Changes from report parliamentary committee draft to plenary report

RemovedArticle 1 – paragraph 1 – point 12 – point b, Article 24 – paragraph 1 a – point a: (a) to inform the client of the range of financial instruments assessed by the investment firm, and to provide advice on the basis of an assessment of an appropriate range of financial instruments, suitable to the client's needs;

Added(31a) Younger generations are the most vulnerable to digital mis-selling. Although the rise of finfluencers can be positive in terms of promoting financial education to a wider audience, it is essential to ensure sufficient safeguards so as to create a safe investment environment for each Union citizen. Trust in Union financial markets is a key factor in encouraging potential investors to invest in them.

RemovedDirective 2014/65/EU

Added(32) The rapid pace at which marketing communications and practices can be provided and changed, in particular through the use of digital tools and channels, should not prevent the adequate enforcement of applicable regulatory requirements. It is therefore necessary that Member States ensure that national competent authorities have the necessary powers to supervise and where necessary intervene in a timely manner. In addition, competent authorities should have access to the necessary information related to marketing communications and practices to perform their supervisory and enforcement duties and ensure consumer protection. For that purpose, investment firms and insurance undertakings should keep records of marketing communications provided or made accessible to retail clients or potential retail client and any related elements relevant for competent authorities. To capture marketing communications disseminated by third parties, such as for instance influencers and advertisement agencies, it is necessary that details on such third parties’ identity are also recorded. As issues with financial products and services may arise several years after the investment, investment firms, insurance undertakings and insurance intermediaries should keep records of the above information for at least the duration of their relationship with the client or customer.

RemovedArticle 1 – paragraph 1 – point 12 – point b, Article 24 – paragraph 1a – point c: deleted

Added(32a) Investment firms, insurance undertakings and insurance intermediaries which make use of finfluencers to carry out their marketing communication should establish a written agreement with the finfluencers laying out the content of their contractual relationship, namely the scope and nature of the activities carried out. They should also provide the competent authority upon request with the identity and contact details of the finfluencers whose services they rely on, and should regularly operate controls over the activities carried out by the finfluencers to ensure the finfluencers’ compliance with this Directive.

RemovedDirective 2014/65/EU

Added(33) The suitability and appropriateness assessments are an essential element of investor protection. Investment firms, insurance undertakings and insurance intermediaries should assess the suitability or appropriateness of investment products and services recommended to or demanded by the client, respectively, on the basis of information obtained from the client. Where necessary, the investment firm, insurance undertaking or insurance intermediary, may also use information that they may have obtained on the basis of other legitimate reasons, including existing relationships with the client or customer. The investment firms, insurance undertakings and insurance intermediaries should explain to their clients and customers the purpose of these assessments and the importance of providing accurate and complete information. They should inform their clients and customers, through standardised warnings, that providing inaccurate and incomplete information may have negative consequences on the quality of the assessment. To ensure harmonisation and efficiency of the different warnings, ESMA and EIOPA should develop regulatory technical standards to specify the content and format of such warnings.

RemovedArticle 1 – paragraph 1 – point 12 – point b, Article 24 – paragraph 1a – subparagraph 1 a (new): The cost efficiency referred to in the first subparagraph, point (b), shall be determined on the basis of the investment firm’s assessment of the instrument’s net return expectations taking into account all implicit and explicit costs and charges.

Added(34) To ensure that, in the context of advised services, due consideration is given to portfolio diversification, financial advisors should be systematically required to consider the needs of such diversification for their clients or customers, as part of the suitability assessments, including on their existing portfolio to the extent that the client or customer discloses its existing portfolio at the request of the firm.

RemovedDirective 2014/65/EU

Added(35) To ensure that appropriateness tests enable investment firms, insurance undertakings and insurance intermediaries to effectively assess if a financial product or service is appropriate for their clients and customers, those firms, insurance undertakings and insurance intermediaries should obtain from them information not only about their knowledge and experience on such financial instruments or services, but for retail clients or customers also about their capacity to bear full or partial losses, ▌their risk tolerance, investment needs and objectives, including sustainability preferences. In the case of a negative appropriateness assessment, an investment firm, insurance undertaking or insurance intermediary distributor should, in addition to the obligation to provide a warning to the client or customer, only be allowed to proceed with the transaction where the client or customer concerned explicitly request so.

RemovedArticle 1 – paragraph 1 – point 12 – point b, Article 24 – paragraph 1a a (new): 1aa. ESMA shall develop draft regulatory technical standards specifying: / (i) the criteria for the assessment of an appropriate range of financial instruments, and how those criteria are to be fulfilled where investment advice is provided on a non-independent basis and only financial instruments manufactured within the group of the investment firm providing advice are assessed; / (ii) for different categories of financial instruments, how return expectations are determined for the purpose of paragraph 1a, second subparagraph, of this Article, and whether and when past performances or simulated future performances are to be used where applicable. / ESMA shall submit those draft regulatory technical standards to the Commission by ... [18 months after the date of entry into force of this Directive]. / The Commission is empowered to adopt delegated acts supplementing this Directive by adopting the regulatory technical standards referred to in the first subparagraph of this Article in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010.

Added(36) A wide diversity of financial instruments can be offered to retail investors, with each financial instrument entailing different levels of risks of potential losses. Retail investors should therefore be able to easily identify investment products that are particularly risky or complex. It is therefore appropriate to require that investment firms, insurance undertakings and insurance intermediaries identify those investment products that are particularly risky or complex and include, in information transmitted to retail clients and customers, including marketing communications, warnings on those risks. To assist investment firms, insurance undertakings and insurance intermediaries in identifying such particularly risky or complex products, ESMA and EIOPA should develop draft regulatory technical standards on how to identify such products, taking due account of the different types of existing investment products and insurance-based investment products. To harmonise such risk warnings across the EU, ESMA and EIOPA should submit technical standards as regards the content and format of such risk warnings. Member States should empower competent authorities to impose the use of risk warnings for specific investment products and, where the use or absence of use of those risk warnings throughout the EU would be inconsistent or would create a material impact in terms of investor protection, ESMA and EIOPA should have the power to impose the use of such warnings by investment firms throughout the EU.

RemovedWe suggest to clarify the "cost efficiency" criterion, to be assessed in practice with the notion of net performance, i.e. taking into account the level of return and not just costs. The question of using past or future performance scenarios will depend on the type of financial instrument (ESMA shall draw up guidelines to provide flexibility on this point, rather than setting it at Level I). We suggest that ESMA defines the practical meaning of "appropriate range of financial instruments" and how to fulfil this obligation in case of closed architecture (non-independent advice).

Added(36a) Financial literacy is of key importance in addressing the current deficiencies in the Capital Markets Union (CMU) and in ensuring the adequate fulfilment of the CMU goals. Trust in Union financial markets is intrinsically linked to the level of participation in those markets by retail clients. Education and knowledge are tools to empower each citizen to make informed investment decisions. However, the level of financial literacy differs significantly across Member States. This Directive should lay the ground for increasing the level of financial education in each Member State. In view of the limited competences conferred upon the Union in that area, it is the responsibility of each Member State to ensure that proper adjustments are made, particularly in their education systems, to comply with this Directive. Member States should take ambitious steps to fulfil the obligations laid down in this Directive.

RemovedArticle 1 – paragraph 1 – point 12 – point i: (i) paragraph 9a is deleted;

Added(37) Increasing the level of financial literacy of retail clients and customers, and of prospective retail clients and potential customers, is key to providing those retail clients and customers with a better understanding of how to invest responsibly, to adequately balance the risks and benefits involved with investing. Member States should therefore promote formal and informal learning measures that support the financial literacy of retail clients and customers, and of prospective retail clients and potential customers in relation to responsible investing. Investing responsibly refers to retail investors’ ability to make informed investment decisions in line with their personal and financial objectives, provided that they are aware of the range of available investment products and services, their key features, and the risks and benefits involved with investing, and provided that they understand the investment advice they receive and are able to react to it appropriately. Prospective retail investors should be able to access educational material that supports their financial literacy at all times, and the material should in particular take account of differences in age, education levels and the technological capabilities of retail investors. That is in particular relevant for retail clients and customers that access financial instruments, investment services, and insurance-based investment products for the first time, and those using digital tools.

RemovedDirective 2014/65/EU

Added(38) It is necessary to ensure that the criteria for determining whether a client or customer possesses the necessary experience, knowledge and expertise to be treated as a professional client where such client requests such treatment, are appropriate and fit for purpose. The identification criteria should therefore also take into account experience gathered ▌in the financial services sector or in another relevant sector and certified training and education that the client has completed. That experience, training and education should not be combined only with the size of the client’s financial portfolio. The identification criteria should also be proportionate and not discriminatory with respect to the Member State of residence of the client. The criteria based on wealth and size of a legal entity should therefore be amended to account for clients residing in Member States with lower average GDP per capita.

RemovedArticle 1 – paragraph 1 – point 13, Article 24a – paragraph 1: 1. Member States shall ensure that investment firms, when providing portfolio management, do not accept and retain fees, commissions or any monetary or non-monetary benefits paid or provided by any third party or a person acting on behalf of a third party in relation to the provision of the service to clients.

Added(39) The European Data Protection Supervisor was consulted in accordance with Article 42(1) of Regulation (EU) 2018/1725 of the European Parliament and of the Council and delivered an opinion on [XX XX 2023].

RemovedDirective 2014/65/EU

Added(40) Regulation (EU) 2016/679 of the European Parliament and of the Council applies to the processing of personal data for the purposes of this Directive. Regulation (EU) 2018/1725 of the European Parliament and of the Council applies to the processing of personal data by the Union institutions and bodies for the purposes of this Directive. Member States should ensure that processing of data carried out in application of this Directive fully respects Directive 2002/58/EC of the European Parliament and of the Council where that Directive is applicable.

RemovedArticle 1 – paragraph 1 – point 13, Article 24a – paragraph 2: deleted

Added(41) Directives (EU) 2009/65/EC, 2009/138/EC, 2011/61/EU, 2014/65/EU and (EU) 2016/97 should therefore be amended accordingly.

RemovedExecution-only transactions are not subject to a conflict of interest stemming from the remuneration of the distributor by the manufacturer. The absence of advice means any nudge have little to no influence on the client’s choice. In the absence of a clear and precise definition of the reception and transmission of orders (RTO), the actual scope of the ban remains unclear. Finally, RTO is first and foremost used by knowledgeable clients, which means a ban will not foster participation of retail investors to financial markets.

AddedHAVE ADOPTED THIS DIRECTIVE:

Change 2

ChangedAmendments to Directive 2014/65/EU

Change 3

RemovedArticle 1 – paragraph 1 – point 13, Article 24a – paragraph 3: deleted

AddedDirective 2014/65/EU is amended as follows:

RemovedDirective 2014/65/EU

Added(1) in Article 1(4), point (a) is replaced by the following:

RemovedArticle 1 – paragraph 1 – point 13, Article 24a – paragraph 4: deleted / (deleted)

Added‘(a) Article 9(3), Article 14, and Article 16(2), (3) and (6), Article 16-a (1), first, second and fifth subparagraph, Article 16-a(3), Article 16-a(4), first and second subparagraph, Article 16-a(7), (8), (10) and Article 16-a(11), point (b);’;

RemovedDirective 2014/65/EU

Added(2) in Article 3(2), points (b) and (c) are replaced by the following:

RemovedArticle 1 – paragraph 1 – point 13, Article 24a – paragraph 5: 5. Paragraph 1 shall not apply to the minor non-monetary benefits of a total value below EUR 100 per annum or of a scale and nature such that they could not be judged to impair compliance with the investment firm’s duty to act in the best interest of the client, provided that they have been clearly disclosed to the client.

Added‘(b) conduct of business obligations as established in Article 24(1), (1a), Article 24(3), (4), (5), (7) and (10), Article 25(2), (4), (5) and (6), and, where the national regime allows those persons to appoint tied agents, Article 29, and the respective implementing measures;

RemovedDirective 2014/65/EU

Added(c) organisational requirements as laid down in the Article 16(3), (6), (7), Article 16-a (1), subparagraphs 1, 2 and 5, Article 16-a(3), Article 16-a(4), subparagraphs 1 and 2, Article 16-a(7) point (c), (8), (10) and Article 16(11), point (b), and the corresponding delegated acts adopted by the Commission in accordance with Article 89.’;

RemovedArticle 1 – paragraph 1 – point 13, Article 24a – paragraph 8: 8. Five years after the end of the transposition period of Directive (EU) [OP Please introduce the number of the amending Directive] and after having consulted ESMA and EIOPA, the Commission shall assess the impact of the relevant provisions of Directive (EU) [OP Please introduce the number of the amending Directive] on the potential conflicts of interest associated with inducements, the evolution of costs, the overall level of retail investment in capital markets, consumer protection and the relevance of distribution rules.

Added(3) in Article 4(1), the following points (66), (67) and (68) are added:

RemovedA 3-year period is far too short to assess the changes introduced by the RIS given the number of modifications and the time required for their implementation. Additional hindsight is necessary for the Commission to have an accurate view on the impact of the RIS. Moreover, the review should not only focus on the question of inducements but be more exhaustive to cover the same range of topics addressed by the directive (e.g., conflicts of interest, evolution of costs after the implementation of value for money, the relevance of distribution rules given new business models in the sector).

Added‘(66) ‘marketing communication’ means any disclosure of information other than a disclosure required by Union or national law, or other than the financial education material referred to in Article 88b, or other than investment research that meet the conditions to be treated as such, that directly or indirectly promotes or entices investments in one or several financial instruments or categories of financial instruments or the use of investment or ancillary services provided by an investment firm that is made:

RemovedDirective 2014/65/EU

Added(a) by an investment firm or a third party that is remunerated or incentivised through non-monetary compensation by such investment firm;

RemovedArticle 1 – paragraph 1 – point 13, Article 24c – paragraph 4 – subparagraph 1: Where a manufacturer of a financial instrument prepares and provides a marketing communication to be used by a distributor, the manufacturer shall be responsible for the content of such marketing communication and its update. The distributor shall be responsible for the use of this marketing communication and shall ensure that it is used for the identified target market only and in line with the distribution strategy identified for the target market.

Added(b) to natural or legal persons;

RemovedAlignment with Article 26a of Directive (EU) 2016/97.

Added(c) in any form and by any means;

RemovedDirective 2014/65/EU

Added(67) ‘marketing practice’ means any strategy, use of a tool or technique applied by an investment firm, or by any third party that is remunerated or incentivised through non-monetary compensation by such investment firm to:

RemovedArticle 1 – paragraph 1 – point 13, Article 24c – paragraph 4 – subparagraph 2: Where an investment firm that offers or recommends financial instruments which it does not manufacture, organises its own marketing communication, it shall be fully responsible for its appropriate content, update and use, in line with the identified target market and in particular in line with the identified client categorisation.

Added(a) directly or indirectly disseminate marketing communications;

RemovedAlignment with Article 26a of Directive (EU) 2016/97.

Added(b) accelerate or improve the reach and effectiveness of the marketing communications;

RemovedDirective 2014/65/EU

Added(c) promote in any way investment firms, financial instruments or investment services;

RemovedArticle 1 – paragraph 1 – point 13, Article 24c – paragraph 4 a new: 4a. Where an investment firm uses the services of a third party that is remunerated or incentivised through non-monetary compensation by such investment firm, in order to promote investments in one or several financial instruments or the use of investment or ancillary services, and where such third party carries out such promotion through public social media platforms (“finfluencer”), the investment firm shall comply with the following obligations: / (a) it shall establish a written agreement with the finfluencer determining the nature and scope of the activity to be carried out on behalf of the firm; / (b) upon request, it shall provide the competent authority with the identity and contact details of all finfluencers whose services it relies on; / (c) it shall regularly check that the activity of the finfluencers whose services it relies on complies with paragraphs 1 to 4.