Changes from report parliamentary committee draft to plenary report

RemovedDirective 2014/65/EU

Added(9) In order to assess the effectiveness of these measures, five years after the adoption of the regulatory technical standards referred to in Article 16(12) of▌ Directive 2014/65/EU and in Article 25(10) of Directive (EU) 2016/97, and after having consulted the European Securities and Markets Authority (‘ESMA’) and European Insurance and Occupational Pensions Authority (‘EIOPA’), the Commission should prepare a report assessing strengthened product governance requirements, the potential conflict of interests associated with inducements, the evolution of costs, the overall level of retail investment in capital markets, consumer protection, the relevance of distribution rules and the implementation of financial literacy measures. If the Commission’s assessment does not show that the new provisions have led to positive change for consumers, the Commission may propose amendments to this Directive, if necessary.

RemovedArticle 1 – paragraph 1 – point 3 a (new), Article 5 – paragraph 4 – point a: (3a) in Article 5(4), point (a) is replaced by the following: / (a) any investment firm which is a legal person has its head office in the same Member State as its registered office and does not provide investment services or perform investment activities solely in other Member States;

Added(10) Both quantitative and qualitative elements, which may include sustainability factors and financial guarantees, and the level of costs and charges that are related to investment and insurance-based investment products, can have a significant impact on investment returns▌. To ensure that products offer Value for Money for retail investors, Member States should ensure that firms authorised under Directive ▌2014/65/EU or Directive (EU) 2016/97 to manufacture or distribute investment products have clear pricing processes that enable a clear identification and quantification of all costs charged to retail investors and are designed to ensure that the costs and charges that are included in investment products or that are linked to their distribution are justified and proportionate having regard to the target market’s objectives and needs, and the product’s characteristics, objectives, strategy and performance.

Removed(32014L0065)

Added(10a) The access to, use of and expenses for financial and non-financial market data necessary to provide investment services and to manufacture and distribute financial products are an important portion of the costs borne by investment firms, representing therefore a significant proportion of the total charges paid by retail investors. This is why the Commission should be mandated to prepare a report five years after the entry into force of this Directive, after consulting ESMA and national competent authorities, to assess whether providers of financial and non-financial market data should be included in the scope of this Directive.

RemovedRecital 46 of MiFID II establishes an anti-forum-shopping principle by requiring that an investment firm operates effectively in its home Member State. Until now, it has been a 'floating' recital, with no corresponding provision in the MiFID II articles. There should be an explicit requirement in Article 5 on authorisation to avoid the situation where a firm chooses a Home Member State for the sole purpose of providing its services in the rest of the EU (except in the Home Member State) via the passport.

Added(11) Since the charging structure of the packaged retail investment product is designed by the manufacturer, it is for the manufacturer to assess whether the costs and charges that are included in investment products are justified and proportionate in the context of the overall value delivered. Building on those assessments, distributors should make similar assessments, so that the costs of distribution and other costs not already included in the manufacturer’s assessment are additionally taken into account.

RemovedDirective 2014/65/EU

Added(12) The pricing process, conducted at both the level of manufacturer and distributor should, as part of the product governance framework, enhance the existing concept that investment products aimed at a particular target market should be designed to bring value to that target market.

RemovedArticle 1 – paragraph 1 – point 4, Article 5a – paragraph 1 – subparagraph 1 a (new): The first subparagraph shall also apply to any third party (“finfluencers”) that is remunerated or incentivised through non-monetary compensation by a firm which is not authorised under Article 5(1) or national law, where such third party promotes through public social media platforms services or financial instruments on behalf of such a firm.

Added(13) To make the pricing process more objective and to equip manufacturers, distributors and competent authorities with a tool allowing for an efficient comparison of costs among investment products from the same product type, both ESMA and EIOPA should, after consulting the national competent authorities and on the basis of industry testing, develop common European benchmarks for products manufactured and distributed in more than one Member State. The benchmarks should be used solely by national competent authorities as a supervisory tool to perform the assessment of the qualitative and quantitative features of the products and to identify potential outliers on the market. As a supervisory tool, those benchmarks should not be disclosed publicly and should take into account the qualitative and quantitative features of financial instruments and insurance-based investment products. However, in order to ensure that the supervisory process is transparent and to facilitate insurance manufacturers’ value-for-money assessment, national competent authorities are allowed to share with insurance manufacturers and distributors the relevant benchmarks for that market. If the product deviates from a relevant benchmark, national competent authorities should have the power to take the necessary corrective actions, including requiring the firm to provide a justification for such deviation, requiring the firm to correct its approach to comply with the product governance requirements and, as a last resort measure, requiring that the product be removed from the market, if necessary.

RemovedDirective 2014/65/EU

Added(13a) Products that are manufactured and distributed in just one Member State should be subject to national benchmarks developed by national competent authorities, following the Union regulatory technical standards, adopted on the basis of drafts developed by ESMA and EIOPA.

RemovedArticle 1 – paragraph 1 – point 9, Article 16-a – paragraph 1 – subparagraph 3: deleted

Added(13aa) Benchmarks should not, in any way, lead to a price regulation but should allow for better supervision of the products on the market, with the aim to identify potential outliers and ensure the rectification for the benefit of customers and clients.

RemovedDirective 2014/65/EU

Added(13ab) As part of the product governance requirements, manufacturers and distributors of packaged retail investment products should perform peer-grouping evaluation of their financial instruments, based on a peer group defined by the investment firm and by the insurance undertaking or intermediary respectively, in accordance with the criteria defined in guidelines to be developed by ESMA and EIOPA. In this assessment, distributors may rely on the manufacturer’s peer grouping analysis. Additionally, manufacturers should also perform a peer analysis of past performance of their products, and distributors should also perform a peer analysis of services costs.

RemovedArticle 1 – paragraph 1 – point 9, Article 16-a – paragraph 1 – subparagraph 4: deleted

Added(13b) To ensure that product governance processes deliver fair value relative to costs and meet the objectives, needs and characteristics of the target market, the product approval process should consider benefits expected to be provided by the investment, when considering the risk profile and the total costs to the clients or customers as defined in Article 50 and Annex II of Commission Delegated Regulation (EU) 2017/565. The benefits should be reasonable, relevant and of a qualitative and quantitative nature, and should not solely be a return expectation after costs but could also be other services provided by the investment firm.

RemovedDirective 2014/65/EU

Added(14) To assist manufacturers and distributors in their assessments, ESMA and EIOPA, after having consulted national competent authorities and after industry testing, should develop guidelines to specify the criteria to be used in determining whether costs and performance are justified and proportionate.

RemovedArticle 1 – paragraph 1 – point 9, Article 16-a – paragraph 4 – subparagraph 3: deleted

Added(15) To enable ESMA and EIOPA to develop reliable benchmarks, based on reliable data, manufacturers and distributors of investment products should be required to report necessary data to competent authorities, for onward transmission to ESMA and EIOPA. To limit, to the greatest extent possible, costs related to the new reporting obligations and to avoid unnecessary duplication, data sets should as far as possible be based on disclosure and reporting obligations stemming from EU law. ESMA and EIOPA should develop regulatory technical standards to determine the formats, frequency and starting date for the information to be reported.

RemovedDirective 2014/65/EU

Added▌

RemovedArticle 1 – paragraph 1 – point 9, Article 16-a – paragraph 4 – subparagraph 4: deleted

Added(17) In view of the extent of diversity of retail investment product offerings, the development of benchmarks by ESMA and EIOPA should be an evolutionary process, beginning with the investment products most commonly purchased by retail investors and progressively building on the experience gathered over time in order to broaden coverage and refine their quality. Benchmarks should be regularly updated, taking into account market developments.

RemovedDirective 2014/65/EU

Added(18) Directives 2009/65/EC and 2011/61/EU require alternative investment funds (AIFs) and undertakings for the collective investment in transferable securities (UCITS) management companies to act▌ in the best interests of the investment fund they manage and of their investors. AIFs and UCITS management companies should maintain a pricing process that ensures that investors are not charged any costs that are undue, and that any costs that are borne by investors are justified and proportionate in the context if the overall value delivered to s.

RemovedArticle 1 – paragraph 1 – point 9, Article 16-a – paragraph 7 – point a: deleted

Added(19) UCITS and AIFs management companies should compensate investors where undue costs have been charged, including where costs have been miscalculated to the detriment of investors, and inform the competent authorities, financial auditors of the investment funds and their managers, and the depositary of those funds thereof. To promote better enforcement and achieve concrete results for retail investors, harmonisation of Member States' administrative and sanctioning powers is necessary. The procedure to determine the level of compensation where undue costs have been charged should be established on the basis of the national competent authorities’ existing guidelines on indemnification procedures.

RemovedDirective 2014/65/EU

Added(20) The pricing process under Directives 2009/65/EC and 2011/61/EU should ensure that costs borne by retail investors are justified and proportionate in the context of the overall value delivered to unit -holders and having regard to the characteristics of the product, and in particular to the investment objective, policy and strategy, level of risk and expected returns of the funds, so that UCITS and AIFs deliver Value for Money to investors. UCITS and AIFs management companies should remain responsible for the quality of their pricing process. In particular, they should ensure that costs are comparable to similar market products, including by comparing the costs of funds with similar characteristics in terms of investment strategies, objectives, level of risk and other characteristics. National competent authorities should have supervisory powers to carry out regular checks on the alignment of UCITs and AIFs falling under Directive 2014/65/EU with the relevant benchmarks, and take corrective actions if necessary.

RemovedArticle 1 – paragraph 1 – point 9, Article 16-a – paragraph 7 – point b: deleted

Added(21) The Commission should be empowered to adopt delegated acts specifying the minimum requirements for the pricing process to prevent undue costs from being charged to the UCITS, AIFs and their unit-holders, and for carrying out the Value for Money assessment and, where needed, for taking corrective measures where costs borne by investors are not justified or proportionate in the context of the overall value delivered to unit-holders.

RemovedDirective 2014/65/EU

Added(22) Enhancing the quality of the advice given by financial advisors is one of the main objectives of this Directive. Knowledge and competence of staff are key to better ensure the quality of advice given to consumers in the Union. The standards of what is considered necessary vary significantly between advisors operating under Directive 2014/65/EU, Directive (EU) 2016/97 and under non-harmonised national law. To improve the quality of advice and to ensure a level playing field across the EU, strengthened minimum common standards on the necessary knowledge and competence requirements should be laid down. That is particularly relevant given the increased complexity and continuous innovation in the design of financial instruments and insurance-based investment products, and the increasing importance of sustainability-related considerations. Member States should require investment firms, and insurance and reinsurance distributors, to ensure that natural persons giving investment advice on behalf of the investment firm or as insurance intermediaries, and the employees concerned of insurance undertakings and insurance intermediaries, possess the knowledge and competence that is necessary to fulfil their obligations. To provide assurance to clients, customers and competent authorities that the level of knowledge and competence of such natural persons and insurance intermediaries and the employees of insurance undertakings and insurance intermediaries meet the required standards, such knowledge and competence should be proven by a certificate or any other document recognised by the Union or by Member States. Regular professional development and training are important to ensure that the knowledge and competence of staff advising on or selling investment products to clients, or insurance-based investment products to customers, is maintained and updated. To that end, it is necessary to require that natural persons giving investment advice follow a minimum number of hours per year of professional training and development, part of which should be dedicated to sustainability issues, and that they prove the successful completion of such training and development by a certificate.

RemovedArticle 1 – paragraph 1 – point 9, Article 16-a – paragraph 9: deleted / (deleted) / (deleted) / (deleted)

Added(23) The increasing provision of investment services via digital means creates new opportunities for retail investors. At the same time, those services enable investment firms and insurance distributors to distribute investment products and services faster and to a wider group of retail investors, which can entail additional risks. Competent authorities should therefore be equipped with powers and procedures that are adequate to promptly address any non-compliance with existing rules, including when provided via digital means and by unauthorised entities. It is therefore appropriate that competent authorities are able to take the necessary actions when they have well-founded reasons to believe that a natural or legal person is providing investment services without being duly authorised or an insurance intermediary or insurance undertaking is distributing insurance-based investment products without being registered or authorised. When those actions concern a natural person, the publication of the decision made by the competent authority should remain subject to the case-by-case assessment of the proportionality of the publication of personal data provided under Article 71(1). The competent authorities should inform ESMA and EIOPA about such behaviour, and ESMA and EIOPA should consolidate and publish all related decisions issued by competent authorities so that such information is available to retail investors for them to be able to identify potential frauds. As regards natural persons, in order to avoid the disclosure of personal information deemed disproportionate by a competent authority when publishing the consolidated list of all decisions issued by competent authorities, ESMA and EIOPA should abstain from disclosing any additional information compared to that disclosed by the competent authority itself.

RemovedDirective 2014/65/EU

Added(24) The provision of cross-border investment services is essential for the development of the Capital Markets Union and proper enforcement of the rules is a key element of the single market. While the home Member State is responsible for the supervision of an investment firm in cases of cross-border provision of services, the single market relies on trust that stems from the adequate supervision of investment firms by the home competent authorities. The principle of mutual recognition requires efficient cooperation between home and host Member States to ensure that a sufficient level of investor protection is maintained. Directive (EU) 2014/65 already provides for a mechanism that allows, under strict conditions and where the home Member State does not take appropriate action, competent authorities of host Member States to take precautionary measures to protect investors. To facilitate cooperation between competent authorities, and to further strengthen the supervisory efforts, that mechanism should be simplified and those competent authorities that observe highly similar or identical behaviours on their territory to those already signalled by another authority should be able to refer to the findings of that initiating authority to initiate a procedure under Article 86 of Directive (EU) 2014/65.

RemovedArticle 1 – paragraph 1 – point 9, Article 16-a – paragraph 11 – point a: deleted

Added(24a) The Capital Markets Union enables undertakings established in the Union to exercise their rights under the freedom to provide services and the freedom of establishment, provided that they comply with certain conditions. To avoid abuses of those principles, rules should be introduced to establish an anti-forum shopping principle in Directives 2014/65/EU and (EU) 2016/97.

RemovedDirective 2014/65/EU

Added(24b) Recital 46 of Directive 2014/65/EU clarifies that Member States’ competent authorities should not grant or should withdraw authorisation where factors such as the content of programmes of operations, the geographical distribution or the activities actually carried out clearly indicate that an investment firm has opted for the legal system of one Member State for the purpose of avoiding the stricter standards or supervisory enforcement in another Member State within the territory of which it intends to carry out or does carry out the greater part of its activities.

RemovedArticle 1 – paragraph 1 – point 9, Article 16-a – paragraph 12 – subparagraph 1 – introductory part: ESMA, after having consulted EIOPA and the competent authorities, shall develop draft regulatory technical standards specifying the following:

Added(25) Passport notifications under Directives (EU) 2014/65 and (EU) 2016/97 do not require that information on the scale of the cross-border services is provided. To provide ESMA, EIOPA and competent authorities with a proper understanding of the extent of cross-border services and to enable them to adapt their supervisory activities to those cross-border services, competent authorities should collect information on the provision of such services. Where an investment firm or an insurance intermediary provides services to clients located in another Member State, the investment firm or insurance intermediary should provide its competent authority with basic information on those services. For proportionality purposes, this reporting requirement should not apply to firms serving fewer than fifty clients on a cross-border basis. Competent authorities should make that information available to ESMA and EIOPA, who should in turn make the information accessible to all competent authorities and publish an annual statistical report on cross-border services. To limit, to the greatest extent possible, costs related to the reporting obligations related to cross-border activities and to avoid unnecessary duplication, information should as far as possible be based on existing disclosure and reporting obligations.

RemovedDirective 2014/65/EU

Added(26) To foster supervisory convergence and facilitate cooperation between competent authorities, ESMA should be able to set up cooperation platforms on its own initiative, or at the initiative of one or more competent authorities, where justified concerns exist about investor detriment related to the provision of cross-border investment services, and where such activities are significant with respect to the market of the host Member State. EIOPA, which already has the power to set up collaboration platforms under Article 152b of Directive 2009/138/EC, should have the same power with regard to insurance distribution activities under Directive (EU) 2016/97 since similar cross border supervision issues may occur in insurance distribution. Where personal data is to be processed under the collaboration platforms, competent authorities, ESMA and EIOPA are to comply with Regulation (EU) 2016/679. Where there are serious concerns about potential investor detriment and where the supervisory authorities involved in the collaboration platforms cannot reach an agreement on issues related to an investment firm or insurance distributor which is operating on a cross-border basis, ESMA and EIOPA may in accordance with Article 16 of Regulation (EU) No 1095/2010 of the European Parliament and of the Council and Regulation (EU) No 1094/2010 of the European Parliament and of the Council, respectively, issue a recommendation to the competent authority of the home Member State to consider the concerns of the other relevant competent authorities, and to launch a joint on-site inspection together with other competent authorities concerned.

RemovedArticle 1 – paragraph 1 – point 9, Article 16-a – paragraph 12 – subparagraph 2: ESMA shall submit those draft regulatory technical standards to the Commission by ... [18 months after the date of entry into force of this Directive].

Added(27) Costs, associated charges and third-party payments linked to investment products can have a great impact on expected returns. The disclosure of such costs associated charges and third-party payments are a key aspect of investor protection. Retail investors should be presented with clear information on costs, associated charges and third-party payments, in good time prior to taking an investment decision. To enhance comparability of such costs, associated charges and third-party payments, such information should be provided in a standardised manner and in comprehensible language. Regulatory technical standards should specify and harmonise the content and format of disclosures relating to such costs, associated charges and third-party payments including the standard terminology and brief and concise explanations, and the methodology to calculate the percentage of overall costs, that investment firms should provide to retail clients, in particular as regards the third-party payments.

RemovedDirective 2014/65/EU

Added(28) To further increase transparency, retail clients and customers should receive a periodic overview of their investments. For that reason, firms that provide investment services together with a service of safekeeping and administration of financial instruments, or insurance intermediaries and insurance undertakings distributing insurance-based investment products, should provide an annual statement to their retail clients and customers which should include an overview of the products those clients and customers hold, of all costs, associated charges and third-party payments, and of all payments, including dividends and the interests paid and received by the client and customer over a period of one year, together with an overview of the performance of the client’s or customer’s portfolio. That annual statement should enable retail investors to get a better understanding of the impact of those elements on the performance of their portfolio. For investment services that only consist of the reception, transmission and execution of orders, the annual statement should contain all costs, associated charges and third-party payments paid in connection with the services and the financial instruments. For services that only consist of safekeeping and administration of financial instruments, the annual statement should contain all costs, associated charges and payments received by the client in relation to the services and the financial instruments. For all those services, the service provider should provide the retail client upon request with a detailed breakdown of that information per financial instrument. In view of the long-term characteristics of insurance-based investment products which are often used for retirement purposes, the annual statement for such products should contain additional elements, including ▌projections of the expected outcome at the end of the contract, or recommended holding period and a summary of the insurance cover.

RemovedArticle 1 – paragraph 1 – point 10 a (new), Article 16a a (new): (10a) the following article is inserted: / “Article 16aa / Data providers / 1. Data providers shall comply with the following requirements: / (a) the provision of financial and non-financial market data shall be fair, reasonable, non-discriminatory, and transparent. In that regard, the following shall apply: / (i) transparency requires the disclosure of the methodologies and data sources or estimates used in providing financial and non-financial market data to the public. Data providers shall disclose on their website the methodologies and data sources or estimates they use in the provision of their services. Such transparency requirement shall also apply to their data pricing and licence policies applicable to the users to which they market their financial and non-financial market data. Price methodologies shall be clear, accessible and easily comparable across data providers; / (ii) financial and non-financial data shall be made accessible without discrimination. To facilitate fair competition in the financial and non-financial data market, data providers shall also ensure that fees charged to users for the provision of financial and non-financial data are not discriminatory and are based on actual costs; / (b) regarding the quality of the data, the following shall apply: / (i) data providers shall adopt all measures necessary to ensure that the information they use for financial and non-financial data is of sufficient quality and from reliable sources; / (ii) data provider…

Added(29) Diverging or overlapping disclosure requirements for the distribution of insurance products across different legal acts is a cause for legal uncertainty and unnecessary cost for insurance undertakings and insurance intermediaries. It is therefore appropriate to set out all disclosure requirements in one legal act by removing such requirements from Directive 2009/138/EC and by amending Directive (EU) 2016/97. At the same time, building on the experiences gained in the supervision of these requirements, it is appropriate to adapt them so that they are effective and comprehensive. Complementing the already well-established insurance product information document for non-life insurance products, an insurance product information document should also be in place for life insurance products other than insurance-based investment products to provide standardised information. For insurance-based investment products, standard information should be provided by the PRIIPs key information document under Regulation (EU) No 1286/2014.

RemovedInvestment firms depend on Data providers to provide their services and to comply with EU regulators. Used in almost all investment decisions and to meet the EU’s regulatory reporting requirements, these data must be of high quality, reliable and subject to very strict control procedures. The access, use and cost of financial and non-financial market data necessary to provide investment services and to manufacture and distribute financial products are an important portion of the costs borne by investment firms, thus a significant proportion of the total charges paid by retail clients. Data providers that provide financial and non-financial market data should be required to do so under fair, reasonable, non-discriminatory, and transparent commercial basis.

Added(30) Changes in the manner by which investment firms, insurance undertakings and insurance intermediaries advertise financial products and services, including the use of influencers, social media and the use of behavioural biases, increasingly affect retail investors’ behaviour. It is therefore appropriate to introduce requirements for marketing communication and practices, which may also include third-party content, design, promotions, branding, campaigning, product placement and reward schemes. Those requirements should in particular specify what the requirement to be fair, clear and not misleading entails in the context of marketing communications and practices. Requirements for a balanced presentation of risks and benefits, and suitability for the intended target audience, should also help to improve the application of investor protection principles. Those requirements should extend to marketing practices, where those practices are used to enhance marketing communications’ reach and effectiveness, or the perception of their relatability, reliability, or comparability. However, to ensure that providers of investment products are not discouraged or prevented from providing financial educational material and from promoting and improving the financial literacy of investors, it should be specified that such materials and activities do not fall under the definition of marketing communication and marketing practice.

RemovedDirective 2014/65/EU

Added(31) To address developments in marketing practices, including the use of third parties, such as so-called finfluencers, for indirect promotion of products or services, and to ensure an appropriate level of investor protection, it is necessary to strengthen the requirements regarding marketing communications. It is therefore necessary to require that marketing communications should enable the easy identification of the investment firm, insurance undertaking or insurance intermediary on whose behalf the marketing communications are made. For retail clients, such marketing communications should also contain essential information presented in a clear and balanced manner, on the products and services on offer. To ensure that investor protection obligations are properly applied in practice, investment firms should have a policy on marketing communications and practices and adequate internal controls and reporting procedures to the investment firms’ management body to ensure compliance with such policy. When developing marketing communications and practices, investment firms, insurance intermediaries and insurance undertakings should take into account the target audience of the target market concerned.