On the
24th of September, the European Commission revealed its new plans
for the Capital Markets Union (here
and here).
With the post-coronavirus recovery in mind, the European Commission suggested a
16-point Action Plan. The Action Plan highlights the struggles that many
businesses face in order to stay solvent in the medium and long term. When it comes
to consumers, the new Action Plan intends to increase consumer choice regarding
savings and investments, which involves better information and better overall protection. The European Commission also makes the case for market-based pension
systems, in order to meet ‘the challenges posed by Europe’s ageing population’.
In particular, the
Action Plan highlights that while Europe has one of the highest saving rates in
the world, the level of individual investment remains low. In order to increase
individual investment, the EU Commission promises to increase trust in capital
markets by improving financial literacy. Additionally, the Action Plan
highlights the importance of harmonizing disclosure duties on investment
products so as to increase comparability of similar products that are
currently covered by different legislation. In this sense, the Commission
promises to assess whether it can introduce a requirement for Member States to
promote educational measures in relation to responsible and long-term
investing. Understandable information also plays a central role in the Commission’s
plan of attracting more individual investors. In particular, the Commission
stresses that although there are already duties in place that impose the disclosure
of financial information, the documents produced under those rules are considered
‘long, complex, difficult to understand, misleading and inconsistent’. Additionally,
these documents may result in information overload. In this context, the
Commission distinguishes between the sophisticated investor – who does not need
as much information – and the inexperienced investor – who needs more
information. The Commission commits to looking into the applicable legislation
and amend it so as to guarantee that consumers receive ‘clear and comparable
product information’.
Additionally,
the Commission promises to improve the regime applicable to retail investment, to guarantee that an individual investor benefits from, among other
aspects, bias-free advice. The importance of transparent information and
bias-free financial advice cannot be understated. Financial advisers must be obliged
to disclose their own interest in the sale of a given financial product. As
BEUC also highlights here,
biased financial advice has resulted in considerable financial losses to
consumers all over Europe in recent years (see, for example, the case of Banco Espírito Santo
in Portugal). In this regard, the Commission acknowledges financial advisors’
role as gatekeepers of the financial system. As a specific point of action, the
Commission promises to work towards the harmonization of the threshold of professional
qualification of financial advisors, in order to increase consumers’ trust in
their advice.
