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Attracting retail investors to EU capital markets - Financing of the EU economy

Building trust among retail investors

By Ross Verena - Executive Director, European Securities and Markets Authority (ESMA)

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Protecting the retail investor lies at the heart of the work of ESMA. In fact, one of our key objectives is ‘to have the needs of financial consumers better served and to reinforce their rights as investors while acknowledging their responsibilities’.

In terms of protection, the retail investor is better off than a couple of years ago. Important new pieces of regulations are on the brink of being implemented, such as PRIIPS and MIFIR/MIFID II and these are expected to bring about key benefits for retail investors. They will benefit from increased transparency around products and costs; comparison among products will be easier and therefore competition should be enhanced. Firms’ governance and organisational arrangements, as well as conduct of business rules, will be strengthened, which should positively impact investors’ trust in the quality of services received, both in their home State and across borders. Rules on product governance should help give investors access to products that are adequate to their specific needs.

Another notable achievement in the securities markets is the UCITS framework. UCITS enjoy great success among retail investors, EU-wide. There are more than 29,000 UCITS funds in the EU which represent over €8 trillion of assets under management.

Despite these successes we cannot afford to rest on our laurels: consumer trust is fragile. An efficient and robust framework for investor protection is one of the prerequisites for increasing the participation of retail investors in the capital markets. Therefore, both policymakers and regulators need to step up in ensuring that the current framework still meets the needs of the investor.

It will be important to raise consumer awareness about the different retail products available throughout the EU. The European Commission proposal for the review of the Prospectus Directive for instance may further improve investors’ access to information by empowering ESMA to provide a single, free and searchable online access point to approved prospectuses and therefore investment opportunities. Core to retail investors’ confidence is giving them access to efficient redress procedures in cases of mis-selling or other problems, including on a cross-border basis.

Only with adequate protection can trust be rebuild and maintained.

Finally, as digitalisation and innovation are reshaping retail financial services, one of the new challenges lies in monitoring these market developments and taking action, where appropriate. New technologies, such as automated advice, can be beneficial for investors, provided the appropriate conduct standards are maintained. With EBA and EIOPA we are analysing the adequacy of sectoral regulatory frameworks and identifying any regulatory and/or supervisory measures which may need to be taken, if any.

In an ever evolving financial market, we as regulators have to stay close to potential changes in the way financial institutions interact with consumers to continue to ensure retail investors are appropriately protected. Only with adequate protection can trust be rebuild and maintained.