Retail Investment: EU Reform Framework

The EU's reform of retail investment faces mixed reviews. The financial sector supports digital-first communication and financial literacy efforts, but also raises concerns about commission bans, complex consumer rules, dubious benchmarks, and an unrealistic implementation timeline.

Retail Investment: EU Reform Framework
EU Regulation and reform in the EU financial sector

EU Retail Investment Strategy: Financial Sector Reacts

Source: Insurance Europee Keywords EU Commission Retail Investment

The European Commission recently unveiled a comprehensive reform of the EU legislative framework for retail investment, aimed at boosting retail participation in financial markets. While representatives of the European financial and insurance sectors are still assessing the full impact of the Retail Investment Strategy (RIS), they have expressed support for the shift towards 'digital by default' communication and efforts to promote financial literacy. However, they have also raised concerns about the far-reaching measures proposed. These include the potential disruption caused by prohibiting commissions in the distribution of investment products and insurance-based investment products, the complex requirements that may discourage consumer engagement, the problematic 'value for money' benchmarks, and the unfeasible timeline for implementing new requirements. Despite these concerns, the financial and insurance industries remain committed to contributing constructively to the debate on empowering retail investors.

Retail Investment Strategy: Partecipation in Financial Markets

The European Commission has unveiled the Retail Investment Strategy (RIS), a comprehensive reform of the EU legislative framework for retail investment. The objective is to encourage retail participation in financial markets, which has implications for financial institutions in the EU dealing with retail investment and insurance-based products.

The proposed RIS introduces several measures to consider. It includes the prohibition of commissions in the distribution of investment and insurance-based products, the introduction of new processes, policies, and requirements, the implementation of "value for money" benchmarks focusing on costs, and an unfeasible timeline for implementing the new requirements.

These potential changes can impact financial institutions and consumers in various ways. Prohibiting commissions may disrupt the market and limit consumer access to investment and insurance options, potentially reducing competition and innovation. The complexity of new processes and requirements may discourage consumer engagement, impede the goal of turning depositors into investors, and make access to financial services more challenging. The "value for money" benchmarks, emphasizing costs, may lead to price intervention in capital markets, negatively affecting competition and stifling innovation in emerging investment areas. Additionally, the unfeasible timeline for implementation may create pressure on financial institutions, making compliance with the new rules difficult.

To ensure compliance with the proposed RIS, financial institutions can take mitigating actions. These include adjusting revenue models to align with the prohibition of commissions by exploring alternative fee structures or business models. Investing in consumer education and financial literacy initiatives can enhance understanding of the complex requirements and encourage consumer engagement. Thorough product reviews can ensure compliance with the proposed "value for money" benchmarks. Furthermore, developing comprehensive implementation plans that prioritize key compliance areas and address challenges posed by the unfeasible timeline is essential.

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Retail investment package
The aim of the package is to empower retail investors (i.e. “consumer” investors) to make investment decisions that are aligned with their needs and preferences, ensuring that they are treated fairly and duly protected.

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