On 5 October 2023, European Parliament rapporteur Stéphanie Yon-Courtin (Renew, FR) published her two draft reports concerning the Retail Investment Strategy (RIS) package. The first draft report contains the rapporteur’s proposed amendments to the European Commission’s proposal, which contained proposed amendments to the following pieces of EU legislation:
- The Markets in Financial Instruments Directive II (MiFID II).
- The Alternative Investment Fund Managers Directive (AIFMD).
- The Undertakings for Collective Investment in Transferable Securities Directive (UCITS).
- The Directive for the provision of insurance or reinsurance distribution services to third parties (IDD).
- The Directive on the taking-up and pursuit of the business of insurance and reinsurance (Solvency II).
The rapporteur also published her draft report on the Commission’s proposal amending the Packaged Retail and Insurance-based Investment Products Regulation (PRIIPs) with the aim of modernising the key information document [link].
The European Commission (Commission) published its Retail Investment legislative package in May 2023 with the aim of empowering retail investors to take more informed investment decisions that would better correspond to their investment needs and objectives.
In her report on proposed amendments to MiFID II, the rapporteur proposes the following amendments to the Commission’s proposal:
- Inducements: The Commission proposal contains a partial ban on inducements. A newly proposed Article would prohibit the payment of inducements in execution-only environments where no advice is provided, strengthen the principle of “best interest of the client” and increase disclosures to the client regarding the payment of inducements. In her draft report, Yon-Courtin writes that she opposes a full ban on inducements and does not see how the partial ban as proposed by the Commission is justified. She therefore proposes to delete the partial ban. In addition, Yon-Courtin proposes to delay the deadline for reviewing the inducement rules by two years, meaning that the Commission would assess the impact of the amendments made to MiFID II by the RIS package after five years following the end of the transition period instead of three, to ensure that the period is long enough for the Commission to get an accurate view of the effects the new rules have on the market.
- Investment firm localisation: In the current text of MiFID II, a recital provides that investment firms should effectively operate in the Member State in which they are authorised. This is to avoid the situation where an investment firm becomes authorised in one Member State for the sole purpose of providing services in the rest of the EU via the passporting regime. The rapporteur proposes a corresponding provision in the text of MiFID II to ensure that this principle is enshrined in law.
- Data providers: The rapporteur proposes to add a new Article to MiFID II that lays down requirements for data providers that offer services to investment firms. The new provision would require data providers to ensure that the provision of financial and non-financial market data is fair, reasonable, non-discriminatory and transparent, and of sufficient quality. In addition, data providers would need to be authorised by the European Securities and Markets Authority (ESMA). The rapporteur proposes to define a data provider as “a legal person whose occupation includes the offering and distribution of financial and non-financial market data on a professional basis” and also proposes a common definition for “financial and non-financial market data”.
- Value for money benchmarks: The Commission proposed a new provision in MiFID II with regard to product governance requirements. In this proposed Article, the Commission provides for a framework under which ESMA and the European Insurance and Occupational Pensions Authority (EIOPA) would develop a benchmark for financial instruments that present similar levels of performance, risk, strategy, objectives, or other characteristics, to help investment firms to perform a required comparative assessment of the cost and performance of financial instruments, falling under the definition of packaged retail investment products, both at the manufacturing and distribution stages. These so-called “value for money benchmarks” are disruptive to the market, in the view of the rapporteur, as it would lead to reduced diversity of products and supressed innovation. Stating that she would like to continue discussions on this proposed provision, she proposes to delete it from the text of the proposal.
The draft report will be discussed in the European Parliament Economic and Monetary Affairs (ECON) Committee in the coming weeks, and a possible ECON vote would take place at the end of January 2024. That said, the European Parliament will cease its work in April 2024 to prepare for the June 2024 elections. It is therefore doubtful whether the Council and European Parliament can adopt a final text of the RIS proposals before the European Parliament elections, which could cause significant delay.