Luxembourg banking association ABBL on Monday said it sees the EU’s new retail investment plans as “controversial”, warning that the package that aims to prioritise consumer interests and strengthen investor protection “may have unintended consequences” and could distort the investment sector.
ABBL said that the European Commission’s adoption of the Retail Investment Package on 24 May “has sparked concerns among industry experts”. In a statement on its website it said it believes that it is essential “to carefully evaluate the potential impacts of this measure” to ensure a balanced approach to retail investing.
ABBL’s views echoes concerns heard elsewhere in the financial sector. Seven Brussels-based industry groups, including European asset management group Efama and the European Banking Federation of which ABBL is a member, on Tuesday collectively issued a warning. They warned of «major disruptive consequences for the European financial sector” with “even longer, more complex and more burdensome investment process”.
“All of this will clearly have a detrimental impact on the international attractiveness of the EU’s capital market,» said the seven groups in a joint statement, adding the package’s timeline is «unfeasible”.
The European Commission’s retail investment plan is one of the final pieces of financial services legislation to be entered during its current 2019-2024 term. By labelling it as contentious the banking sector hopes that the proposal will not be adopted by the European Parliament before the next EU elections. The proposal would then be off the table.
Ban on execution-only kickbacks
When presenting the plans on 24 May, European Commissioner financial services Mairead McGuinness made a point of underling that the proposal no longer calls for an outright ban on inducements for financial services intermediaries who sell financial products on behalf of banks and asset managers. Instead she proposed a more limited inducement ban on execution-only investments, where no advice is provided. The commission also proposes mandatory disclosure of kickbacks.
McGuinness came under heavy criticism from the industry after she told the European Parliament in January that she favoured an outright ban on kickbacks. Such a ban already was introduced in the Netherlands and the UK several years ago and has sparked a completely new way of working in financial services.
The retail investment package includes a wide range of measures designed to empower retail investors, enhance transparency, and address conflicts of interest. ABBL said it is “actively advocating towards these objectives, notably through our proposal for more pragmatic criteria to make retail clients eligible to the ‘professional investor’ category”.
‘Raising eyebrows’
ABBL actively pushed back on the plan to introduce an even limited ban on kickbacks. “The proposal to introduce a ban on inducements, first for ‘execution-only’ products and products distributed without advice and possibly for all products in a future review, has raised eyebrows within the investment community. Critics argue that such a prohibition could hinder market efficiency and limit access to investment opportunities for retail investors,” the bank association said. “It is crucial to strike a balance between protecting consumers and maintaining a thriving investment landscape.”
Luxembourg’s fund industry group Alfi is also known to be a staunch opponent of a ban on inducements but has not yet commented on the new proposal. It has previously said a ban would reduce competition, unfairly favour investors who can afford to pay for advice, reduce the quality of advice, and would lead to a “serious step backwards” in terms of transparency and preventing conflicts of interest. It would also threaten “the continuance of the open-architecture environment which is well known in the fund industry and that plays in favour of the end investor.”
Consumer groups completely oppose the financial sector when it comes to the new retail package. “Without the full ban, the overall effectiveness of the new Retail Investment Strategy will be limited,” said Peter Norwood at FinanceWatch. BetterFinance has criticised the commission for introducing an alternative concept that pushes for “value for money” as a distraction from a full ban on inducements.
Related articles on Investment Officer Luxembourg:
- ‘Value for money’ replaces full kickback ban in EU retail plan
- Esma wants EU law to stop ‘undue costs’ in funds
- Investment professionals face critics over inducements