Speakers of the session
Senior Fellow, EUROFI
Counsel of the Governor, Bank of Greece for European Issues, Ex-President of the Greek Capital Market Commission and Member of the Boards of ESMA and IOSCO
Director, Financial Markets, DG for Financial Stability, Financial Services and Capital Markets Union, European Commission
Executive Director, European Securities and Markets Authority (ESMA)
Executive Member of the Board, Deutscher Sparkassen- und Giroverband (DSGV)
Head of EMEA Retirement and Retail, BlackRock
Head of Equities, Derivatives and Fixed Income Markets, BME Group
Managing Director, European Investors
Objectives of the sessionThis roundtable discussed the importance of retail investors for the development of capital markets in the context of the CMU, the main obstacles to overcome and the regulatory and market-driven actions needed to increase the engagement of retail investors in securities markets. The role that technological innovation may play in developing retail investment was also examined.
Points of discussion
What are the main obstacles to a greater engagement of retail investors in EU capital markets?
- Why should retail investors invest more in capital markets? Should this be on a domestic and cross-border basis? What are the conditions? Is the current volatility an issue?
- What are the main obstacles to a greater engagement of retail investors in capital markets: insufficiency of appropriate vehicles, unsuitable information, limited level of literacy, insufficient investor protection…? Is it primarily a problem of offer or demand? What are the key drivers of trust for retail investors?
What regulatory and market-driven actions could encourage more retail investment?
- Are on-going regulatory actions to improve retail investor information, advice and protection appropriate and sufficient? Are there other areas where the EU public authorities could intervene? Can some requirements create excessive complexity in some cases for distributors and their clients?
- What role can market participants and market infrastructures play in order to encourage more retail investment? Does the current regulatory environment allow them to play this role in an optimal way?
Can robo-advice and other technological solutions help to develop retail investment in securities?
- How are fintech solutions expected to change the investment value chain? May they help to develop retail investment in securities in a significant way and for which particular investor segments? May they foster cross-border investment?
- Do such solutions raise particular issues? Are specific regulatory or supervisory safeguards needed with the expansion of robo-advice and the related aggregation of investment accounts? How should the EU authorities monitor these developments?
Background of the sessionGreater engagement of retail investors in the capital markets is desirable, many believe, as this may help them to diversify their savings and generate more return for the long term in the context of increasing life expectancy, changing demographics and low interest rates. Retail investors are also an important potential source of long term financing for EU businesses. However the holding of securities by retail investors is decreasing (e.g. the direct share ownership of European households has dropped from 28% in 1975 to about 10% since 2007) and a large part of retail savings is held in bank accounts and savings products at relatively short maturities.
Several obstacles to the further engagement of retail investors in capital markets indeed have to be overcome. First, the financial literacy of many European retail savers remains limited as well as their experience with securities markets and information on securities is often too complex or legally-oriented. There is also a lack of confidence among investors after the dotcom crash and the financial crisis and growing risk averseness with a wider proportion of retail investors getting older. Taxation issues are also cited, as many countries have developed tax advantages for relatively safe products and fiscal incentives are not consistent across the EU. Distribution of securities is also an issue, some market players stress, given the risks and costs involved e.g. in providing appropriate advice for such instruments.
Several policy actions have been implemented at the EU level aiming to improve investor information, protection and advice. This was one of the key goals of the original MiFID directive (client classification, information requirements, assessment of the suitability and appropriateness of products and services…). MiFID II which will be implemented in 2018 aims to further strengthen investor protection by imposing increased transparency, stronger intervention powers and new requirements on investment firms such as: information on whether the advice is provided on an independent basis, independent advisors banned from receiving any fees or commissions from third-parties, limitation of the range of execution-only products… Moreover the PRIIPs regulation will impose from the beginning of 2017 an EU-wide disclosure standard designed to give retail investors essential information about packaged retail products (investment funds, life insurance products, retail structured securities…) and prospectus requirements are due to be reviewed in order to improve the information provided for shares and bonds. Some product frameworks such as UCITS also contain investor protection and information features.
The CMU Action Plan contains several additional actions which aim to provide better opportunities for investors. In the context of the work on the Green Paper on retail financial services, the EU Commission is seeking views on how to increase choice, competition and cross-border supply of retail financial services, as well as the impact of digitalization. The case for a policy framework to establish a market for pan-European personal pensions (PEPP) that could foster long-term retail investment and help to cover retirement needs will be evaluated, as well as the need to remove barriers to the cross-border distribution of investment funds and cross-border investing.
Market-driven evolutions could also support retail investment. Some suggest that products offering some capital protection coupled with restricted liquidity conditions for example could be a solution to attract more widely risk-averse investors. The development of online distribution channels and the emergence of new fintech solutions such as robo-advice or client holding aggregation services could also be an opportunity for investment firms to offer advisory services and a more individualised approach to a broader range of clients and for investors to benefit from tools to make more informed choices. Such developments however need to be further assessed and monitored.