European Commission: Retail Investment Package
June 2023On 24th May 2023, the European Commission (“Commission”) adopted the Retail Investment Package as part of its 2020 capital markets union action plan. The retail investment package consists of two legislative proposals:
- A proposed Directive amending the UCITS Directive, Solvency II Directive, AIFMD, MiFID II Directive and Insurance Distribution Directive as regards retail investor protection rules (referred to as the “Omnibus Directive”) (here); and
- A proposed Regulation amending the PRIIPs Regulation as regards modernisation of the key information document (here).
One of the primary goals of the 2020 capital markets union action plan is to make the EU a safer place for long term investments. The retail investment package aims to achieve that goal while also encouraging involvement in EU capital markets.
Key Features of the Retail Investment Package According to the Commission, the retail investment package includes ambitious and wide-ranging measures:
- Disclosure: the package will change the existing disclosure rules to respond to digitisation and to meet investors growing sustainability preferences. For example, investment firms, insurance intermediaries and insurance undertakings distributing insurance-based investment products will have to display appropriate risk warnings.
- Costs: new rules will require the use of standard presentation and terminology on costs. The package will include new provisions in the UCITs Directive and AIFMD to define the conditions for considering that costs are due and provide rules in the pricing process.
- Inducements: the package introduces restrictions and safeguards in relation to inducements and advice, based on a staged approach by:
- Banning inducements for sales of investment products where no advice is provided;
- For sales where advice is provided, replacing the current criteria with a new uniform test specifying the duty for advisors to act in the best interests of the client; and
- Where inducements are allowed, requiring distributors to inform clients about what the inducements are we well as their costs and impact on investment returns.
- Marketing: financial intermediaries will be fully responsible for the use and misuse of their marketing communications.
- Advisors: the package intends to apply a high standard of qualifications to financial advisors and compliance with requirements will need to be proved by obtaining a certificate.
- Professional Investors: The new rules are intended to reduce administrative burdens and increase product and service accessibility for sophisticated retail investors by making the qualifying conditions for becoming a professional investor more equitable upon request. MiFID II amendments include lowering the wealth criteria from €500,000 to €250,000, adding a fourth possible criterion pertaining to education or training, and allowing legal entities to qualify as professional.