What changed between the draft committee report and the plenary report

DRAFT EUROPEAN PARLIAMENT LEGISLATIVE RESOLUTION

Changed:on the 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 (EU) 2016/97 as regards the Union retail investor protection rules

4 unchanged paragraphs

(COM(2023)0279 – C90182/2023 – 2023/0167(COD))

(Ordinary legislative procedure: first reading)

The European Parliament,

– having regard to the Commission proposal to Parliament and the Council (COM(2023)0279),

Changed:– having regard to Article 294(2) and Articles 53(1) andArticle 62114 of the Treaty on the Functioning of the European Union, pursuant to which the Commission submitted the proposal to Parliament (C90182/2023),

– having regard to Article 294(3) of the Treaty on the Functioning of the European Union,

Added:– having regard to the opinion of the European Economic and Social Committee of 25 October 2023,

– having regard to Rule 59 of its Rules of Procedure,

Changed:– having regard to the report of the Committee on Economic and Monetary Affairs (A90000/2023),(A9-0162/2024),

1. Adopts its position at first reading hereinafter set out;

2. Calls on the Commission to refer the matter to Parliament again if it replaces, substantially amends or intends to substantially amend its proposal;

3. Instructs its President to forward its position to the Council, the Commission and the national parliaments.

Change 1

Removed:Recital 3: (3) Third party payments, such as fees, commissions or any monetary or non-monetary benefits paid to or received by investment firms and insurance undertakings and intermediaries by or from persons other than the client or customer, also termed as ‘inducements’, play a significant role in the distribution of retail investment products in the Union. The existing rules designed to manage conflicts of interests in Directives 2014/65/EU and (EU) 2016/97, including restrictions on and transparency around the payments of inducements, have not proven sufficiently effective in mitigating consumer detriment and have led to different levels of retail investor protection across product segments and distribution channels. It is therefore necessary to further strengthen the investor protection framework to ensure that retail clients’ best interests are protected uniformly across the Union. It is appropriate to introduce rules that better frame the current advice environment, by ensuring that financial intermediaries provide more transparent, understandable and tailored advice to consumers. This should ensure that consumers are offered products suitable to their needs and should enable them to better understand the advice that they receive. A review, five years after the end of the transposition period of this Directive, should assess the effects of its measures on the advice environment in the Union. That assessment should be based on the potential conflict of interest associated with ind…

Added:AMENDMENTS BY THE EUROPEAN PARLIAMENT*

Removed:Recital 4: deleted

Added:to the Commission proposal

Removed:Recital 6: (6) The existing safeguards conditioning the payment or receipt of inducements, which under Directive 2014/65/EU require that the inducement is designed to enhance the quality of the service to the client, or under Directive (EU) 2016/97 should not have a detrimental effect on the quality of the service to the customer, have not been sufficiently effective in mitigating conflicts of interest. It is therefore proposed to remove those criteria and introduce a new, common test, both in Directive 2014/65/EU and Directive (EU) 2016/97, that further clarifies how financial advisors should apply the principle of acting in the best interest of the client. Financial advisors should base their advice on an appropriate range of financial products.

Added:---------------------------------------------------------

Removed:Recital 6 a (new): (6a) Financial advisors subject to Directive 2014/65/EU should base their advice on an appropriate range of financial products suitable to the client’s needs. After having identified suitable instruments for their clients, those financial advisors should recommend the most cost-efficient financial products to their clients. Cost-efficiency should be determined, based on the investment firm’s assessment of the instrument’s net return expectations, taking into account all implicit and explicit costs and charges. Powers should be conferred upon ESMA to specify those requirements.

Added:2023/0167(COD)

Removed:Recital 6 b (new): (6b) Financial advisors subject to Directive (EU) 2016/97 should base their advice on an appropriate range of insurance-based investment products, or, where applicable, underlying investment options, suitable to the client’s needs. After having identified suitable instruments for their customers, they should recommend the most efficient insurance-based investment products, or, where applicable, underlying investment options. That recommendation should be based on the performance, the level of risk and the costs of a given product or, where applicable, of an underlying investment option.

Added:Proposal for a

Removed:Recital 9: (9) In order to assess the effectiveness of these measures, five years after the end of the transposition period of this Directive and after having consulted the European Securities and Markets Authority (‘ESMA’) and the European Insurance and Occupational Pensions Authority (‘EIOPA’), the Commission should prepare a report on the potential conflicts of interest associated with inducements, the evolution of costs, the overall level of retail investment in capital markets, consumer protection and the relevance of distribution rules.

Added:DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

Removed:Recital 10: (10) The level of costs and charges, as well as other more qualitative elements, such as environmental, social and governance (ESG) factors and financial guarantees, that are associated with investment and insurance-based investment products can have a significant impact on investment returns, something that may not always be evident for retail investors. To ensure that products offer Value for Money for retail investors, Member States should ensure that firms authorised under Directive 2014/65/EU or Directive (EU) 2016/97 to manufacture or distribute investment products have clear pricing processes that enable a clear identification and quantification of all costs charged to retail investors and are designed to ensure that the costs and charges that are included in investment products or that are linked to their distribution are justified and proportionate in respect of the characteristics, objectives, strategy and expected performance of the product.

Added:amending Directives 2009/65/EC, 2009/138/EC, 2011/61/EU, 2014/65/EU and (EU) 2016/97 as regards the Union retail investor protection rules

Removed:Recital 10 a (new): (10a) The access to, use of and cost of financial and non-financial market data necessary to provide investment services and to manufacture and distribute financial products are an important portion of the costs borne by investment firms, representing therefore a significant proportion of the total charges paid by retail investors. Financial and non-financial market data are essential to the correct functioning of financial markets, and to the provision of quality investment services to retail investors. Those data should be reliable and accessible under fair conditions. Investment firms depend on data providers to provide their services and to comply with Union regulators. In addition, as they are used in almost all investment decisions and to meet the many regulatory reporting requirements, those data should be of high quality, reliable and subject to very strict control procedures.

Added:(Text with EEA relevance)

Removed:Recital 13: deleted

Added:THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Removed:Recital 15: deleted

Added:Having regard to the Treaty on the Functioning of the European Union, and in particular Article 53(1) and Article 62 thereof,

Removed:Recital 17: deleted

Added:Having regard to the proposal from the European Commission,

Removed:Recital 20: (20) The pricing process under Directives 2009/65/EC and 2011/61/EU should ensure that costs borne by retail investors are justified and proportionate to the characteristics of the product, and in particular to the investment objective and strategy, level of risk and expected returns of the funds, so that UCITS and AIFs deliver Value for Money to investors. UCITS and AIFs management companies should remain responsible for the quality of their pricing process. In particular, they should ensure that costs are comparable to market standards, including by comparing the costs of funds with similar investment strategies and characteristics available on publicly available databases.

Added:After transmission of the draft legislative act to the national parliaments,

Removed:Recital 22: (22) Enhancing the quality of the advice given by financial advisors is one of the main objectives of this Directive. Knowledge and competence of staff are key to better ensure the quality of advice given to Union consumers. The standards of what is considered necessary vary significantly between advisors operating under Directive 2014/65/EU, Directive (EU) 2016/97 and under non-harmonised national law. To improve the quality of advice and to ensure a level playing field across the EU, strengthened minimum common standards on the necessary knowledge and competence requirements should be laid down. That is particularly relevant given the increased complexity and continuous innovation in the design of financial instruments and insurance-based investment products, and the increasing importance of sustainability-related considerations. Member States should require investment firms, and insurance and reinsurance distributors, to ensure that natural persons giving investment advice on behalf of the investment firm or as insurance intermediaries, and the employees concerned of insurance undertakings and insurance intermediaries, possess the knowledge and competence that is necessary to fulfil their obligations. To provide assurance to clients, customers and competent authorities that the level of knowledge and competence of such natural persons and insurance intermediaries and the employees of insurance undertakings and insurance intermediaries meet the required standards, such know…

Added:Having regard to the opinion of the European Economic and Social Committee,

Removed:Recital 24 a (new): (24a) The Capital Markets Union enables undertakings established in the Union to exercise their rights under the freedom to provide services and the freedom of establishment, provided that they comply with certain conditions. To avoid any abuses of those principles, rules should be introduced to establish an anti-forum shopping principle in Directives 2014/65/EU and (EU) 2016/97.

Added:Acting in accordance with the ordinary legislative procedure,

Removed:Recital 24 b (new): (24b) Recital 46 of Directive 2014/65/EU clarifies that Member States should not grant or should withdraw authorisation where factors such as the content of programmes of operations, the geographical distribution or the activities actually carried out clearly indicate that an investment firm has opted for the legal system of one Member State for the purpose of avoiding the stricter standards or supervisory enforcement in another Member State within the territory of which it intends to carry out or does carry out the greater part of its activities. The Member States should therefore effectively ensure, both at the authorisation stage and on an ongoing basis, that investment firms do not solely provide services and carry out activities in Member States other than the one where they have obtained authorisation. That criterion should be considered not to be fulfilled where the scope of activity in the home Member State is so limited that it clearly indicates an intention to circumvent the application of the provisions of this Directive.

Added:Whereas:

Removed:The current Recital 46 of MiFID II establishes an anti-forum-shopping principle by requiring that an investment firm operates effectively in its home Member State. Until now, it has been a 'floating' recital, with no corresponding provision in the MiFID II articles. This requirement should become more explicit.

Added:(1) A core objective of the Capital Markets Union is to ensure that consumers can fully benefit from the investment opportunities offered by capital markets. To be able to do so, they must be supported by a regulatory framework that enables them to take investment decisions that correspond to their needs and aims and adequately protects them in the single market. The package of measures under the EU Retail investment strategy seeks to address the identified shortcomings.

Removed:Recital 31 a (new): (31a) Younger generations are the most vulnerable to mis-selling practices arising from digitalisation. Although the rise of so-called "finfluencers" can be positive in terms of promoting financial education to a wider audience, it is essential to ensure sufficient safeguards so as to create a safe investment environment for each Union citizen. Trust in Union financial markets is a key factor in encouraging potential investors to invest in them.

Added:(2) Directives (EU) 2009/65/EC, 2009/138/EC, 2011/61/EU, 2014/65/EU and (EU) 2016/97 of the European Parliament and of the Council. are designed to protect retail investors and seek to increase the confidence and ability of retail investors as they make important financial decisions. The Commission’s work to evaluate and assess this framework has identified a number of important problems, including difficulties for retail investors to understand and compare investment offers on the basis of disclosure documentation which is not sufficiently relevant and engaging to help their decision-making. In addition, the Commission’s work pointed to the growing risks related to misleading marketing information and practices provided via digital channels and shortcomings in the way products are manufactured and distributed that may result in unjustifiably high levels of costs for retail investors. The Commission’s work also pointed to risks of bias in the investment advice process.

Removed:Recital 32 a (new): (32a) Investment firms, insurance undertakings and insurance intermediaries which make use of so-called “finfluencers” to carry out their marketing communication should comply with a number of requirements. Those investment firms, insurance undertakings and insurance intermediaries should establish a written agreement with the “finfluencers” laying out the content of their contractual relationship (scope and nature of the activities carried out). They should provide the competent authority upon request with the identity and contact details of the “finfluencers” whose services they rely on, and should regularly operate controls over the activities carried out by the “finfluencers” to ensure their compliance with this Directive.

Added:(3) Third party payments, such as fees, commissions or any monetary or non-monetary benefits paid to or received by investment firms and insurance undertakings and intermediaries by or from persons other than the client or customer, also termed as ‘inducements’, play a significant role in the distribution of retail investment products in the Union. The existing rules designed to manage conflicts of interests in Directives ▌2014/65/EU and (EU) 2016/97, including restrictions on and transparency around the payments of inducements, have not proven sufficiently effective in mitigating consumer detriment and have led to different levels of retail investor protection across product segments and distribution channels. It is therefore necessary to further strengthen the investor protection framework to ensure that retail clients’ best interests are protected uniformly across the Union. It is appropriate to introduce rules that better frame the current advice environment by ensuring that financial intermediaries provide more transparent, understandable and tailored advice to clients and consumers. This should ensure that clients and consumers are being offered products suitable to their needs and that they better understand the advice they receive.

Removed:Recital 37 a (new): (37a) Financial literacy is of key importance in addressing the current deficiencies in the Capital Markets Union. Trust in Union financial markets is linked intrinsically to the level of retail participation in them. Education and knowledge are tools to empower each citizen to make informed investment decisions. This Directive should lay the ground for increasing the level of financial education in each Member State. In view of the limited competences conferred upon the Union in that area, it is the responsibility of each Member State to ensure that proper adjustments are made, particularly in their education systems, to comply with this Directive. Member States should take ambitious steps to fulfil the obligations laid down in this Directive.

Added:▌

Removed:Directive 2014/65/EU

Added:(5) In order to ensure that retail customers are not misled, it is important to stipulate in Directive (EU) 2016/97 that, in line with existing rules in Directive (EU) 2014/65, insurance intermediaries that indicate to their customers that they provide advice on an independent basis, should assess a sufficiently large number of insurance products available on the market. This rule should not prevent insurance intermediaries offering advice to customers from accepting inducements, provided that the advice is not presented as independent, customers are informed of the inducements in line with applicable transparency requirements and that other legal requirements, including the requirement to act in the best interest of the customer, are complied with. In view of the diversity of insurance distribution structures in Member States, it should also not prevent insurance intermediaries whose legal status qualifies them as independent, from presenting themselves as not contractually tied to a specific insurance undertaking if they indicate that they receive inducements.

Removed:Article 1 – paragraph 1 – point 3, Article 4 – paragraph 1 – point 68 a (new): (68a) 'financial and non-financial market data' means: / (i) raw market data from trading platforms received through specialist real-time providers; / (ii) data relating to third parties attached to securities (for instance issuers) and financial instruments, aggregated and sold by data providers, which feed into the market data repository of financial institutions; / (iii) data provided by credit rating agencies or ESG rating agencies, mainly based on an analysis of the quality of the issuer's rating and/or perceived sustainability; / (iv) data provided by index administrators; / (v) all other data derived from financial analysis (for instance research);

Added:(6) The existing safeguards conditioning the payment or receipt of inducements, which under Directive ▌2014/65/EU require that the inducement is designed to enhance the quality of the service to the client, or under Directive (EU) 2016/97 should not have a detrimental effect on the quality of the service to the customer, have not been sufficiently effective in mitigating conflicts of interest. It is therefore proposed to remove those criteria and introduce a new, common test, both in Directive ▌2014/65/EU and Directive (EU) 2016/97, that further clarifies how financial advisors should apply the principle of acting in the best interest of the client or customer. Financial advisors should base their advice on an appropriate range of financial products suited to the client’s or customer’s needs. The range of financial products offered should take into account the business model of the firm and the investment objectives of the client or customer. The best interest of clients and customers is broader than costs. Therefore, financial advisors should, after having identified ▌instruments suited to their clients’ or customers’ needs, ▌recommend the most ▌efficient product among products offering similar features to their clients and customers, taking into consideration its performance, level of risk, qualitative elements, costs and charges reported pursuant to Article 16-a. If advisors choose to ▌recommend an equivalent product with higher costs to the client or customer, they should ▌provide an objective justification for such ▌recommendation and keep the record of that justification. Financial advisors should not place the interest of their firm ahead of the interest of their clients and customers. In the case of insurance-based investment products, advisors should also ensure that the insurance cover included in the product is consistent with the client’s or customer’s insurance demands and needs. In case that none of the products is in the best interest of the client or customer, financial advisors should refrain from giving advice or making a recommendation.

Removed:Directive 2014/65/EU

Added:(7) The existing requirements on disclosure of inducements should be further strengthened to ensure that retail investors understand the general concept of inducements, the potential for conflict of interest, as well as the impact of inducements on the overall costs and expected returns.

Removed:Article 1 – paragraph 1 – point 3, Article 4 – paragraph 1 – point 68 b (new): (68b) 'data provider' means a legal person whose occupation includes the offering and distribution of financial and non-financial market data on a professional basis.

Added:▌