COMMISSION STAFF WORKING DOCUMENT Annexes to the Communication from the Commission to the Council and the European Parliament Investment research and financial analysts {COM(2006) 789 final}
Date: 2006-12-12
Institutions: European Commission
Subjects: EU law, drafting of EU law, financial analysis, financial market, impact study, investment company, investment policy, research

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 12.12.2006 
COM(2006) 789 final 

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND THE 
EUROPEAN PARLIAMENT 

Investment research and financial analysts 

{SEC(2006) 1655} 

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   EN 

 
 
 
  
 
COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND THE 
EUROPEAN PARLIAMENT 

Investment research and financial analysts  

(Text with EEA relevance) 

1. 

INTRODUCTION 

The  purpose  of  this  Communication  is  to  take  stock  of,  and  to  provide 
stakeholders  with  practical  guidance  on,  the  provisions  of  recent  European 
legislation relating to investment research and financial analysts, and to respond 
to the report of the Forum Group on Financial Analysts1, which helped inform 
the drafting of that legislation.  

For  the  most  part,  this  Communication  deals  with  the  issue  of  conflicts  of 
interest, and describes the main European legislation specifically addressing that 
topic.  In  the  final  section,  other  issues  are  addressed  (analyst  registration, 
independent research, issuer relations with analysts and investor education).  

2. 

BACKGROUND 

2.1. 

The role of investment research 

The  ready  availability  of  various  types  of  financial  information  ensures 
appropriate  pricing,  helps  issuers  to  raise  debt  and  equity  capital  in  primary 
markets,  and  ensures  deep  and  liquid  secondary  markets  for  financial 
instruments.  

The financial analysts who prepare investment research play an important role in 
the financial information ‘ecosystem’ that nourishes financial markets. Analysts 
synthesise raw information into more readily digestible research pieces. In turn 
the  research  will  be  used  by  investors  to  help  them  make  their  investment 
decisions,  or  by  intermediaries  to  produce  investment  research,  investment 
advice, or marketing communications.  

Regulation  of  investment  research  and  of  the  financial  analysts  who  create  it 
therefore needs to be sensitive to, and appropriate for, the many roles research 
plays. It is also of prime importance to ensure that any such regulation limit as 
little as possible the flow of information of potential value to investors.  

1 

Forum  Group,  Financial  Analysts:  Best  practices  in  an  integrated  European  financial  market 
See 
September 
http://europa.eu.int/comm/internal_market/en/finances/mobil/finanalysts/index_en.htm. 

2003). 

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2.2. 

Regulatory scrutiny of investment research 

Since the collapse of the ‘new economy’ bubble in 2000 and several subsequent 
high-profile corporate collapses, the value and integrity of investment research, 
has been under increased regulatory scrutiny globally.  

In Europe, the informal meeting of Economics and Finance Ministers in Oviedo 
in April 2002 discussed policy issues related to the Enron collapse in particular, 
and  among  other  initiatives  asked  the  Commission  to  consider  possible 
regulatory action on investment research.  

The  Commission  subsequently  convened  the  Forum  Group  on  Financial 
Analysts,  composed  of  private  sector  practitioners,  independent  consultants, 
regulators and professional bodies, to consider the issue. The Group’s report was 
released in September 2003 and was subject to subsequent public consultation.  

This  Communication  constitutes  the  Commission’s  response  to  the  Forum 
Group  report  and  the  public  consultation.  Before  responding,  it  was  first 
necessary  to  complete  the  European  legislation  dealing  with  research.  This 
finally  took  place  in  September  2006,  with  the  adoption  of  the  implementing 
measures for the Markets in Financial Instruments Directive.2  

in  September  2003, 

Also 
the  International  Organization  of  Securities 
Commissioners’  Technical  Committee  (IOSCO)  published  a  report3  and  a 
statement  of  principles4  on  analyst  conflicts  of  interest.  These  documents  are 
discussed further below. 

The  Forum  Group’s  report  and  the  IOSCO  report  and  statement  of  principles 
have helped to shape the regulatory debate on financial analysts. That debate has 
largely focused on the potential for poor conflicts management within firms that 
produce investment research to lead to biased research.  

Research  analysts  face  a  variety  of  potential  conflicts  which  can  impair  their 
objectivity. They may be exposed to interests of the firm, or of certain groups of 
clients, that conflict with the interests of those to whom the research is directed. 
Some examples of such interests include the interests of issuers in disposing of 
their  securities,  and  of  corporate  financiers  in  attracting  and  keeping  issuance- 
and placement-related business. The firm itself, if it is a proprietary trader, will 
have  an  interest  in  selling  financial  instruments.  Where  the  firm  conducts 
agency business such as equities broking on a commission basis, it will have a 
commercial  incentive  to  generate  orders.  All  these  interests  can  impair  the 
analyst’s objectivity.  

2 
3 

4 

See section 5 below. 
IOSCO  Technical  Committee,  Report  on  Analyst  Conflicts  of  Interest  (September  2003)  at 
http://www.iosco.org/pubdocs/pdf/IOSCOPD152.pdf  
IOSCO Technical Committee, Statement of Principles for Addressing Sell-Side Securities Analyst 
Conflicts of Interest (September 2003) at http://www.iosco.org/pubdocs/pdf/IOSCOPD150.pdf 

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2.2.1.  The Forum Group’s report 

The  focus  of  the  Forum  Group’s  report  was  also  on  the  prevention, 
management,  monitoring  and  disclosure  of  conflicts  of  interest  relating  to 
investment  research.  The  recommendations  were  focused  in  particular  on: 
conflicts of interest resulting from analysts’ involvement in securities offerings 
and other corporate finance work; best practice for companies issuing securities; 
remuneration of analysts; securities dealing by analysts; qualifications; and the 
distribution  of  investment  research  to  the  retail  market.  Annex  15  sets  out  the 
Forum Group’s recommendations in more detail. 

invited 

comment  on 

the  Commission 

After 
the  Forum  Group’s 
recommendations,  there  was  broad  support  for  the  principles-based  approach 
suggested  by  the  Forum  Group,  and  for  many  of  the  Group’s  specific 
recommendations,  including  those  focusing  on  the  management  of  conflicts  of 
interest.  Some  support  was  expressed  for  a  European  framework  laying  down 
minimum  standards;  however,  the  desire  was  also  expressed  that  European 
standards  should  as  far  as  possible  be  compatible  with  those  adopted  in  other 
major jurisdictions.6 

2.2.2.  The IOSCO Report and Statement of Principles 

While  not  legally  binding  on  Member  States  or  the  Community  as  a  whole7, 
IOSCO  principles  are  nevertheless  of  persuasive  force.  They  represent  an 
attempt  by  IOSCO  member  regulators  to  reach  consensus,  at  the  level  of 
principle,  on  important  securities  regulatory  issues.  In  the  field  of  investment 
research,  where  many  research  providers  operate  on  a  global  basis,  it  is 
particularly desirable if regulators can implement consistent rules.  

The Principles devised by IOSCO’s Technical Committee focus on:  

•  the  identification  and  elimination,  avoidance,  management  or  disclosure  of 

conflicts of interest faced by analysts;  

•  the integrity of analysts and their research; and  

•  the  education  of  investors  concerning  the  actual  and  potential  conflicts  of 

interest analysts face.  

The principles, and the respective core measures to implement those principles, 
are set out in Annex 2.  

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6 

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All Annexes referred to in this Communication are contained in the Commission Staff Working 
Document  “Investment  research  and  financial  analysts  –  Annexes”  (reference  SEC(2006)  1655) 
(available only in English). 
For 
more 
http://ec.europa.eu/internal_market/securities/docs/analysts/contributions/contributions-
summary_en.pdf 
It is important to note in this connection that Europe is represented at IOSCO only at the level of 
regulators of certain Member States.  

responses 

summary 

details, 

see 

the 

of 

at 

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Although  the  principles  focus  on  the  activities  of  equity  sell-side  analysts  (i.e. 
those  working  in  integrated  investment  banks  or  broker-dealers),  it  is 
specifically mentioned that “sell-side analysts are by no means alone in facing 
such conflicts of interest and concepts developed in this work could be used in 
other  areas”8;  and  the  accompanying  report  does  mention  specifically  “the 
conflicts  of  interest  faced  by  sell-side  analysts  in  the  production  of  equity 
research and by the firms that employ them”.9  

3. 

EUROPEAN  LEGISLATION  ADDRESSING  CONFLICTS  OF 
INVESTMENT RESEARCH 

INTEREST 

IN 

Two  major  pieces  of  European  legislation  include  provisions  that  address  the 
issue  of  conflicts  of  interest  relating  to  investment  research.  These  are  the 
Market Abuse Directive10 and the Markets in Financial Instruments Directive11 
(the MiFID). The Market Abuse Directive and its implementing measures have 
come  into  force  in  all  Member  States.  The  MiFID  and  its  implementing 
measures  are  due  to  be  transposed  by  Member  States  by  31  January  2007  and 
applied to firms as from 1 November 2007. 

3.1.  Market Abuse Directive  

Article 6(5) of the Market Abuse Directive contains a requirement that persons 
who  produce  or  disseminate  information  recommending  or  suggesting  an 
investment  strategy,  intended  for  distribution  channels  or  for  the  public,  take 
reasonable care to ensure that such information is fairly presented and disclose 
their  interests  or  indicate  conflicts  of  interest  concerning  the  financial 
instruments to which that information relates. 

Directive  2003/125/EC12,  which  implements  Article 6(5)  of  the  Market  Abuse 
Directive,  sets  out  a  comprehensive  disclosure  regime  for  conflicts  of  interest 
relating to research recommendations (see Annex 3 for a summary).  

The  Market  Abuse  Directive  and  its  implementing  Directives  2003/124/EC13 
and  2004/72/EC14,  also  restrict 
issuers  from  disclosing  price-sensitive 

8 
9 
10 

11 

12 

13 

See paragraph 2 of the IOSCO Statement of Principles. 
Section V, p. 14 of the IOSCO Report. 
Directive 2003/6/EC of the European Parliament and of the Council of 28 January 2003 on insider 
dealing and market manipulation (market abuse). O.J. L 096 12.04.2003, p.16. 
Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets 
in  financial  instruments  amending  Council  Directives  85/611/EEC  and  93/6/EEC  and  Directive 
2000/12/EC  of  the  European  Parliament  and  of  the  Council  and  repealing  Council  Directive 
93/22/EEC.  O.J.  L  145  30.4.2004,  p.  1.  As  amended  by  Directive  2006/31/EC  of  the  European 
Parliament  and  of  the  Council  of  5  April  2006  amending  directive  2004/39/EC  on  markets  in 
financial instruments, as regards certain deadlines. O.J. L 114 , 27.04.2006, p. 60.  
Commission Directive 2003/125/EC of 22 December 2003 implementing Directive 2003/6/EC of 
the  European  Parliament  and  of  the  Council  as  regards  the  fair  presentation  of  investment 
recommendations and the disclosure of conflicts of interest, O.J. L 339, 24.12.2003, p. 73.  
Commission Directive 2003/124/EC of 22 December 2003 implementing Directive 2003/6/EC of 
the  European  Parliament  and  of  the  Council  as  regards  the  definition  and  public  disclosure  of 
inside information and the definition of market manipulation, O.J. L 339, 24.12.2003, p. 70. 

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information  to  selected  analysts  ahead  of  its  release  to  the  rest  of  the  market 
place.  

The Market Abuse Directive and its implementing measures are not restricted to 
investment firms within the meaning of MiFID15 and affect other producers of 
recommendations,  such  as  independent  research  houses,  credit  institutions  and 
the like.  

3.2. 

The MiFID 

The  MiFID  sets  out  inter  alia  organisational  and  operating  conditions  for 
authorised  investment  firms.  Where  an  investment  firm  provides  investment 
services  on  a  professional  basis  to  third  parties,  it  will  normally  need  to  be 
authorised  under  the  MiFID  and  comply  with  all  its  requirements.  This  also 
covers  the  provision  of  ancillary  services  such  as  that  of  ‘investment  research 
and  financial  analysis  or  other  forms  of  general  recommendation  relating  to 
transactions in financial instruments’16. The provisions that relate specifically to 
investment  research  are  contained  in  an  implementing  Directive  under  the 
MiFID (the MiFID implementing Directive)17.  

3.2.1.  Conflicts of interest – general  

MiFID tackles the issue of conflicts of interest generally by requiring investment 
firms to:  

•  take all reasonable steps to identify relevant conflicts of interest arising in the 

course of providing investment or ancillary services;18  

•  maintain 

and  operate 

administrative 
arrangements with a view to taking all reasonable steps designed to prevent 
conflicts of interest from adversely affecting the interests of their clients;19  

effective  organisational 

and 

•  where  those  organisational  arrangements  are  not  sufficient  to  ensure,  with 
reasonable  confidence,  that  risks  of  damage  to  client  interests  will  be 
prevented, to clearly disclose the general nature and/or sources of conflicts of 
interest to the client before undertaking business on its behalf.20 

14 

15 
16 

17 

18 
19 
20 

Commission  Directive  2004/72/EC  of  29  April  2004  implementing  Directive  2003/6/EC  of  the 
European  Parliament  and  of  the  Council  as  regards  accepted  market  practices,  the  definition  of 
inside information in relation to derivatives on commodities, the drawing up of lists of insiders, 
the  notification  of  managers’  transactions  and  the  notification  of  suspicious  transactions,  O.J.  L 
162, 30.4.2004, p. 70 
As defined in Article 4(1)(1) of MiFID.  
Investment services are those services set out in Section A of Annex 1 to the MiFID. Ancillary 
services are those set out in Section B of that Annex.  
Commission  Directive  2006/73/EC  implementing  Directive  2004/39/EC  of  the  European 
Parliament and of the Council as regards organisational requirements and operating conditions for 
investment firms, and defined terms for the purposes of that Directive. O.J. L 241, 2.9.2006, p. 26.  
Article 18(1).  
Article 13(3) 
Article 18(2). 

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investment  and  ancillary  activities, 

The MiFID implementing Directive specifies that investment firms should adopt 
a  written  policy  in  relation  to  conflicts  of  interest  setting  out  the  methods  by 
which they propose to manage conflicts of interest arising in the course of their 
various 
the  provision  of 
investment  research.21  A  further  key  requirement  is  the  need  to  ensure  an 
appropriate  level  of  independence  between  persons  engaged  in  different 
business activities involving a conflict of interest entailing a risk of damage to 
the interests of a client.22 The Directive also sets out a series of organisational 
measures  to  ensure  the  requisite  degree  of  independence  in  appropriate  cases, 
such  as  the  separation  of  supervision  or  remuneration  between  different 
activities.23  

including 

3.2.2.  Conflicts of interest – investment research 

Apart  from  these  general  provisions,  the  MIFID  implementing  Directive 
contains  specific  rules24  relating  to  the  provision  of  investment  research.  They 
apply  to  investment  firms  which  produce  or  arrange  for  the  production  of 
investment research that is intended or likely to be subsequently disseminated to 
clients or to the public under their own responsibility or that of group members. 

Investment  research  is  defined25  as  a  sub-category  of  recommendations  as 
defined  in  Article  1(3)  of  Directive  2003/125/EC.  In  order  to  qualify  as 
investment  research,  such  recommendations  must  be  labelled  or  described  as 
investment  research,  or  otherwise  presented  as  objective  or  independent,  and 
must  not  constitute  investment  advice  (i.e.,  the  provision  of  personal 
recommendations, which are presented as suitable for the recipient, or based on 
a consideration of the circumstances of that person).26  

Where the provisions apply, there are two consequences:  

•  the  investment  firm  must  ensure  that  it  implements  all  the  organisational 
measures set out in the MiFID implementing Directive in relation to analysts 
and other persons27 whose responsibilities or business interests may conflict 
with  the  interests  of  recipients  of  the  research;  those  measures  require 
effective separation between business functions that serve different client or 
business interests28; and 

•  investment  firms  should  take  other  specified  steps  designed  to  ensure  the 
objectivity  of  the  investment  research.  Importantly,  the  firm  must  prevent 

21 
22 
23 
24 
25 
26 
27 

28 

Article 22 of the implementing Directive. 
Article 22(3) of the implementing Directive. 
Article 22(3) of the implementing Directive. 
Article 25 of the implementing Directive. 
Article 24 of the implementing Directive. 
Article 4(1)(4) of MiFID and Article 52 of the MiFID implementing Directive. 
Recital  30  of  the  implementing  Directive  explains  that  those  other  persons  should  include 
corporate finance personnel and persons involved in sales and trading on behalf of clients or the 
firm.  
Article 22(3) and Recital 36 of the implementing Directive. 

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certain  dealings  in  financial  instruments  by  relevant  persons29  who  have 
knowledge  of  the  timing  or  contents  of  relevant  investment  research  that  is 
not public;30 as well as certain personal transactions contrary to outstanding 
recommendations.31  There  are  also  restrictions32  on  the  acceptance  of 
inducements in relation to investment research, the promising  of  favourable 
research coverage, and on who may review drafts of investment research and 
for what purposes.  

The  requirements  which  apply  to  the  production  of  research  also  apply  to  the 
substantial  alteration  of  investment  research  produced  by  a  third  party.33 
However, a firm which simply disseminates research which has been produced 
by  a  third  party  is  not  bound  by  the  consequences  mentioned  above,  provided 
that the disseminating firm does not substantially alter the research, and verifies 
that the producer of the research is subject to requirements, or has established a 
policy, equivalent to the requirements of the MiFID implementing Directive.34  

3.2.3.  Disclosure of conflicts and relation to the Market Abuse Directive regime 

As regards disclosure of research conflicts, the MiFID supplements the detailed 
regime in the Market Abuse Directive by requiring:  

•  disclosure  where  organisational  arrangements  are  not  sufficient  to  ensure, 
with  reasonable  confidence,  that  risks  of  damage  to  client  interests  will  be 
prevented;35 and 

•  disclosure of the conflicts of interest policy of the investment firm. 36 

It  is  intended  that  the  MiFID  and  the  Market  Abuse  Directive  should  operate 
together seamlessly. The field of “recommendations” within the meaning of the 
Directive  2003/125/EC  (where  produced  by  an  investment  firm)  should 
exclusively  contain  investment  research  for  MiFID  purposes  or  marketing 
communications for MiFID purposes. Recommendations of an investment firm 
that  do  not  constitute  investment  research  must  be  clearly  identifiable  as 
marketing communications37 and must contain a clear and prominent statement 
that  (or,  in  the  case  of  oral  recommendations,  to  the  effect  that)  they  have  not 
been prepared in accordance with standards designed to promote the objectivity 
of investment research. 38 

The  diagram  in  Annex  4  explains  the  relationship  between  recommendations, 
marketing communications, investment advice and investment research.  

29 
30 
31 
32 
33 
34 
35 
36 
37 
38 

This term is defined in Article 2(3) of the implementing Directive. 
Article 25(2)(a) of the implementing Directive. 
Article 25(2)(b) of the implementing Directive. 
Article 25(2)(c)-(e) of the implementing Directive. 
Recital 35 of the implementing Directive. 
Article 25(3) of the implementing Directive. 
Article 18(2) of the MiFID. 
Article 19(3) of the MiFID and Article 30(1) of the implementing Directive. 
Article 19(2) of MiFID. 
Article 24(2) of the implementing Directive. 

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4. 

OTHER ISSUES  

The  main  outstanding  issues  arising  from  the  Forum  Group’s  report  and  the 
IOSCO Principles are: 

•  the  possibility  of  mandatory  analyst  registration,  possibly  linked  to 

qualifications; 

•  the regulatory and competitive position of independent research firms vis-à-

vis the provision of research by investment banks;  

•  the desirability for best practice codes or corporate governance rules covering 

issuer relations with analysts; and 

•  the  important  role  of  investor  education  in  addressing  the  problem  of 

conflicts of interest in investment research. 

4.1. 

Analyst registration 

The Commission has decided not to propose at this stage mandatory registration 
of analysts linked to qualifications. The Forum Group was divided on the need 
to subject analysts to mandatory minimum qualification requirements.39 There is 
insufficient  evidence  that  problems  of  analyst  bias  derive  from  a  lack  of 
qualifications.  Rather,  it  seems  evident  that  they  derive  from  failures  by  firms 
properly  to  manage  the  conflicts  of  interest  arising  in  their  production  of 
investment  research.  These  issues  are  addressed  by  the  MiFID.40  Moreover, 
mandatory registration of analysts is not one of the IOSCO core measures.  

4.2. 

Independent research 

The  Commission  does  not  consider  that  there  are  necessarily  inherent  quality 
differences  between  research  produced  by  independent  research  firms  and  that 
produced by investment firms. Nevertheless, whereas independent firms need to 
cover  their  costs  by  charging  clients,  much  research  produced  by  investment 
banks  is  paid  for  by  institutional  investors  (and,  through  them,  by  their 
underlying clients) only indirectly. This process can often be somewhat opaque 
and accountability is not always clear. 

To a large extent, these issues are addressed in the MiFID and its implementing 
measures. In particular, implementing measures relating to inducements permit 
inducements  to  be  accepted  by  investment  firms  (such  as  portfolio  managers) 
from third parties (such as their brokers) only if they are fully disclosed to their 
clients and only if they are designed to improve the quality of the provision of 
the  investment  or  ancillary  service  concerned  to  the  client,  and  do  not  impair 
compliance with the firm’s duty to act in the best interests of the client.41 These 

39 
40 
41 

at p. 50 of the Forum Group’s report (cited at footnote 1) 
See the provisions mentioned in section 3.2 above. 
Article 26 of the Implementing Directive. 

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measures  are  particularly  relevant  to  ‘bundled’  or  ‘softed’  services42  that  are 
received  by  portfolio  managers  from  or  on  behalf  of  brokerage  houses43.  The 
receipt  and  provision  of  ‘softed’  and  ‘bundled’  research  can  continue  beyond 
implementation of the MiFID, only if it can be duly justified and shown to pass 
the strict tests in the legislation. This ensures that research produced in-house by 
banks, and research produced by independent investment houses under so-called 
commission-sharing arrangements, remains on an equal competitive footing. 44  

4.3. 

Issuer relations with analysts 

The  Commission  notes  that  the  consultation  on  the  Forum  Group’s  report 
demonstrated  support  for  some  form  of  best  practice  code  or  corporate 
governance rules covering issuer relations with analysts. 

The MiFID and the Market Abuse Directive, with their strict rules on conflicts 
management  and  disclosure  and  presentation  of  research,  will  prevent  issuers 
from  having  undue  editorial  influence  over  research  prepared  by  investment 
firms. They will also prohibit issuers from disclosing price-sensitive information 
to analysts ahead of its release to the rest of the marketplace, except where they 
are made insiders and subjected to confidentiality obligations.  

The  Commission  believes  that  best  practice  codes  of  professional  or  trade 
associations  can  help  to  promote  more  professional  relations  between  issuers 
and analysts.45 Such  codes address issues such as retaliation by issuers against 
analysts that produce negative or ‘sell’ recommendations. 

Against this background, the Commission does not propose to bring forward a 
legislative proposal in this area at this stage.  

42 

43 

44 

45 

Bundled  services’  refers  to  those  services  provided  by  investment  firms  to  their  clients  (for 
example,  institutional  investors)  as  part  of  a  total  package  of  services  for  which  a  single  fee, 
usually a commission, is paid. ‘Softed services’ refers to those services which are provided to the 
client as part of a package for which a single fee is payable, but which are not provided by the 
investment firm in question but by another party under an arrangement with it.  
This applies to providers authorised under MiFID who provide individual portfolio management, 
and  also  to  UCITS  managers  by  virtue  of  Article  5.3  of  Directive  UCITS  Directive  (Council 
Directive  85/611/EEC  of  20  December  1985  on  the  coordination  of  laws,  regulations  and 
administrative  provisions  relating  to  undertakings  for  collective  investment  in  transferable 
securities (UCITS), O.J. L 375, 31.12.1985 p. 3.  
See  also  Recital  37  of  the  implementing  Directive,  which  recommends  independent  research 
houses adopt MiFID-like standards of conflicts management and disclosure. 
Examples of such codes include the Charter for Financial Communications (drawn up jointly by 
the Cercle de Liaison des Informateurs Financiers en France (CLIFF) and the Société Française 
des  Analystes  Financiers  (SFAF))  at  http://www.cliff.asso.fr/en-GB/iso_album/charter.pdf.  See 
also  the  best  practice  guidelines  drawn  up  by  the  Association  of  Investment  Management  and 
Research 
at 
http://www.cfainstitute.org/standards/ethics/aimrniricomment.html.  See  also  the  Principles  of 
Ethical Conduct of the Association of Certified International Analysts at http://tinyurl.com/lxsq2.  

Relations 

National 

Investor 

Institute 

and 

the 

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4.4. 

Investor education   

The IOSCO Technical Committee stated that investor education should play an 
important role in managing analyst conflicts of interest.  

The  Commission  agrees  that  investors  should  be  aware  of  the  potential  for 
conflicts  of  interest  to  affect  investment  research,  and  about  the  meaning  of 
disclosures as to conflicts. This is an area that we consider especially well suited 
for action by Member States, by trade associations, and of course by investment 
firms themselves.  

The  Commission  for  its  part  is  committed,  as  part  of  its  health  and  consumer 
protection strategy, to ensure better informed and educated consumers.46 In this 
context,  the  Commission  plans  a  conference  for  Spring  2007  to  bring  together 
examples  of  best  practice  in  consumer  education  and  improving  consumer 
financial literacy. The outcome of this conference will drive further reflection by 
the  Commission  on  what  further  role,  if  any,  it  should  play  in  the  field  of 
consumer financial education.  

4.5. 

Other material contained in the Forum Group’s recommendations and the 
IOSCO principles 

To the extent that the Forum Group recommendations or the IOSCO principles 
for  independence  of  analysts  are  not  specifically  addressed  in  the  legislative 
measures mentioned, they will nevertheless be useful to assist: 

•  investment  firms  in  framing  their  conflicts  of  interest  policies  under  the 
MiFID  and  the  text  of  their  required  disclosures  under  the  Market  Abuse 
Directive; 

•  analysts,  issuers  and  investment  firms  in  drawing  up  codes  of  conduct  and 
to  ensure  adequate  management  and 
other  self-regulatory  measures 
disclosure  of  conflicts  of  interest  and  other  issues  affecting  research  quality 
and integrity. 

5. 

CONCLUSION 

Taken  together,  the  MiFID  and  the  Market  Abuse  Directive  and  their 
implementing  measures  will  represent  a  significant  step  forward  in  creating  a 
European-level  regulatory  framework  for  avoiding,  managing  and  disclosing 
conflicts  of  interest  in  all  investment  and  ancillary  services,  including 
investment  research.  All  such  measures  need  to  be  implemented  by  Member 
States  within  agreed  timetables  to  be  fully  effective.  Where  appropriate, 
regulators should also consider issuing guidance to ensure convergent, common-
sense application of the legislative measures. 

46 

See  Healthier,  Safer,  More  Confident  Citizens:  a  Health  and  Consumer  Protection  Strategy, 
COM(2005) 115 final; 2005/0042 (COD), at paragraph 4.2.4. 

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At this point, the Commission does not consider that it is needed to adopt further 
specific legislation in this field. Nevertheless, the Commission will continue to 
carefully monitor the application of these measures, including their effect on the 
market  for  investment  research.  This  experience  will  be  valuable  in  reviewing 
the  legislative  measures  for  their  continued  appropriateness.  In  line  with  the 
principle of Better Regulation, should existing measures prove insufficient, then 
the Commission will consider bringing forward further proposals (legislative or 
other).  Any  such  proposals  would  be  subject  to  consultation  and  regulatory 
impact assessment.  

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