Overview of progress on financial files at midpoint of Parliament and Commission terms
Because of the war, the situation on energy markets remains challenging, although this winter has not so far been as difficult as we might have anticipated. Energy prices have fallen significantly from the peak.
As you are aware, the Council adopted legislation to address the situation on energy markets, including the Market Correction Mechanism.
And we continue to monitor these developments, together with ESMA, always keeping financial stability foremost in our minds.
This very difficult context makes our legislative work all the more important.
We're focused on increasing the resilience and competitiveness of the EU financial sector.
And that will help support the wider European economy during these difficult and changing times.
So a few words on the ongoing initiatives.
On the European Green Bond, we are very hopeful that we can conclude at the next trilogue.
On the need to fight money laundering and prevent terrorism financing – so on AML, I think we agree in this House, both Commission and Parliament, that there is work to be done here and it is urgent.
So again, thanks to the rapporteurs for their efforts to finish negotiations on the AML package as soon as possible.
On banking and insurance, Basel, Solvency, Insurance Recovery and Resolution.
And just to recall that our international partners are also working on these issues, and it is important that these packages are finalised.
For the Capital Markets Union, our work continues to make markets more efficient so they can better finance the economy.
You are working on the European Single Access Point, the AIFMD, CSDR, MiFID/MiFIR – all of these important files.
On this, I know the Council is very ready to begin trilogues, and again, the Parliament on some have finalised your position, and more work will continue.
We have three proposals presented just last month, and again I look forward to your work on these.
A new Listing Act making it easier for our companies, particularly smaller ones, to raise capital on exchanges by reducing compliance and listing costs.
We tried a similar reform in the past, which was limited to SMEs.
And this time, the reform is more ambitious and comprehensive. And again I hope I can count on your support to keep up that ambition.
We are revising EMIR, to build up a stronger clearing landscape in the Union and reduce our over-reliance on non-EU clearing houses.
On Corporate insolvency the proposal contains very targeted changes to make insolvency rules more consistent across Member States.
And in the next few months, we are preparing to launch some important proposals, and you've referenced them, Chair:
- On Banking Union, CMDI, Crisis management,
- Also a regulation on key principles of a Digital euro, and I followed your discussions yesterday, really interesting questions that have been raised about that,
- And a third one on open finance, an Open finance framework together with the Payment Services Directive review.
Briefly on the Taxonomy, which you've all worked very hard on. This is part of our sustainable finance work.
As I mentioned at our joint ECON-ENVI meeting just last month, our work on the delegated act for four environmental objectives: circular economy; biodiversity; pollution; and water.
Right now, we're looking at the advice we've received from the Platform on Sustainable Finance.
And we are considering as I mentioned in that hearing a staged approach: firstly focusing on activities that we can finalise quickly, which don't raise specific issues or technical difficulties.
And I think it's important to show progress on this staged basis.
Then more broadly on Taxonomy, we also need to address I think some real concerns around usability that we're being asked. It's important that we address those.
I know some Members of this House have raised issues around usability of the Taxonomy, as have Member States and stakeholders.
And maybe just to say we are in this time of change, orientation, companies need not only to look at finance but also their sustainability agenda.
So I'm not surprised that there is this, a bit of tension and unease. But we must make it as usable as possible.
In the next few months, and indeed we will be presenting a new Retail Investment Strategy.
I mentioned in October of 2020 during my hearing before the House here, that I wanted people to be central to finance, rather than using the financial system on occasion.
And I hold that commitment very strongly, and I need to live up to it, and I think the Retail Investment Strategy will affect that.
I think we can, and we should, improve the prospects for consumers and retail investors in the European Union.
So we're taking an ambitious approach, including looking at:
- Rules on how financial products are distributed to retail investors,
- The information that consumers receive,
- And in an increasingly digital world, how do consumers behave,
- Clearly, the role of sustainable investing, and consumers' interest in this is important,
- And I suppose the two words that I talk about a lot because I think it's important – financial literacy – not that I want every citizen in Europe to be an expert on the financial system. I think this room, we have experts. But I want people to have the confidence to question the financial system in order to make the right choices for themselves.
We are looking at the role of financial advice.
And here I want to ensure that consumers receive fair advice that is right and meets their needs.
One of the issues is how to deal with inducements.
Inducements are benefits or commissions given to financial advisors by a third party, typically the manufacturer of a financial product.
There are lots of debates on this, and it's been very healthy to have conversations and public discussions.
Because inducements can lead to conflicts of interest that can have a negative effect on the quality of investment advice.
And I want to be clear: what I'm talking about is not about fees that a customer would pay a financial advisor directly for fair and impartial advice.
But also to stress we have gathered, and continue to gather evidence and various viewpoints on the issue of inducements.
And this is included in our impact assessment.
Which shows that retail investors are often advised to buy more expensive products, and/or products which are not always the most suitable for their needs.
Low-cost products, like Exchange Traded Funds, are hardly ever recommended.
And this impacts the net returns that consumers can expect.
The Retail Investment Study shows that products where inducements are paid are on average 35 percent more expensive for retail investors than investment products where no inducements are paid.
And maybe it's worth repeating that figure, 35 percent.
And that's despite safeguards in MiFID and the Insurance Distribution Directive against conflicts of interest.
We have looked closely at the experience of the Netherlands, which introduced a ban on inducements a few years ago.
And in the Netherlands, this led to a shift towards less expensive and more diverse products, resulting in better value for money for retail investors.
And overall, we can say the Dutch inducement ban has not led to a reduction in retail investment – and in fact, there has been a slight increase.
And the level of trust in financial advice has also increased.
Now I know some will argue that the Dutch market is not representative of the rest of the European Union – which can be a fair point, thank you Markus for agreeing.
I know that retail investor behaviour and the level of financial literacy also varies across the European Union. So it's not quite a level playing field just yet.
But we need to ask ourselves whether commission-based models really work in the interest of retail investors.
And again, other issues that have been raised with us include the availability of advice. I know there are genuine concerns around this.
So I want consumers to have access to financial advice, but biased advice doesn't serve them either.
So it's a question of what is the advice and is it in their best interest.
We need to consider I think particularly the position of small investors, who don't have a huge amount of money to invest or indeed to spend on advice.
But at the moment, retail investors already pay for advice, whether they are fully aware of it or not.
And small investors would benefit from independent advice and low-cost products that they currently have less access to right now.
And this goes beyond simply calling for more transparency, because this is the argument.
Most people find it difficult to grasp how much they are paying when fees are even partially hidden.
And it's hard to unpick the relative value of different products when someone is selling their preferred option.
I firmly believe that all EU consumers have the right to decent advice at decent prices.
Advice that is most suitable for their needs, that gives them the best returns, and which they can trust. And I think trust is key.
So we are looking into measures to facilitate access to cost-efficient investment services and to increase retail investor engagement.
The idea would be to reduce possible barriers to affordable advice.
I know that this is an important topic for many in this room, as it is for consumer groups across Europe.
And I particularly want to thank Markus for his very useful letters and exchanges, and indeed the other Members of this House who have written to me on this issue.
It is divisive; there are arguments on both sides.
But I think it's good to grasp this nettle and to make change for the better.
And I look forward to our discussions.
We need to remove the obstacles that stop people investing on capital markets, and also prevents them making the most of their money.
And I think we saw that during Covid, where those in work that built up their deposits, significant deposits, but weren't looking towards investing.
And our Retail Investment Strategy will address these and many other issues.
So in conclusion, it's been a busy two years for me, three for you. You will have a very busy year, and we are in a very challenging time.
So thank you for your attention.
And I look forward to your comments and indeed questions.
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