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:
- a proposal for a Directive as regards the Union retail investor protection rules (proposed RIS Directive); and
- a proposal for targeted amendments to the PRIIPs Regulation.
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:
- Enhanced disclosure of information under MiFID II and
IDD. The EU Commission proposes the introduction of a new
concept, the risky product. Under the proposed RIS Directive,
investment firms, insurance intermediaries and insurance
undertakings distributing insurance-based investment products
(IBIPs) will have to include appropriate risk warnings in all
information materials about particularly risky products, with the
aim of alerting retail investors to specific risks of potential
financial losses. In addition, the proposed RIS Directive requires
investment firms, insurance undertakings and insurance
intermediaries to put in place a policy on marketing communications
and practices that, among others, divides responsibility for
content and use of marketing communications between the
manufacturer and the distributor.
- Amended rules on inducement. The EU Commission
has decided not to opt for a full ban on inducements at this time.
Instead, as part of a staged approach, the proposed RIS Directive
suggests addressing the conflicts of interest that arise due to the
payment of inducements via a number of different measures,
including: (i) measures aimed at prohibiting the payment of
inducements in execution-only environments where no advice is
provided, (ii) introduction of a ban on inducements paid by
manufacturers to insurance distributors in relation to non-advised
sales of IBIPs, (iii) strengthening the "best interest of the
client" principle, and (iv) improved disclosures to the
- Undue costs – value for money under MiFID II,
IDD, the UCITS Directive and AIFMD. In order to ensure
"value for money", the EU Commission proposes to complete
the existing product governance frameworks under the MiFID II and
IDD regimes with a new requirement for manufacturers to set out a
pricing process enabling identification and quantification of all
costs and charges and assessment of whether those costs and charges
undermine the value which the product is expected to deliver. The
EU Commission thus aims to limit the offering of financial products
that deliver poor or no "value for money" for retail
For UCITS and AIFs managed by an AIFM, a requirement to prevent undue costs is proposed. Management companies of UCITS and AIFMs will have to assess on an annual basis whether undue costs were charged. This new requirement is coupled with an annual assessment of the pricing process, including a comparison to market standards, and regulatory reporting to national competent authorities.
- Suitability and appropriateness assessments.
The EU Commission proposes a new obligation for investment firms as
well as insurance undertakings and insurance intermediaries
distributing IBIPs to explain the purpose of the assessment to
clients and to obtain all relevant information which may be
necessary for the assessment. Retail investors must also be
informed of the consequences for the quality of the assessment if
they do not provide accurate and complete information and must
receive, upon request, a suitability assessment report enabling
them to seek and obtain any necessary additional
When considering the suitability of a specific product or service, the proposed RIS Directive also requires consideration of the client's needs for portfolio diversification.
- Easing restrictions for investors to qualify as
professional. To ensure a more appropriate classification
of clients and to reduce administrative burdens, the proposed RIS
Directive anticipates easing the requirements for investors to
qualify as professional. The proposed amendments include a
reduction of the wealth criterion from EUR 500,000 to EUR 250,000,
along with the insertion of a possible fourth criterion relating to
relevant education or training.
However, the proposed RIS Directive does not introduce client classification under IDD, because it considers all IBIPs to be retail products.
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_
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.
- Access the EU Commission's press release on its EU retail investment strategy
- Access the proposed RIS Directive, and its Annexe
- Access the proposed targeted amendments to the PRIIPs Regulation
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.