On 20 April 2021 the EU Commission published a roadmap on the topic of "A Retail Investment Strategy for the EU". Although scant on detail, the roadmap signals the potential for changes in relation to a number of regulations related to retail investors, including MiFID, the UCITS Directive, the IDD and PRIIPs KID rules.
The roadmap follows the publication in September 2020 by the Capital Markets Union of an Action Plan which aims to offer retail investors increased investment opportunities and greater investment protection, noting participation by EU retail investors in financial markets remains low by international standards. In order to achieve the above aim, the EU Commission cites the following as "problems" which require further investigation:
- investor protection rules are set out over several EU regulations, some of which are "service based" (e.g. MiFID and IDD) and others which are "product-based" (e.g. PRIIPs, UCITS) – the EU Commission considers this dispersed approach may make it more difficult for consumers to make investment decisions which correspond to their needs;
- the potential for arranging and advising services provided by intermediaries to be biased by inducements;
- the effectiveness of suitability assessments;
- the role of digital innovation (including the role of social media, online brokerages and ease of access to retail investments for new investors) is increasingly a feature of the retail investment market and its impact for retail investors needs to be assessed; and
- the general level of consumer understanding and familiarity with retail investment products and the possible need for further differentiation between different investor categories, the high complexity of some retail investment products as well as access to effective individual redress.
The roadmap suggests the strategy will focus on ensuring a coherent regulatory framework and will involve an assessment of the entire retail investor journey.
The publishing of the roadmap follows the FCA's speech last week on "Levelling the playing field" and the need for the FCA, as a regulator, to support financial innovation, but to also ensure adequate protection for consumers (including with respect to social media advertising). Therefore, while the UK and EU are clearly on similar wavelengths, future reforms to EU regulations presents the potential for substantial divergence between the UK and EU regulatory approach to retail investments.
The EU Commission will be launching a public consultation later this quarter with Commission adoption of changes planned for Q2 of 2022. We'll be keeping a close eye on this one.
Author: Vidhi Mahajan
