A little over 6 months after the European Commission (EC) launched its High-Level Forum (HLF) on the Future of CMU, the group of 28 experts has now published its “New Vision for Europe’s Capital Markets” with a list of key recommendations. Several of those have been proposed by BETTER FINANCE and endorsed by the Group, which is good news for EU Citizens as Financial Users.
BETTER FINANCE’s Managing Director, Guillaume Prache, was one of the only two representatives of EU Citizens as Savers and Investors out of the 28 HLF members. Despite being dwarfed by the at least 18 members representing financial intermediaries or working for them (including six executives of extra-large US financial institutions), BETTER FINANCE is pleased, and grateful for the EC’s help, that it could get through - at least partly - many of its Key Priorities published last year.
A CMU that works for people
Achieving “a CMU that works for people” has been a priority for BETTER FINANCE since 2015, when the European Union (EU) laid the foundation for a CMU that would at long last create the single market for capital and investment services decided more than 60 years ago in the Treaty of Rome, develop more direct funding for the real economy and provide better returns for EU citizens as pension savers:
“European citizens as long-term savers and individual investors - who are one of the primary funders of the capital markets and of the economy - too often get poor net long-term real returns. Providing cross-border access to simple, comparable, cost-efficient and transparent products that provide sustainable value for money is key for savings, and key for investments.” (The Chair’s preface of the HLF Report)
Some of the recommendations are outlined below, while the entire list can be consulted in the annex to this press release.
Curbing conflicts of interests in Distribution
The most important step in giving EU citizens as investors access to simple and cost-efficient investment products, is to ensure they get fair financial advice. To this end, the HLF stops short of recommending a ban on kickbacks (“inducements” in EU jargon) to “non-independent “ (sic) retail distributors - as the Netherlands and the UK did - but asks the European Commission to examine, in particular, “the role of inducements for the adequacy of advice” and “how the inducement rules under IDD can ensure a sufficient level of consumer protection consistent with the investor protection standards applicable under MiFID II for insurance-based investment products “. These studies should be followed-up by appropriate legislative proposals.
Towards clear, fair, non-misleading and comparable key information disclosures
In addition, the report heeds BETTER FINANCE’s long-standing calls to improve the disclosure of key information for packaged retail and insurance-based investment products (“PRIIPs”) by asking the European Commission “to review as soon as possible, and in sufficient time to avoid a conflict with the expiry of the exemption for UCITS, the PRIIPs Regulation to address the issues raised by most stakeholders regarding intelligibility and comparability of information and the coherence with MIFID information rules, in particular for performance and cost disclosures.” Proper and clear disclosure documents are a prerequisite to enable consumers to compare products and make informed investment decisions.
Restore people’s trust in equity markets
The HLF also recommends to stop excluding individual investors in listed equities and bonds from the current EU collective redress regulatory project, and to promote employee share ownership plans (ESOPs) as a powerful way to better fund SMEs (to date, US ESOPs have invested … one hundred times more into unlisted SMEs than European ones) and to revive the equity culture, damaged by decades of biased retail advice. The exercise of voting rights by individual shareholders should also become less of a struggle.
Other people’s money”
“Although we are pleased to see that EU Citizens as savers are discreetly finding their rightful place at the heart of the Capital Markets Union,” stresses Guillaume Prache, “a fundamental misunderstanding of the “raison d’être” of capital markets, and who they are for, remains: they are not primarily for financial intermediaries, they are for the real economy users and providers of capital: the businesses in need of capital to grow and the end investors who provide this capital. And who are these providers of capital, investing directly or via pension funds, investment funds or insurance-based investment products? The EU citizens as savers.”
Mr. Prache also emphasises the need for a robust political backing of these recommendations: “it is too early to declare victory. Restoring much-needed trust amongst individual investors will only be possible if policymakers take this report into account and seriously engage with its “game changing” proposals.”
BETTER FINANCE will closely follow and monitor the progress.
è See attachment for Annex: “HLF CMU Final Report’s Recommendations compared to BETTER FINANCE Key Priorities (2019-2024)”
