EU Commission’s Retail Investment Strategy: Good approach – but misses the mark

The aim of the European Commission’s Retail Investment Strategy (RIS) is to encourage more retail investors to invest in the capital market. The German Banking Industry Committee (GBIC) fully supports this aim. However, instead of providing real incentives, the current proposals will actually make access to the capital markets, to advice and to suitable products more difficult. The EU Commission’s inadequate simplification proposals will fail to reverse the trend.

“If you want to encourage citizens to invest in the capital market, you need to break down hurdles and make the securities business simple and practical,” said Heiner Herkenhoff, CEO of the Association of German Banks and this year’s GBIC coordinator, with regard to the European Commission’s recent non-paper on the RIS.

In GBIC’s opinion, the planned strategy in its current form is at risk of falling well short of its objective. “We now expect the negotiating partners in the trilogue to deliver: The RIS must be made significantly simpler – or taken off the table altogether. A well-intentioned idea should not be badly implemented,” said Herkenhoff.

Germany’s banks believe there are four key points:

• The requirements of the Value for Money concept would result in a ‘bureaucracy monster’ and must be rejected. The current proposals focus far too much on an extensive and rigid examination of costs. This is not in the interests of clients and should therefore be reconsidered in its entirety.
• The best interest test does not provide any discernible added value and is therefore superfluous: The obligation to act in the best interests of the client is already enshrined as a core principle in MiFID. 
• Do not introduce the inducement test: Even the Commission is aware that this additional test is unnecessary and can be scrapped.
• Do not extend the appropriateness assessment: The requirements must be geared towards the client’s benefits and interests – clients of non-advised services should not be patronised.

“The RIS could become a useful tool to strengthen Europe’s capital markets – but only if it is geared to the wishes of investors,” said Herkenhoff. It requires practicable, proportionate and client-friendly rules. “This is the only way to ensure this initiative delivers a real opportunity for more wealth creation and for private pension provision.”

The German Banking Industry Committee’s comments, “EU Commission proposals to simplify the RIS – bolder steps or withdrawal required” are available here.