Introducing the retail investment package to enhance trust and participation in EU Capital Markets
On 24 May 2023, the European Commission adopted a retail investment package (the “RIP”), announced in the 2020 capital markets union action plan, which seeks to create a safer environment for individuals to invest their savings in the long term within the EU. The package focuses on empowering consumers to make informed decisions that align with their preferences and needs while ensuring fair treatment and protection. By enhancing trust in capital markets and promoting better investment outcomes, the package aims to encourage retail investor participation and contribute to the success of the capital markets union.
Currently, EU retail participation in capital markets remains relatively low compared to other advanced economies, with a significant portion of financial wealth held in low-yield bank deposits. Factors such as low trust, concerns about risks and complexity, and a preference for alternative investments induced by social media and digital marketing channels contribute to this trend. Moreover, retail investors often face higher fees and commissions, diminishing their investment returns.
The RIP intends to streamline and modernize rules, placing consumer interests at the forefront and promoting equal treatment and protection across investment products and distribution channels. It recognizes the potential of long-term capital market investments to generate sustainable returns and complement retirement income, especially in the context of an aging EU population and longer life expectancy.
The current legislative framework also presents difficulties for retail investors in accessing relevant investment information. It leads to an increase of the exposure of the investor to a misleading marketing area, but also to potential conflicts of interest in product distribution, and unjustifiably high costs. Increasing financial literacy is crucial to empower retail investors in making informed investment decisions.
Key measures and objectives of the RIP
Empowering retail investors through transparency and protection
The RIP consists of a proposal for an amending directive, which will revise the existing rules set out in the directive 2014/65/EU on markets in financial instruments (“MiFID II”), the directive 2016/97/EU on insurance distribution (“IDD”), the directive 2009/65/EC on UCITS (“UCITS Directive”), the directive 2011/61/EU on AIFMs (“AIFMD”), and directive 2009/138/EC on the taking-up and pursuit of the business of insurance and reinsurance (“Solvency II”), as well as a proposal for an amending regulation, which will revise the packaged retail and insurance-based investment products (“PRIIPs”) Regulation.
Modernizing disclosures and standardizing transparency:
- enhancing disclosures for digital distribution;
- standardizing transparent cost disclosures and investment performance;
- implementing risk warnings;
- adding a summary dashboard for key cost and risk information in Packaged Retail Investment and Insurance-based products key information documents (“KIDs”).
Improving "value for money" for retail investors:
- measures to ensure better investment decision-making and assessment of product appropriateness and suitability;
- addressing conflicts of interests;
- enhancing marketing communication clarity and fairness, especially with social media and influencers.
Enhancing knowledge of actors:
- improving financial literacy of retail investors;
- enhancing knowledge and competence of investment advisors.
Reducing costs and increasing access:
- reducing administrative burdens;
- improving accessibility of products and services for sophisticated retail investors;
- enhancing cross-border supervision and enforcement mechanisms.
The package’s path to accessibility in EU capital markets
The RIP represents a significant step towards empowering retail investors and enhancing their trust in capital markets within the EU. The proposed changes, ranging from improved disclosures to standardized information documents, aim to provide retail investors with clearer, transparent, and easily understandable information about investment products.
The RIP is open for feedback until 16 August 2023.
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