On Wednesday 12 June, the Member States’ ambassadors to the European Union (‘Coreper’) reached an agreement on strengthening EU rules on retail investor protection. The negotiating mandate adopted by the Council of the EU paves the way for discussions with the European Parliament.
The legislative package aims to support individual consumers wishing to invest in EU capital markets by better protecting their investments, providing clearer information on investment products and ensuring greater transparency and disclosure.
“These rules will contribute to deepening the capital markets union (see EUROPE 13410/7) by increasing consumers’ trust in capital markets and channelling private funding into our economy”, said Vincent Van Peteghem, Belgian Finance Minister, in a statement on Wednesday.
The package, launched by the European Commission in May 2023 (see EUROPE 13187/21), consists of an ‘Omnibus’ Directive that plans to amend five existing pieces of legislation relating to markets in financial instruments (‘MiFID II’), insurance distribution (‘IDD’), undertakings for collective investment in transferable securities (‘UCITS’), alternative investment fund managers (‘AIFMD’) and insurance and reinsurance activities (Solvency II). The package also includes an amending Regulation revising the Regulation on packaged retail and insurance-based investment products (‘PRIIPs’).
With regard to the ‘Omnibus’ Directive, the Belgian Presidency of the Council of the EU submitted several proposed amendments to the Member States in March (see EUROPE 13371/31) and April (see EUROPE 13383/15).
Financial retrocessions. Among the changes approved on Wednesday, the Council of the EU decided to remove the proposed ban on ‘inducements’, commissions received by advisers, for execution-only sales (see EUROPE 13371/31).
However, to avoid potential conflicts of interest, the EU Council said it had strengthened the safeguards that accompany all inducements by providing for an ‘inducement test’, a new uniform criterion specifying the obligation for advisers to act in the best interests of the client, with greater transparency of payments regarded as commissions, their costs and their impact on investment returns.
The issue of kickbacks had divided Parliament, whose left wing was hoping to count on a “more reasonable” approach from the Council of the EU to prevent conflicts of interest in the financial industry (see EUROPE 13397/3).
‘Value for Money’. The EU Council has introduced a new concept of “value for money” to ensure that investment products are only offered to retail customers “if they offer good value for money”.
“Under the new rules, manufacturers and distributors will have to assess whether the costs and charges associated with a product are justified and proportionate in the light of its performance, other benefits and characteristics, its objectives and, where appropriate, its strategy”, said the EU Council.
In addition, the EU Council agreed that the European Supervisory Authorities - the European Securities and Markets Authority (‘ESMA’) and the European Insurance and Occupational Pensions Authority (‘EIOPA’) - would develop ‘Union supervisory benchmarks’ to assist national authorities.
Parliament adopted its position on Tuesday 23 April (see EUROPE 13397/3).
Link to the EU Council’s negotiating mandate for the ‘Omnibus’ Directive: https://aeur.eu/f/cmr
Link to the PRIIPS Regulation: https://aeur.eu/f/cms (Original version in French by Bernard Denuit)