The European Fund and Asset Management Association (EFAMA) has come out swinging at the European Union’s Retail Investment Strategy (RIS).
A statement from EFAMA – produced in conjunction with trade bodies the Association of Mutual Insurers and Insurance Cooperatives in Europe, the European Association of Co-Operative Banks, the European Association of Public Banks, the European Banking Federation, the European Savings Banks Group, the European Structured Investment Products Association and Insurance Europe – said that while they strongly supported boosting retail participation in financial markets, they held “far-reaching” concerns.
Four concerns in particular were raised, with the trade bodies noting: “Although the Commission declared it had abandoned its original plan to fully prohibit commissions in the distribution of investment products and insurance-based investment products due to potential disruption to the market, there are many prohibitions to the payment of commissions in the RIS proposals, and these would still have major disruptive consequences for the European financial sector and consumers’ access to investment and insurance protection.”
They added: “We also hold substantial reservations on the new ‘best interest of the client’ test. The proposed approach, which disproportionately focuses on costs, may lead clients to prioritise the ‘cheapest’ product over others that could potentially offer them greater value. We note that such an outcome would be, in fact, contrary to the client’s best interest.”
Information overload
A second concern was that the number of new processes, policies, organisational requirements, technical disclosures and compliance obligations introduced by the proposals deviates from the goals of reducing the information overload on clients and making access to financial services simpler.
The trade bodies added: “In fact, the overwhelming volume of requirements adds complexities that are highly likely to discourage consumer engagement, as the laudable ambition of turning European depositors into investors would be impeded by an even longer, more complex and more burdensome investment process.”
The joint statement’s authors also criticised the introduction of the benchmarks, which they said contradict the goal of the investment process, which is to offer tailored solutions to different clients’ needs. “Indeed, value encompasses more than just costs and has diverse meanings for different consumers, depending on their circumstances, objectives, and personal values,” they added.
“Not only would such a benchmarking exercise be extremely complex to execute, with limited benefits for clients (a cost-centric rather than investor-centric approach), but it essentially establishes a regulation-driven price intervention into capital markets. We therefore question the need, legal basis and consequences, in particular in terms of market competition, of such a policy choice.”
Pricing intervention
They continued: “Additionally, pricing intervention through benchmarks would pose significant threats to the development of innovative products – especially in the many emerging investment areas that lack historic price data – and would not be compatible with the ongoing efforts to foster a more sustainable offering. All of this will clearly have a detrimental impact on the international attractiveness of the EU’s capital market.”
Lastly, concerns were raised around the timeline currently set out by the EU. “We are equally concerned about the unfeasible timeline for the implementation of the new requirements,” the trade bodies said. “The industry needs adequate time to apply any new requirements in the millions of diverging contractual relationships it holds with retail investors and customers.
“Hence, the timeline needs to carefully consider the point at which all the necessary Level 2 specifications and national provisions are published. At present, the transposition dates proposed in the current draft would make it impossible for the industry to comply, as it can already be predicted that by then not even the Level 2 specifications will have been published.”
