Brussels, 25/07/2014 (Agence Europe) - Two European consumer organisations, BEUC and Finance Watch, support the steps taken by the European Securities Markets Authority (ESMA) to explain rules governing conflicts of interest that might arise from financial incentives paid by the creators of financial products to financial advisers selling their products to consumers.
Following adoption of the MiFID I' package (EU Directive 2014/65/EU and Regulation 600/2014), ESMA was instructed to provide clarification of many provisions in the directive, such as those on the granting of financial incentives to financial intermediaries (see EUROPE 11078 and 10997). EU legislation restricts the payment of commission but does not ban it as long as the commission improves the quality of service to the end consumer and does not prevent the provision of sound, fair and professional financial advice in the client's best interest. In draft guidelines, ESMA says that, while a financial intermediaries business model may depend on commission, this should not be used to cover his or her essential day-to-day running costs.
“While the business model of the adviser can fully depend on inducements, one source of fees or commissions should not pay for 'goods or services that are essential for the recipient firm in its ordinary course of business' (e.g. to pay for the entire staff or IT infrastructure of the advisory firm). This would indeed put the adviser in a state of overdependence on one specific supplier. ESMA's proposal will de facto reduce conflicts of interest and increase consumer choice, as its definition of a 'quality enhancement' is tightly related to an offering of 'a wider range of financial products'. Finance Watch fully supports this view”, states Finance Watch in a press release.
Like Finance Watch, the European Consumer Organisation (BEUC) criticises the financial industry for lobbying to water down the EU rules. “It's discouraging to see the industry pushing for the rolling back of new rules on investment advice meeting consumer expectations. That's before they have even hit the statute book. Those investment product sellers who rely on commissions from a small number of providers are prone to conflicts of interest. This prevents good investment advice and puts people's savings at risk”, argued BEUC Director General Monique Goyens. (MB)