EFAMA welcomes ESMA’s Call for Evidence to assess the rapidly shifting investment landscape and ensure that the current regulatory environment, its underlying market structure, and the existing industry practices safeguard retail investors’ interests. It is our strong belief that improving retail investor empowerment in Europe is key to further develop and deepen its capital markets.
Disclosures
We consider it essential that the future EU retail investment strategy does not solely rely on pre-disclosure documents. This is particularly important for investment funds, which are already providing the most comprehensive financial product information documents for retail investors. Pre-disclosure documents should be seen as part of a broader holistic and accessible solution together with high-quality advice and higher levels of investor education.
The experiences with the current PRIIP KID over the last couple of years, albeit indirect, have shown us that meaningful comparisons between different types of investment products are not always possible. The current overload of disclosures (in the form of prospectuses, sustainability-related disclosures, MiFID disclosures, etc.) in addition to Key Information Documents is further levitating the problem.
On the topic of disclosures on sustainability risks and factors, the investment management industry has identified a number of sequencing issues causing practical challenges to the implementation of the ESG amendments to MiFID II and IDD.
Digital disclosures
Digital disclosures are means to enhance disclosures’ efficiency and adapt the legislative framework for investor protection to the increasingly digital environment. We believe the same level of investor protection should apply to ‘digital sales’, any semi-closed forums, social media groups and third parties and they should be closely monitored under the MiFID II scope. It is interesting to note that most recent issues around marketing and advertising of investment products not being suitable for retail investors (for example, CFDs) stemmed from the fact that some organisations/products were not properly supervised and/or not in scope of the current frameworks such as MiFID, IDD or PRIIPs (unlike UCITS and retail AIFs which are subject to prior authorisation before launch). It is, thus, rather an issue of failed supervision of financial service providers rather than a lack of investor protection.
Digital tools and channels
With regards to digital tools and channels, ESMA notes a number of concerns involving digital investment platforms. We would like to highlight that greater retail investor participation in markets is key to growing European capital markets and delivering on the wider CMU agenda; and digital investment platforms deliver on that.
The MiFID distribution/advice rules need to be applicable whether or not a fund is sold online thus ensuring that the current investor protection rules extend to online brokers. The same level of investor protection must apply to all distribution channels. Similar to digital advisors who are, and always should be, subject to the same framework of regulation and supervision as traditional advisors.
A reassessment of the retail investor’s role
Finally, we reiterate EFAMA’s previous observations with regards to the Commission’s approach: It should focus on a much-needed reassessment of retail investors’ comprehension, their role and their participation in EU financial markets, instead of merely making a number of technical changes (alignment of rules, disclosures, etc.) to existing regulations. The ultimate goal must be greater empowerment of retail investors.
