Brussels, 21/12/2006 (Agence Europe) - Directive 2004/39/EC on financial instruments markets (“MiFID”), directive 2003/6/EC on market abuse, and their respective enforcement measures represent a “significant step forward” - and, therefore, suffice - “in drawing up a European regulatory framework for the prevention, management and disclosure of conflicts of interest inherent in all investment services”, including “investment research”. This is Commission's opinion set out in its recent communication on investment research and the financial analysts who review all European legislation on the subject. In this way, the Commission - which waited for the adoption of directives 2003/6/EC and 2004/39/EC (this latter will apply only from November 2007) - is reacting to the September 2003 report from the financial analysts reflection group. The group was set up following the informal finance ministerial meeting in Oviedo, which was in part devoted to analysis of bankruptcies, like Enron's, at the start of the 2000s. (see EUROPE 8191).
The financial analysts who produce investment research play an important role in providing the financial markets system with information. They make a synthesis of raw research data into a more accessible form, used by investors as an aid to decision-making or by intermediaries to produce investment advice or advertising information. In their work, these analysts are exposed to potential conflicts of interest, which could affect their objectivity.
The Commission points out that the directive on market abuse establishes an overall system for disclosing conflicts of interest which can affect investment recommendations based on research. The “MiFID” directive completes it by requiring disclosure of: 1) cases where the organisation of an investment company could damage its clients' interests; 2) the policy of this company on conflicts of interest.
On other areas related to investment research, the Commission decided, for the moment, not to propose the compulsory registration of financial analysts in terms of their professional qualifications. It has yet to be convinced of the differences in quality between research supplied by independent companies and research carried out by investment firms, such as banks. It believes that the codes of good practice produced by professional or commercial organisations would make relations between issuers of securities and financial analysts more professional. On educating investors, the Commission feels this could be best achieved by action from member States, professional organisations and investment firms. In spring 2007, a conference on educating consumers, particularly in the financial area, could be held. (mb)