THE European Commission published the longawaited Retail Investment Strategy (“RIS”) on the 24th of May.

The RIS forms part of the flagship initiative of the European Commission’s Capital Markets Union (CMU) which aims to create a single market for capital and get consumers investing instead of saving.

The RIS aims to ensure that consumers throughout Europe who invest in capital markets can do so with confidence and trust; that market outcomes are improved, and that consumer participation is increased. These are all laudable aims, which we support.

Over the past number of months, due to a partial review of the Markets in Financial Instruments Regulation (MiFIR)/ MIFID II and the work that was been undertaken on the RIS, there has been much debate about a possible introduction of a ban on inducements/commissions as they are known in Ireland.

Brokers Ireland and BIPAR (European Federation of Insurance and Financial Intermediaries) have been working on the issue to highlight the consequences of such a ban. Brokers Ireland met with with Commissioner Mairead McGuinness, Commissioner for Financial Services, Financial Stability and Capital Markets Union (CMU) whose department is responsible for the publication of the RIS on the 13th of February to discuss recent comments about a proposed ban on commissions.

Commissioner McGuinness welcomed the support of Brokers Ireland in relation to the attainment of the CMU and agreed that intermediaries play an important role in terms of advice.

She outlined her concerns regarding transparency for consumers as to what inducement/commission is paid when they take out a policy.

The meeting was open and engaging, with Brokers Ireland highlighting the importance of brokers and their central role to the attainment of the CMU and the Retail Investment Strategy in respect of improved market outcomes and empowering retail investors.

We outlined how the existence of the current commission model enables all consumers access advice and financial products, creating competition, keeping the costs down, and making such services accessible; especially to those who are less well-off and who wish to make provision for the future. We stated that a commission ban would run counter to the objectives of the CMU and that the objectives can be met with more focused disclosure and competition between high quality personal advice and automated advice.

The key points of the published RIS were:

  • The proposal did not introduce an outright ban on inducements for the distribution of IBIPs (insurancebased investment products) but a ban is proposed for execution-only activities (and a ban for independent advice which is already the case in Ireland).
  • The proposal introduces specific training and knowledge requirements for intermediaries distributing IBIPs and aims to improve the quality of information for pre-contractual and contractual requirements.
  • Precontractual information document for pure life products is to be introduced (complementing the already existing IPID for non-life and KID for IBIPs).
  •  The proposal includes complex provisions regarding product governance requirements for IBIPs (pricing process, EIOPA benchmark, value for money controlled by the supervisor).
  • An annual statement to be introduced in IDD and MiFID II, to be provided by undertakings and intermediaries to the client, providing information on costs and charges, including third party payments, and performance.
  • The very important number of Level II measures (delegated Acts and RTS) may make the regulatory framework applicable to the distribution of IBIPs in Europe more complex.

The RIS proposals will in the coming weeks and months be discussed and amended by the European Parliament and the Member States in the Council.

The Commission’s proposals will only be the starting point of the legislative process. Once the Parliament and Council have adopted their respective positions, the trilogue discussions will start. Here, the Commission, Parliament and Council discuss and look for a compromise between the 3 versions of the texts.

This procedure typically takes at minimum 12 months before a final text is adopted. Brokers Ireland together with BIPAR (European Federation of Insurance Intermediaries) are now studying the proposals in detail and assessing their impact on our sector.

Brokers Ireland are also engaging with the Central Bank and the Department of Finance. Further updates will be provided to the membership over the coming months as the proposals make their way through the European legislative process.

Retail Investment Strategy Proposal Published Elizabeth Smith Wright, Brokers Ireland IN FOCUS compliance