Retail Investment Strategy

THE long-awaited EU Commission proposal on the Retail Investment Strategy (RIS) has been published. It has been and will continue to be, the subject of much discussion over the next few years. The final shape of the RIS has been signalled in recent weeks and when it was finally revealed the contents did not come as a surprise.

The commission proposal must be viewed in the context of the overarching strategy of developing Capital Markets Union (CMU) within the EU. The purpose of CMU is to harness some of the vast reservoir of savings in the EU into more active participation in capital markets with the goals of obtaining greater returns for savers, the creation of a more active pool of capital to fund active investment in the EU and at the same time drive the sustainability agenda.

To achieve CMU the RIS principal objective is to encourage the participation of retail investors in the Capital Markets. The RIS seeks to achieve this by adopting several strategies. By updating and improving transparency, introducing requirements to achieve better value for money by addressing costs, strengthening the rules pertaining to conflict of interest, better training and improving consumer financial literacy.

The instruments that will be used will be an Omnibus Directive which will update and amend existing directive such as MIFID II and the IDD and Regulation which will update and amend the PRIIPs regulations to afford better transparency.

What has been avoided thus far, is the introduction of a blanket ban on “inducements” which has been recognised as potentially damaging to the objective of greater participation by retail investors.

Changes are proposed to inducements in relation to the provision of “independent advice” and to execution only contracts.

The proposal contains a review clause which will kick in three years after the imposition of the directive. At the launch of the RIS, it was advised that in measuring the effectiveness of the directive that two key elements will be – investor participation and costs.

The RIS proposals are long and detailed. They will now enter a process which will involve the EU Council (Member States) and the EU Parliament coming up with their own proposals/amendments which will ultimately lead to tripartite discussion/ negotiation involving the EU Council, Parliament and Commission known as a trialogue.

This process will take months and may change the outcome. This will probably take us to the end of this Commissions and Parliamentary term, the effective date of which is June 2024. This is but the beginning.

Though the RIS greatly ramps up the administrative burden with its attendant costs, a reasonably sensible approach is being adopted.

Any steps taken must be based upon sound analysis and not by populist whims. All parties are in favour and supportive of the objectives of CMU and its related RIS – the debate will centre on the best mechanisms to achieve those goals, the central one of which is greater participation by consumers in their own interest in the capital markets. Let’s not lose sight of that goal.

Promoting, Supporting and Representing Irish Insurance and Financial Brokers