On May 24th, 2023, the European Commission adopted a Retail Investment Package aimed at prioritizing the interests of retail investors and enhancing their trust and confidence in the EU’s Capital Markets Union. The Commission based its proposals on evidence collected over the past three years, including an in-depth study on retail investor issues, public consultations, advice from supervisory authorities, and engagement with stakeholders.
The proposals in the package include various measures such as:
- improving the provision of information to retail investors about investment products and services
- adapting disclosure rules to the digital age and sustainability preferences.
- increasing transparency and comparability of costs through standard presentations and terminology
- enabling retail investors to determine the value for money of investment products
- handing over to retail clients clear annual views of their portfolio’s investment performance
- banning inducements for “execution-only” sales and ensuring financial advice aligns with retail investors’ best interests
- introduction of stricter safeguards and transparency measures where inducements are allowed
- protecting retail investors from misleading marketing by holding financial intermediaries accountable for the use of marketing communication, including on social media or involving celebrities or third parties they incentivize
- preserving high professional qualifications for financial advisors
- empowering consumers through national measures supporting financial literacy, regardless of age, social background, or educational level.
- reducing administrative burdens
- improving accessibility of products and services for sophisticated retail investors by proportionate eligibility criteria for becoming a professional investor
- Furthermore, the package aims to enhance supervisory cooperation, making it easier for national competent authorities and European Supervisory Authorities to ensure proper and effective application of rules across the EU and jointly combat fraud and malpractices.
A short and user-friendly overview of the market issue and the European Commission’s Idea on how to solve the problem can be found here: Factsheet.pdf
The package encompasses an amending Directive that revises existing rules in several directives, including MiFID II, IDD, UCITS, AIFMD, and Solvency II. It also includes an amending Regulation that revises the PRIIPs Regulation.
Several cleversoft Services will be affected once the Commission’s propositions are officially published:
- Feedback period for Commission Adoption of the Retail investment new package of measures: May 25th, 2023 – July 28th, 2023.
- Entry into force: On the 20th day following publication in the Official Journal of the European Union
- Application date: 18 months after the date of entry into force
Please note that this 8-week feedback period to be extended every day until the adopted proposal is available in all EU languages.
Below you can find any relevant highlights to the affected regulations.
Proposed changes to PRIIP
The specific provisions of the proposal align with the EU Retail investment strategy and aims to enhance disclosures in the digital environment and meet the always evolving needs of retail investors. They primarily focus on modifying the Key Information Document (KID) provided to retail investors before they make investments and are in large part driven by the awareness that the information provided to investors is not always useful or relevant for them to decide whether to invest.
The EU Commission has now submitted the following amendments to the PRIIPs Regulation (EU) No 1286/2014):
- The proposal introduces a new KID section titled “Product at a glance” that includes a dashboard summarizing and highlighting key information about the PRIIP, such as the investment product type, the summary risk indicator, its costs and risk level, recommended holding period and whether it offers any insurance benefits.
- A proposal is made to remove the ‘comprehension alert’ at the beginning of the KID, which states that the product is not simple and may be difficult to understand, deemed not sufficiently effective as a warning since its initial introduction.
- An important provision of the proposal focuses on the introduction of new digital methods and more flexibility in the use of electronic formats to show PRIIPs’ key features. Although the 3-page KID will still be available and downloadable on the product manufacturer’s website, the information it contains should be presented to retail investors in a flexible and personalized way (e.g. the investor should be able to customize their investment amounts and holding periods based on their own preferences). Specifics should be defined in RTS drafted by the ESAs, considering accessibility aspects for visually impaired readers.
- A big new change consists in introducing a new sustainability section (“How environmentally sustainable is this product?”) including key ESG information in the KID. This information can be taken from the disclosures already provided by product manufacturers according to existing regulations to minimize reporting costs.
- With respect to Multi-Option Insurance Products (MOPs), which may be contained in different documents, the provisions address the challenge for retail investors to identify and comprehend information about the total costs across all options. Tools, such as simulation tools, should be provided to ensure that retail investors can easily access and compare the total costs of PRIIPs before making a decision.
- A new clause is proposed to clarify that a make-whole feature in a bond does not force such a product to be considered as a PRIIP. This has been a long-awaited change in the market, that would facilitate the access of retail investors to corporate bond issues.
- A clause proposes that the PRIIPs Regulation shall no longer apply to retail products providing immediate annuities without a redemption phase.
- The amendments propose to update legal references for types of securities that are not required to produce a PRIIPs KID, as well as references to the Prospectus Regulation to ensure both regulations apply to relevant products.
- The provisions remove the Commission’s authority to adopt delegated acts after the replacement of a reference to environmental and social objectives with the new sustainability section. Instead, the specifics of the sustainability section will be outlined through Regulatory Technical Standards (RTS).
- Subsequently to the previous provision, power is delegated to the Commission to adopt related regulatory technical standards. Changes are made to the timeframe for submitting draft RTS to the Commission.
- A condition is added for the ESAs to consider situations where PRIIPs KIDs are no longer available.
- In a next step the Council of the EU and the European Parliament are expected to review the Commission’s proposal to agree on a final text for subsequent publication in the Official Journal and a date of entry into effect – the Commission initially proposes an 18-month period between publication and application of the revised rules.
Proposed Changes MiFID II and IDD
- Costs and performance disclosures – Amendments are focused on improving the relevance of costs and performance disclosures for retail investors. Investment firms and insurance undertakings will have to provide:
- Before the execution of any transaction, information on costs presented in a standardized and easy-to-understand format
- An annual statement on costs and charges
- Marketing communications – A policy on marketing communications and practices, will defined, approved, and monitored by the management body as currently marketing materials happen to be misleading for investment decisions Competent authorities will be able to suspend or prohibit marketing communications or practices, and in more serious cases request the restriction of access or removal of online content.
- Inducements – A ban on inducements paid from manufacturers to distributors has been proposed and includes inducements for execution-only sales. However, an entire ban of inducement will not be part of the proposal.
- A new retail investor-centric approach to the MiFID II and IDD suitability and appropriateness tests will be introduced with the aim to simplify, improve, automate, and standarzise the way investor profiles are currently assessed.
- Client profiling – For non-advised services, it is proposed to strengthen the appropriateness assessment. Further questions regarding relevant education or training and financial ability to bear losses will be added.
- Harmonization of the requirements related to financial advisors’ qualification under MiFID II and IDD
Proposed Changes Solvency II
The articles 183, 184, 185 detailing the information that needs to be provided to policy holders in the section Cancelation rights from the Solvency II directive are to be deleted and instead the obligations of the insurers in this respect are going to be described in the new directive.
More details can be found in the related Question and answers on the Retail Investment Package, and in the Impact assessment accompanying the proposals also published on May 24th, 2023.
Our Regulatory Watch is currently conducting a thorough review of the amendments out forth by the European Commission, taking into consideration their potential implications for our clients and the relevance they hold for our respective services. We will keep you informed and updated on any pertinent developments resulting from this review process.