Related topicsRetail financial services
By Tobias Mackie
Europe has one of the highest individual savings rates in the world. Yet levels of participation in higher-yielding retail investment markets are low by international standards. This is a concern for policy makers for two important reasons. Firstly, capital markets have a vital role to play in providing non-bank funding – a particularly important consideration in this post pandemic context, given the need to fund the economic recovery. Second, we need to ensure a framework that caters efficiently for people’s long-term financial needs.
Boosting retail investments
Many reasons might explain the comparatively low participation rates in Europe: low financial literacy, for instance, a lack of investment culture, the regulatory environment, absence of trust in the market and financial service providers, etc.
The European Commission is currently gathering more evidence to assess which issues to tackle and how to best achieve our goals. In its 2020 capital markets union action plan, the Commission announced an upcoming strategy for retail investments in the EU. The strategy will aim to help retail investors to reap the benefits of the opportunities that capital markets can offer. In the action plan, we set out a number of important principles, which should underpin the retail investor protection framework:
- adequate protection rules tailored to investors’ profile or risk appetite
- bias-free advice and fair treatment
- open markets with a variety of competitive and cost-efficient financial services and products
- transparent, comparable and understandable product information, available in a digitalised format
A fresh approach
Investor protection rules are currently set out in a number of sector-specific legislative instruments, including the MiFID II, PRIIPs, UCITS and the insurance distribution directive. For instance, the rules covering disclosures, payment of inducements to financial intermediaries, or the assessment of whether investment products may be suitable or appropriate for certain investors, can differ from one instrument to another. That means that investors may be subject to different levels of protection depending on their product choice, and the patchwork of rules may not be conducive to helping them make sound investment decisions that correspond to their needs.
We must ensure that retail investors are placed firmly at the heart of the investor protection framework and that rules are conceived in that way. The Commission is looking across the different phases of the “retail investor journey” (awareness, pre-contractual, contractual, post contractual) in order to better understand retail investors’ needs and to address any identified shortcomings. We want to ensure that rules empower retail investors to take the right financial decisions, whilst feeling sufficiently protected.
The Commission is taking a close look at these rules, and has commissioned an extensive study and launched a detailed public consultation to look at how the current rules are working for retail investors. It will come forward with an initiative in 2022.
Tobias Mackie is a policy expert at the European Commission