Response to Commission public consultation: Retail investment strategy for Europe

04 August 2021

Consultation response

Important improvements are needed to the retail investor protection framework to ensure that EU citizens can safely invest in capital markets, says Finance Watch in its just-submitted response to the European Commission public consultation on the retail investment strategy for Europe.

Finance Watch suggests the following improvements:

  • Building on the precedent set in the pan-European Personal Pension Product, or PEPP regulation, basic option products that are safe and suitable for any investors should be the default offer. This would ensure wider access and use of safe products.
  • Financial literacy should not be pursued as a panacea for dealing with the numerous shortcomings and issues with investment products sold to retail users. Efforts should focus on assessing the potential inclusion of financial literacy in national curricula and promoting independent and regulated educational tools.
  • The Distance Marketing of Financial Services Directive should be maintained and updated to ensure the proper regulation of marketing and advertising of investment products through digital media, including banning personalised advertisements.
  • Dashboards and comparison websites offered by public authorities may also provide an important way forward to increase investor protection. Open finance solutions could be explored to increase their effectiveness and link them with pre-contractual information. Protection of retail user data must, however, be guaranteed at all times.
  • The quality not the quantity of information is essential in retail investor pre-contractual information documents. The shorter the document can be, whilst accurately describing key product features, the more useful it will be to the majority of retail investors. More detailed information should always be easily available upon request. A large-scale project to consumer test pre-contractual information documents that are already available on the market and extract positive and negative points, build new improved documents and then re-test could help to take a step forward here.
  • In principle, suitability and appropriateness assessment as tools are extremely important. However, there are currently issues over how these assessments are delivered. A starting point is to harmonise the different regimes by applying MiFID requirements to all distributors of investment products.
  • The quality of advice cannot be guaranteed where inducements exist and create a conflict of interests. This is the current situation for retail users in the EU and needs to be addressed. A ban could eliminate part of the existing problem, which is to remove the negative impact of conflicts of interest on advice. Additional measures would also need to be introduced to ensure that advice is widely available, independent and affordable.
  • Complexity of financial products is not problematic in itself. Some products may be complex, but can still be explained in a simple enough way to investors to allow them to take informed investment decisions. The real issue is excess complexity, where complexity in product design or description that has no discernible benefit to the investor. This should not be allowed and is likely to be an indication of an exploitative product.
  • The European Supervisory Authorities and National Supervisory Authorities do not currently have sufficient resources and enforcement powers to carry out the level of market surveillance needed to identify all the cases where they would need to use product intervention powers. As highlighted in the Finance Watch response to the Commission´s consultation on supervisory convergence and the single rulebook, there is a need for stronger convergence of supervisory practices and harmonisation of the EU law application in certain areas in order to maintain high standards of retail investor protection across all the EU Member States.
  • There are several key obstacles to mobilising retail investments in sustainable products, including the absence of reliable and comparable sustainability-related disclosures and an insufficient consideration of investors’ sustainability-related preferences at the point of sale. When developing the European standards for sustainable financial products, the Commission should also assess the capacity of financial instruments to effectively allocate capital towards sustainable transition of the economy.

Download the full response