While fostering investors’ participation in financial markets is one of the priorities of the Capital Markets Union, the emergence of new risks requires adjusted rules. Financial education remains key if we want to bring more investors to financial markets in a safe manner.
A year ago, the European Commission (EC) published its new Capital Markets Union (CMU) action plan
composed of 16 actions and aiming at “getting money – investments and
savings – flowing across the EU so that it can benefit consumers,
investors and companies, regardless of where they are located”.
Market-based financing is essential to sustain the recovery and to
finance the twin transition to a greener and more digital EU economy.
However, we know that one of the key challenges the EU is facing is the
low level of investment by EU retail investors in capital markets. We
also know empowering investors is particularly high on Commissioner McGuinness’s priorities.
The EC intends to attract more retail investors by simplifying rules in
particular regarding disclosure of information on financial products.
One of the proposals is the development of individual pension tracking
systems which should encourage investors to supplement public pensions
with life-long saving and investment.
In this context, the EC published a public consultation last spring
to tailor the future EU retail investment strategy to investors’ needs
and to be published in 2022. As rightly pointed out by the EC in its
communication dated 25th November 2021, “it is thus essential to empower
retail investors to use these opportunities while providing the right
level of protection”. Issues high on the agenda are sustainable
investments, the digitalization of markets, and the implementation of
distribution and transparency rules under MiFID II.
- Disclosure to clients and inducements regime
While it is now widely recognised that (potential) investors are
facing an information overload which may discourage them from investing
in financial markets, we should also make sure not to create more
confusion by amending the distribution rules now that they have just
been fully implemented by financial intermediaries. On the contrary, the
EC might rather consider working on consistency across regulatory
Inducements are under scrutiny by the ESAs and the EC as being
potentially unfair to clients. We should also highlight that MiFID II
rules already strictly frame the perception of inducements. One should
also keep in mind that at this point in time and in many Member States,
the majority of investors are not ready to pay for any financial
service, so it is one of the ways for financial intermediaries to get a
payment from the services they provide. The inducement regime is also
key to ensuring open architecture and the distribution of diversified
- The emergence of new risks
We believe the current regulatory framework may entail the emergence
of new risks which should be considered by regulators. Social media and
other unregulated platforms carry risks regarding the reliability and
quality of information. The reliability and quality of information can
sometimes be doubtful, and those platforms cannot provide the right protection against misinformation.
By framing too strictly the distribution of investment products, some
investors may be tempted to invest in non-regulated products such as
crypto assets or virtual currencies which are easily available online
driving them away from financial markets. It’s now time to appropriately
frame those unregulated products at the EU level.
- The need for a high degree of financial literacy
As advocated by the EBF in the Markets4Europe campaign,
investment culture can only evolve with investors and entrepreneurs who
are comfortable with their investment choices. Therefore, the EU needs a
major EU campaign for financial literacy to educate potential
investors. In this context, we can only strongly support the launch of
the joint EC/OECD-INFE project to develop a financial competence framework for the EU.
To conclude, if there is an urgent need to move forward in framing
the marketing, the issuance, and the distribution of unregulated
products, investors will not be able to take part in financial markets
if they do not properly understand the functioning, characteristics of
financial markets and products. If investor protection is key, it goes
hand in hand with financial education and this can only be done at the
EU level with a strong commitment from the Member States to the Capital
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