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Capital Markets Union - The European Commission proposes new rules to protect and empower retail investors

On 24 May 2023 the European Commission’s proposal on Retail Investment Strategy was published. The aim is to empower retail investors (i.e. “consumers”) to make investment decisions that are aligned with their needs and preferences, ensuring that they are treated fairly and duly protected. The proposal introduces a ban on inducements for non advised sales. Example: A retail investor makes an investment via bank’s web page and selects a product without any prior personal recommendation, then the payment of inducements is not allowed.

The Commission approach on inducements (ban on execution only services + 3 review clause on a full ban) is not necessarily serving the interests of investors:

  • Execution only do not necessarily include advice but still include services (e.g. in house tools, third party instruments). If not via inducements, this service still has to be paid by retail clients, who are not inclined to directly do so for financial services
  • A ban on execution only could weaken RBI’s business model, and could lead to increase of advice costs for retail clients

The package includes further measures to improve the way information is provided to retail investors about investment products and services, in ways that are more standardized, by adapting rules to the digital age and investor’s growing sustainability preferences.

It increases transparency and comparability of costs by requiring the use of a standard presentation and terminology on costs. The proposal reduces administrative burdens by making the eligibility criteria to become a professional investor more proportionate.

The main goal of the proposal is to increase the participation of retail investors in the capital market (comparison US Market). A ban of inducements could lead to a situation with more expensive products and limited access to advice for retail investors, which could actually reduce the number of investors in the EU.

For inquiries please contact:

RBI Regulatory Advisory

Raiffeisen Bank International AG | Member of RBI Group | Am Stadtpark 9, 1030 Vienna, Austria  | Tel: +43 1 71707 - 5923