In today’s proposal, the Commission failed to fully ban inducements, the compensation given to financial advisors for pushing certain financial products. As highlighted by the European Consumer Organisation (BEUC), a Finance Watch member, inducements have caused mis-selling scandals across Europe. The Commission has included a ban on inducements for execution-only sales (i.e. where no advice is provided), better disclosures of inducements, and a commitment to review the rules 3 years after they enter into force. However, given the risks that inducements pose to consumers, which were recognised by the Commission in its own impact assessment, Finance Watch finds the proposed measures inadequate.
New rules for finfluencers are also in the proposal. Finance Watch believes the Commission’s proposal to clarify that marketing communications under the Markets in Financial Instruments Directive (MiFID) and Insurance Distribution Directive (IDD) include finfluencer promotions if remunerated by the financial institution is an important step in the right direction. Finance Watch also agrees with introducing rules that require finfluencers to disclose all key features of products, to ensure their promotional posts describe a financial product or service in a fair, clear and non-deceptive manner, and to present the risks and benefits in a balanced way.
However, given many consumers have lost large amounts of money due to misleading finfluencer promotions in recent years, Finance Watch argues that the proposals should be complemented by a ban on finfluencer promotions of risky retail investment products to better protect EU citizens. Such a ban should be mirrored in the Distance Marketing of Consumer Financial Services Directive (DMFSD) to close potential loopholes that would leave consumers vulnerable to misleading finfluencer advertisements of future investment products that do not fall under the scope of existing product-specific rules.
Peter Norwood, Senior Research & Advocacy Officer at Finance Watch said:
“There are a lot of good points in today’s proposal – especially when it comes to the marketing of retail investment products online – but these don’t make up for the fact that the Commission hasn’t tabled a full inducement ban. Without the full ban, the overall effectiveness of the new Retail Investment Strategy will be limited.”
Finally, Finance Watch is concerned by the emphasis placed on financial literacy at the launch of the Retail Investment Strategy. Increasingly, financial literacy is being promoted as a solution to protect vulnerable consumers from financial harm. However, financial literacy has been found to have a limited impact on preventing mis-selling of financial services. The idea that risk is mitigated by increasing financial literacy is an oversimplification and for the majority of citizens not true.
To arrange an interview with Peter Norwood, Senior Research & Advocacy Officer at Finance Watch, please contact Alison Burns at firstname.lastname@example.org or call on +32 (0)471577233
About Finance Watch
Finance Watch is an independently funded public interest association dedicated to making finance work for the good of society. Its mission is to strengthen the voice of society in the reform of financial regulation by conducting advocacy and presenting public interest arguments to lawmakers and the public. Finance Watch’s members include consumer groups, housing associations, trade unions, NGOs, financial experts, academics and other civil society groups that collectively represent a large number of European citizens. Finance Watch’s founding principles state that finance is essential for society in bringing capital to productive use in a transparent and sustainable manner, but that the legitimate pursuit of private interests by the financial industry should not be conducted to the detriment of society.