inducements paid to or received and retained by entities belonging to the exact group should be treated in the same way as others.

How Will ‘Value for Money’ Impact Investments?

The package also presents a new concept of ‘Value for Money’ to assure that investment products are delivered to retail clients only if they offer good value for money.

Under the new regulations, manufacturers and distributors would consider whether costs and charges connected to a product are explained and proportionate with regard to their performance, other benefits and features, their objectives and, if relevant, their strategy.

The Council decided that the European supervisory authorities European Securities and Markets Authority (ESMA) and European Insurance and Occupational Pensions Authority (EIOPA) would design Union supervisory standards. However, instead of mandatory benchmarks incorporated into manufacturers’ and distributors’ product governance strategy, they would be a supervisory mechanism, developed in a way that allows national competent authorities to witness investments in products that fail to offer value for money.

The Council also suggests allowing member states to deliver a possibility for financial products manufacturers or distributors to opt, for the market comparison in its value-for-money inspection processes, to compare their products with the appropriate Union supervisory benchmark, instead of a peer group.

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Giuseppe De Vita is a journalist at Brussels Morning News, He is covering European politics, Law and Technology news. Lawyer at De Vita & Partners Law Firm specializing in Criminal Law, Military and Space Law, and Cyber Security. In April 2023, he authored the monograph "Governance in Extraterrestrial Space", showcasing his extensive legal expertise. He has acquired vast experience in handling criminal and civil matters, managing litigation before various levels of jurisdiction across the national territory. In 2010, he obtained a Master's degree in Information Technology Law. Additionally, in the same year, he served as a teacher in criminal-IT subjects at the Penitentiary Police School of Portici, providing courses aimed at officials and managers of the Penitentiary Police and the Penitentiary Administration, focusing on IT security. He also serves as a Workplace Safety teacher, conducting training courses at various organizations and educational institutions. Moreover, he is a lecturer on Anti-Corruption and Transparency. The law firm, under his guidance, assists both private and corporate clients in court, accumulating significant experience in criminal and civil disputes over the years. Furthermore, it conducts Risk Management and Compliance, Cyber Resilience, and Cyber Security activities, with a specific focus on privacy protection (EU Regulation 2016/679 - GDPR). Giuseppe frequently publishes articles in legal journals, analyzing various regulatory issues. He has contributed articles to the legal journal Altalex, of which he is also a member of the Scientific Committee.