Changes from report parliamentary committee draft to plenary report

RemovedEXPLANATORY STATEMENT

Added(ii) the second, third and fourth subparagraphs are deleted;

RemovedThe Rapporteur welcomes the timely Commission’s proposal for the Retail Investment Strategy, in line with one of the key Commission’s objectives of the 2020 capital markets union action plan to make the EU an even safer place for individuals to save and invest long-term.

Added(f) paragraph 5 is replaced by the following:

RemovedThe Commission’s proposal consists of:

Added‘5. The information referred to in paragraph 4 shall be provided in a comprehensible form in such a manner that clients or potential clients are reasonably able to understand the nature and risks of the investment service and of the specific type of financial instrument that is being offered and, consequently, to take investment decisions on an informed basis. Where this Directive does not require the use of a standardised format for the provision of that information, Member States may require that information to be provided in a standardised format.’;

Removed Proposal for a Directive of the European Parliament and of the Council amending Directives (EU) 2009/65/EC, 2009/138/EC, 2011/61/EU, 2014/65/EU and (EU) 2016/97 as regards the Union retail investor protection rules;

Added(g) the following paragraphs 5b and 5c are inserted:

Removed Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 1286/2014 as regards the modernisation of the key information document.

Added‘5b. ESMA shall, by [2 years after the entry into force of the amending Directive], where necessary on the basis of prior consumer and industry testing, and after consulting EIOPA, develop draft regulatory technical standards to assist investment firms that provide any information to retail clients in an electronic format to design such disclosures in a suitable way for the average member of the group to whom they are directed, and shall update those standards periodically.

RemovedThe Rapporteur considers this proposal to be one of the key proposals of this mandate. Given the time constraints, she has identified main political priorities, which she addresses in her draft report, with the aim to continue the discussions. She will further amend the proposal throughout the amendment procedure.

AddedThe draft regulatory technical standards referred to in the first subparagraph shall specify the following:

RemovedThe Rapporteur fully shares the objectives of this proposal. More than 70 % of EU citizens have never invested in financial products due to various reasons, whether they find it too complex or they have concerns about the risks. Therefore, we must do everything to encourage citizens to change this. The new rules to protect and empower retail investors must provide for clear and transparent information and ensure that the financial advice is in the best interest of the retail investor.

Added(a) the presentation and format of the disclosures in electronic format, considering the various designs and channels that investment firms may use to inform their clients or potential clients;

Removed Inducements

Added(b) necessary safeguards to ensure ease of navigability and accessibility of the information, regardless of the device used by the client;

RemovedThe Rapporteur expressed strong views against a full ban on inducements. She remains concerned about the introduction of a partial ban on executive-only services which is not justified and does not seem to address issues of conflict of interest. This looks more like it is a first step towards a full ban. Many consumers in the EU rely on the advice of financial advisors and therefore it is necessary to enhance the current framework with appropriate tools and improvements. She believes that the conflicts of interest can be addressed via increased transparency. Moreover, the Rapporteur is of the opinion that the timing and the content of the review clause is unsatisfactory. This review clause shall not be biased as to lead to the automatic introduction of a full inducement ban. Therefore, she proposes to prolong it to 5 years starting from the end of the transposition period of the directive, to allow seeing the real effects of the measures on the market. Furthermore, she suggests broadening the review clause’s scope to provide for an assessment based on potential conflicts of interest, evolution of costs, level of retail investment in capital markets, consumer protection and the relevance of distribution rules.

Added(c) necessary safeguards to ensure easy retrievability of the information and facilitate the storing of information by clients in a durable medium.

Removed Best interest test

AddedESMA shall submit those draft regulatory technical standards to the Commission by ... [two years after the date of entry into force of this amending directive].

RemovedIn her draft report, the Rapporteur clarifies and strengthens the Commission’s proposal on the ‘best interest’ test under Markets in Financial Instruments Directive (MiFID) and Insurance Distribution Directive (IDD). In MiFID, she proposes to clarify the notion of ‘cost-efficiency’. In IDD, rather than focusing on the cost-efficiency of a product, she suggests that financial advice shall be given based on the performance, level of risk, costs, charges of an insurance based investment product or, where applicable underlying investment options. The products that are offered to the consumers must be tailored to their specific needs and objectives, thus it is not only the price that matters, but equally so the quality of the product.

AddedPower is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with Article 10 to 14 of Regulation (EU) No 1095/2010.

Removed Value for Money benchmarks

Added5c. Member States shall ensure that investment firms display appropriate warnings in information materials, including marketing communications, provided to retail clients or potential retail clients, to alert on the specific risks of potential losses carried by particularly risky or complex financial instruments.

RemovedIn the Rapporteur’s view, the Commission’s proposal on value for money could be disruptive on the market, as it would lead to reduced diversity of products and supressed innovation. She believes that the lack of clarification regarding the methodology applied to design those benchmarks prevents us to assess how these would truly unfold in practice. The Rapporteur fully agrees with the principle that the product must deliver value for money and that the products with unjustified and disproportionate high costs and charges have no place on the market. However, further discussions are needed on this point in order to find the right and balanced approach. Hence, the Rapporteur in her draft report deletes the benchmarks, with a view to continue discussions on this topic.

AddedESMA shall, after consulting the competent authorities and stakeholders by [18 months after the entry into force of the amending Directive], develop draft regulatory technical standards on the concept of particularly risky or complex financial instruments, and update them periodically. Those regulatory technical standards shall describe the characteristics of financial products that make them particularly risky or complex and which justify making them subject to the risk warnings referred to in the first subparagraph.

Removed Supervision and cross-border practices

AddedESMA shall also develop draft regulatory technical standards to further specify the format and content of such risk warnings to retail clients, taking due account of the specificities of the different types of financial instruments and types of communications.

RemovedThe Commission’s proposal does not go far enough in this respect and therefore the Rapporteur proposes amendments in pursuance of boosting the cross-border supervision and ensuring the equal protection for all consumers in all EU Member States. In this spirit, the Rapporteur introduces an obligation for companies to register in the same Member State where their head office is located, in order to avoid forum-shopping.

AddedESMA shall submit those draft regulatory technical standards to the Commission by [ OJ: insert date 18 months after the date of entry into force].

Removed Finfluencers

AddedPower is delegated to the Commission to adopt the regulatory technical standards referred to in the second and third subparagraphs in accordance with Article10 of Regulation (EU) No 1095/2010.

RemovedDigitalization has created a new generation of investors. We see the emergence of so-called “finfluencers” operating on social media and mobilizing mainly younger generations. The Rapporteur welcomes the measures proposed by the Commission to ensure clear, fair and no misleading marketing communications and to address concerns when it comes to financial influencers. They often lack specific knowledge in the area. Therefore the Rapporteur proposes additional elements to strengthen this part of the proposal even further, for example, by imposing the firms to sign a contract with the finfluencers in order to ensure transparency and determine responsibility. She also suggests to extend the provision regarding the ‘procedure to address unauthorised activities offered through digital means’, to finfluencers using miss-selling practices.

AddedESMA shall monitor the consistent application of risk warnings throughout the Union. In case of concerns regarding the use, or absence of use or supervision of the use of such risk warnings in Member States, that may have a material impact on the investor protection, ESMA, after having consulted the competent authorities concerned, may impose the use of risk warnings by investment firms.’;

Removed Financial literacy

Added(ga) in paragraph 7, point (b) is amended as follows:

RemovedThe Rapporteur perceives financial literacy as a vital element of improving investment behaviour in the EU, not only for consumers but also for financial advisors in order to provide high-quality professional advice. According to the recent Eurobarometer survey, only 18 % of EU citizens have a high level of financial literacy, 64 % have a medium level and 18 % a low level, while there are also huge divergences among Member States. These numbers clearly show that much more needs to be done in this field and that the EU must fully use its role to urge Member States to be ambitious in this regard.

Added‘(b) not accept or 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 in line with Article 24a. Minor non-monetary benefits capable of enhancing the quality of service provided to a client and 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 or of a total value below EUR 100 per annum shall be clearly disclosed and shall be excluded from this point.’;

Removed Data providers

Added▌

RemovedFinancial and non-financial market data are essential to the correct functioning of financial markets and to the provision of quality investment services to clients. These data must be of high quality, reliable, subject to very strict control procedures and accessible at fair conditions. 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, representing therefore a significant proportion of the total charges paid by retail clients. That is why the Rapporteur is of the view that the EU should implement horizontal and holistic European regulation for both financial and non-financial data providers and their activities, which should be accompanied by increased supervision of all data providers (including the third-country providers who currently benefit from an oligopolistic situation) at the European level.

Added(i) paragraphs 8, 9 and 9a are deleted;

Removed Packaged retail and insurance-based investment products (PRIIPS)

Added(ia) in paragraph 12, the first subparagraph is amended as follows:

RemovedThe Rapporteur welcomes the Commission’s proposal on PRIIPS but sees the need to introduce further adjustments to market practices and certain adaptations to the insurance sector. She suggests erasing a new section in the Key Information Document titled ‘Product at a glance’ and will continue to further assess the alignment of the new sustainability section with the relevant existing legislation.

Added‘Member States may, in exceptional cases, impose additional requirements on investment firms in respect of the matters covered by Article 24 and 24ce. Such requirements shall be objectively justified and proportionate so as to address specific risks to investor protection or to market integrity which are of particular importance in the circumstances of the market structure of that Member State.’;

Added(j) in paragraph 13, the first subparagraph is amended as follows:

Added(i) the introductory wording is replaced by the following:

Added‘The Commission shall be empowered to adopt delegated acts in accordance with Article 89 to ensure that investment firms comply with the principles set out in this Article ▌when providing investment or ancillary services to their clients, including:’;

Added(ii) point (d) is replaced by the following:

Added‘(d) the criteria to assess compliance of firms providing investment advice to retail clients▌ with the obligation to act in the best interest of their clients as set out in paragraphs 1 and 1a.’;

Added(13) the following Articles 24a, 24b, 24c and 24d are inserted:

Added‘Article 24a

AddedInducements

Added1. 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▌

Added5. 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.

Added6. ▌The provision of research by third parties to an investment firm providing portfolio management or other investment or ancillary services to clients is to be regarded as fulfilling the obligations under Article 24(1) if:

Added(a) ▌an agreement has been entered into between the investment firm and the third-party provider of research and execution services, establishing a methodology for remuneration, including how the total cost of research is generally taken into account when establishing the total charges for investment services;

Added(b) the investment firm makes available to its clients its policy on separate or joint payments, as the case may be, for execution services and third-party research, including the type of information that may be provided in each case and, where relevant, how the investment firm prevents or manages conflicts of interest pursuant to Article 23 when providing joint payments for execution services and research;