On the morning of Thursday 18 December, the European Union’s co-legislators reached a final political agreement on the retail investment legislative package. Agreed between the European Parliament and the Council of the EU almost three years after the initiative was presented by the European Commission (see EUROPE 13106/21), this agreement is presented as a first step towards the future Savings and Investment Union. Subject to its formal validation, the interinstitutional compromise paves the way for an in-depth modernisation of the European framework for retail investor protection.
Retrocessions. As announced by Agence Europe (see EUROPE 13775/33), the principle of commissions (or retrocessions) paid to financial intermediaries has not been called into question. On the other hand, the agreement reached on Thursday strengthens the conditions governing their receipt. The co-legislators have agreed to enshrine in ‘level 1’ legislation – the directives in the package – the obligation for firms to demonstrate that remunerated advice provides a tangible benefit to the customer and complies with the best interests principle. Retrocessions must be clearly identified and separated from other costs. However, EU Member States will retain the option of introducing a national ban.
Investment path. With regard to the customer journey, the compromise maintains suitability tests as central safeguards, although the co-legislators have lightened the regulatory burden. Advisers offering diversified, non-complex and low-cost products will therefore be exempt from having to assess the customer’s knowledge and experience, thereby responding to the EU Council’s concerns about simplifying requirements.
The co-legislators also finally decided to do away with the specific “best interests” test initially envisaged by the European Commission, a development considered by the office of the European Parliament’s chief negotiator, Stéphanie Yon-Courtin (Renew Europe, French), to be a “very positive” simplification for investors.
“Because Europeans invest mainly on the basis of advice, we have taken care to prevent abuse while maintaining affordable access to advice throughout Europe. Supervisors will also have greater powers to monitor product prices, the quality of advice and the real value delivered to consumers”, Ms Yon-Courtin told Agence Europe in a press release.
Value for money. Discussions also focused on assessing the value for money of the products. The agreement provides for the introduction of comparisons based on groups of comparable products for financial instruments and on supervisory “benchmarks” for insurance products, taking into account all costs, including those linked to distribution. Products whose costs are not deemed justified or proportionate cannot be marketed.
PRIIPs. Finally, the last outstanding points on the revision of the PRIIPs regulation have been determined. Essential information documents will have to present costs, risks and performance scenarios in a more harmonised manner. Eventually, this information will have to be available in a machine-readable format to make it easier to compare products.
The co-legislators had already reached agreement on other aspects of the reform, notably the rules concerning ‘finfluencers’ (see EUROPE 13678/32, 13713/9) and the framework for supervising financial service providers (see EUROPE 13716/20). (Original version in French by Bernard Denuit)