Enhanced protection for retail investors – anticipated impact on the banking, insurance and asset management industries

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The EU Commission is proposing to modernise and simplify the framework for retail investment across the different sectors of the financial services industry, namely asset management, banking and insurance.

On 24 May 2023, the EU Commission published the EU Retail Investment Strategy (RIS). With the ultimate goal of enhancing retail investor participation in capital markets, the RIS consists of a legislative framework designed to empower retail investors to take investment decisions aligned with their needs and to provide them with adequate protection within the single market.

To this end, the EU Commission has put forward a package of legislative measures in the form of:

The proposed RIS Directive harmonises certain aspects of the legislative regimes for investment firms and the insurance industry by amending and aligning the Directive on markets in financial instruments (MiFID II), the Directive on insurance distribution (IDD) and the Directive on the taking-up and pursuit of the business of insurance and reinsurance (Solvency II Directive). The proposed RIS Directive also revises the Directive on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS Directive) and the Directive on alternative investment fund managers (AIFMD) to increase scrutiny and transparency of costs.

The proposed amendments to the PRIIPs Regulation introduce targeted changes to the PRIIPs KID, which aim to improve how information is presented in light of the amendments under the proposed RIS Directive.

Key amendments under the proposed RIS Directive

The proposed RIS Directive addresses a wide variety of issues:

The proposed legislative package also contains measures to encourage the provision of independent and cheaper advice, to align the requirements on knowledge and competence of investment advisors, and to further strengthen supervisory enforcement through additional reporting duties for investment firms and insurance distributors on their cross-border activities. It also proposes to facilitate cooperation between national competent authorities through the establishment of collaboration platforms. The EU Commission also requires Member States to promote financial literacy.

Key amendments to the PRIIPs Regulation

The EU Commission’s proposed RIS Directive is coupled with targeted amendments to the format of the PRIIPs KID. The proposed changes to the PRIIPs KID aim to address the retail investor’s need for relevant, comparable and easily understandable information on investment products. For more detailed information, please click here_

Next steps

The legislative proposal is now subject to scrutiny by the EU Parliament and the Council of the EU. Once adopted by the EU co-legislators, the RIS Directive will enter into force on the 20th day following its publication in the Official Journal of the EU and will apply 18 months after its entry into force.

The amendments as currently drafted will significantly impact the manufacturing and distribution of financial products and financial services. At Arendt, we will continue to analyse the amendments to be introduced by the proposed RIS Directive and the targeted amendments to the PRIIPs Regulation. For any further information, please reach out to your usual contact in the Fund Formation team, the Banking & Financial Services team, Insurance & Reinsurance Law team or within our Regulatory & Consulting branch.

Download the press release

Luxembourg Newsflash – Enhanced protection for retail investors – anticipated impact on the banking, insurance and asset management industries

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