EU council approves stricter rules for retail investor protection
The European Council reached an agreement on Wednesday on strengthening the EU’s retail investor protection rules, aiming to better safeguard individual investments and enhance transparency across the EU’s capital markets.
The retail investment package, agreed upon today, seeks to offer retail investors consistent information, fair treatment, and robust protection, regardless of the investment products or channels they use.
The new framework will modernise and simplify investor protection laws, ensuring coherence across sectors and EU regulations.
A key aspect of the agreement is the decision to remove the proposed ban on ‘inducements’ (commissions or retrocession fees) for execution-only sales while retaining the ban for independent investment advice and portfolio management, except for limited exceptions.
To mitigate potential conflicts of interest, the Council has introduced new safeguards, including an inducement test and enhanced transparency requirements. Overarching principles have also been established to ensure that inducements do not unduly influence product recommendations and are proportionate to the value offered.
Additionally, the council has introduced the concept of ‘Value for Money’ to ensure that investment products are cost-effective and beneficial to retail clients.
Under the new rules, manufacturers and distributors must assess the justification and proportionality of costs and charges related to investment products.
The European Securities and Markets Authority (ESMA) and the European Insurance and Occupational Pensions Authority (EIOPA) will develop supervisory benchmarks to help national authorities identify products that do not offer good value for money.
The agreement includes provisions for member states to continue using national benchmarks for insurance-based investment products if they were developed before July 1, 2024. With the Council’s agreement, negotiations with the European Parliament on the final legislation can now commence.
Attribution: Council of the EU
