COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT REPORT Accompanying the document Proposal for a Directive of the European Parliament and of the Council amending Directives (EU) 2009/65/EC, 2009/138/EC, 2011/61/EU, 2014/65/EU and 2016/97 as regards the Union retail investor protection rules and Regulation of the European Parliament and of the Council amending Regulation (EU) No 1286/2014 as regards the modernisation of the key information document
Date: 2023-05-24
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: capital markets union, consumer information, disclosure of information, electronic document, financial legislation, investment, investment company, investment transaction

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  EN 

   EUROPEAN COMMISSION  Brussels, 24.5.2023  SWD(2023) 279 final  COMMISSION STAFF WORKING DOCUMENT  EXECUTIVE SUMMARY OF THE IMPACT ASSESSMENT REPORT  Accompanying the document Proposal for a  Directive of the European Parliament and of the Council amending Directives (EU) 2009/65/EC, 2009/138/EC, 2011/61/EU, 2014/65/EU and 2016/97 as regards the Union retail investor protection rules                       and                      Regulation of the European Parliament and of the Council amending Regulation (EU) No 1286/2014 as regards the modernisation of the key information document {COM(2023) 278-279 final} - {SEC(2023) 330 final}  
 
 
A core aim of the Capital Markets Union (CMU) is to ensure that consumers can fully benefit 
from the investment opportunities offered by capital markets. For them to be able to do so, they 
must be supported by a regulatory framework that adequately protects them in the single market 
and enables them to take investment decisions in line with their needs and objectives. While 
retail participation in capital markets varies widely across Member States, reflecting different 
historical,  and  socio-economic  conditions,  retail  investors  should  be  able  to  achieve  better 
investment outcomes than is currently the case.   

In line with the Commission’s stated objective of ‘an economy that works for people’, and as 
announced  in  both  the  September  2020  CMU  action  plan  (action  8)  and  the  2023  work 
programme, the Commission is now putting forward a strategy for retail investments in the EU. 
The strategy aims to ensure that retail investors can take full advantage of EU capital markets 
and that rules are consistent across legal instruments.  

The legislative framework governing retail investor protection is largely set out at  EU level. 
The current approach is intended to ensure that regulatory requirements fit the specific needs 
of the relevant sector (for example, investment management or insurance). However, despite 
the  existence  of  an  extensive  set  of  rules,  some  problems  remain:  retail  investors  have 
difficulties  in  accessing  relevant,  comparable  and  easily  understandable  investment  product 
information; they may be inappropriately influenced by marketing; there are shortcomings in 
the way products are manufactured and distributed, linked to the payment of inducements; and 
products do not always offer Value for Money to the retail investor.  

In some parts of the frameworks relevant to retail investments, diverging rules cause distortions 
in  the  internal  market,  by  creating  an  un-level  playing  field  for  investment  services, 
inefficiencies, and different levels of consumer protection across sectors and Member States. 
To address these problems, further efforts are required at EU level to modernise and update the 
framework and establish coherent and consistent regulatory requirements across the EU.  

Four  problem  drivers  are  identified  and  addressed  as  part  of  this  impact  assessment:  1)  the 
information  provided to  investors is  not  always  useful or relevant  for their decision-making 
process;  2)  retail  investors  tend  to  be  influenced  by  over-appealing  digital  marketing  and 
misleading marketing practices; 3) some retail investment products incorporate unjustifiably 
high costs and/or do not offer good value to retail investors, and 4) conflicts of interest caused 
by the payment of inducements negatively affect the net return on investment products and the 
quality of the investment advice. 

This impact assessment focuses on identifying and addressing specific failures at key stages of 
the retail distribution and investment process. It looks at issues that prevent retail clients from 
making  the  best  use  of  investment  product  information  (in  relation  to  the  Regulation  on 
packaged retail  and insurance-based investment  products  (PRIIPs),  the  Markets  in  Financial 
Instruments  Directive  (MiFID)  and  the  Insurance  Distribution  Directive  (IDD)).  It  also 
addresses the rules governing conflicts of interest, arising from inducements, at the ‘point of 
sale’ and at the production stage of investment products and services (in both MiFID and IDD), 
and it looks into product oversight and governance rules (for both distributors, hence in MiFID 
and IDD, and for product manufacturers, namely in the Directive on undertakings for collective 
investment  in  transferable  securities  (UCITS),  MiFID  and  IDD)  to  ensure  that  retail  clients 
obtain good value from their investment (that is, ‘Value for Money’). 

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This impact assessment concludes that there is a need to act at EU level. Member States have 
only limited possibilities of addressing the identified problems via changes at national level, 
mainly  because  the  financial  legislation  applying  to  the  retail  value  chain  (from  product 
manufacturing to final sale and post-investment) is already regulated at EU level. The proposed 
solutions set out below take the form of regulatory amendments to EU legislation. They are 
expected  to  improve  retail  investors’  investment  outcomes,  by  improving  the  value  of  the 
investment services and products provided to them, ensuring that these better fit their needs and 
investment objectives, and by addressing conflicts of interest in the supply chain. The resulting 
strengthened investor protection framework should help improve access to capital markets for 
retail clients, increase their trust in capital markets and support the development of EU capital 
markets in general.  

Possible solutions 

For  each  of  the  three  principal  areas  –  1)  disclosure  and  marketing  communications,  2) 
inducements and 3) Value for Money, the impact assessment sets out two alternative or, in the 
case  of  disclosures,  complementary  policy  options  (dubbed  respectively  ‘options  2  and  3’). 
Each option is assessed against the baseline scenario, taking account of the available empirical 
evidence and stakeholders’ views. The evidence base includes input received from stakeholders 
(including through consultations, dedicated workshops and bilateral meetings), technical advice 
from the Joint Committee of the European Supervisory Authorities, the European Securities 
and Markets Authority and the European Insurance and Occupational Pensions Authority, as 
well  as  a  commissioned  study  on  disclosure,  inducements,  and  suitability  rules  for  retail 
investors, and research papers. 

For  disclosures,  policy  option  2  involves  targeted  changes  to  disclosure  rules  aimed  at 
improving  their  relevance  for  retail  investors.  Policy  option  3  complements  it  by  proposing 
targeted changes to address informational deficiencies relating to marketing communications. 
For inducements,  policy option 2 proposes to  maintain  the  current  system  which  allows the 
payment of inducements, while improving and harmonising sector-specific disclosures relating 
to such inducements. Policy option 3 contains a ban on all forms of inducements (as well as a 
partial ban for execution-only services as a variant). For Value for Money, policy option 2 seeks 
to strengthen manufacturers’ product governance rules, requiring them to assess their products 
against  relevant  ‘manufacturer  benchmarks’,  and  to  explain  any  departures  from  the 
benchmarks,  in  order  to  ensure  stronger  focus  on  cost-efficiency  and  performance.  Policy 
option 3, in addition to applying rules to manufacturers (as in option 2), also imposes Value for 
Money obligations on distributors, requiring them to assess certain products against relevant 
‘distributor benchmarks’ and to explain any departures from the benchmarks, with a view to 
limiting distribution fees. 

Comparison of options and impacts of preferred options 

The  impact  assessment  analyses  the  options  in  relation  to  three  specific  objectives,  that  is 
whether  they:  (i)  improve  the  information  provided  to  investors  and  help  them  take  well-
informed investment decisions, (ii) lead to a better alignment of intermediaries’ and investors’ 
interests and (iii) ensure that retail investors are offered cost-effective and better performing 
products.  

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For disclosures and marketing communications, options 2 and 3 are complementary and both 
present  an  improvement  compared  to  the  baseline  at  a  reasonable  cost.  Hence,  they  are, 
together, the preferred option. For inducements, an EU-wide full ban as put forward in option 
3 is judged the most effective way of removing or significantly reducing conflicts of interest 
across the EU. Option 2 (enhanced transparency) would address a part of the problem but would 
be less effective than the full ban, if implemented as a standalone measure. Finally, for Value 
for  Money,  option  3  requires  both  manufacturers  and  distributors  to  assess  costs  and 
performance of their products against a benchmark as part of their product governance duties; 
this is considered an effective and comprehensive way to ensure that investors are offered cost-
effective products.  

With the combination of the preferred options, retail investors would benefit from improved 
disclosures, in the form of more user-friendly information responding to changing consumer 
needs (with respect to digitalisation and sustainability) and better information after a financial 
product has been purchased. They would also be better protected against increasing exposure 
to misleading marketing. At the same time, they should have access to products which offer 
better Value for Money and be able to invest (through advised and non-advised distribution 
services) in ways that help them achieve better investment outcomes thanks to stronger rules 
on conflicts of interest in the distribution process. A full ban on inducements would be a highly 
effective way to address conflict of interest, but would also have a major impact on existing 
distribution systems. The variant of a partial ban on inducements for execution-only services 
would be less impactful on existing distribution systems, while still delivering benefits for retail 
investors (although it would not tackle the consumer detriment observed in advised services). 
A partial ban could pave the way to a further expansion towards a full ban, as it could be a 
means  to ensure  a smooth  and gradual  transition  into  such  a new system.  This  would avoid 
shocks  on the industry deriving  from  sudden  (and  major)  structural  changes  and adjustment 
costs. The flanking measures, outlined in the annexes, will complete and further complement 
the effects of the partial ban by ensuring improved supervisory enforcement, better qualified 
advisors,  a  more  efficient  investor  screening  process,  improved  financial  literacy  levels  and 
more  flexibility  for  knowledgeable  investors  to  access  a  wider  set  of  products  and  services 
without the unnecessary red tape.  

The  assessment  confirms  that  the  measures  identified  under  the  preferred  options  would 
eliminate the distortions identified in the internal market and ultimately benefit retail investors 
by enabling them to take informed investment decisions and reach better investment outcomes. 
Taken together, these measures would increase retail investor protection and lead to cheaper 
and  better-quality  investment  products  for  retail  clients.  This  would  both  benefit  existing 
investors and encourage more citizens to invest.  

The  reforms  envisaged  in  the  preferred  options  would  inevitably  lead  to  some  costs  for  the 
financial  industry  (notably  related  to  the  change  of  distribution  systems  and  supervisory 
reporting). These should be assessed against the societal benefits of addressing the significant 
misalignment of interests present in today’s market, and against the prospect of better quality, 
better-value products for retail investors. These benefits are expected to far outweigh the costs. 
Furthermore,  some  cost  savings  could  be  expected  from  the  simplification  of  existing 
requirements on inducements and from changes to investor categorisation requirements.  

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