EU commission ban plan under fire from raft of financial trade associations and Germany 

A group of financial sector associations including Insurance Europe have written jointly to the European Commission to highlight the fact that the impact of an EU-wide ban on commission would vary greatly across member states; could negatively impact consumers in countries with a commission-based model; and severely undermine the goals of the EU's Retail Investment Strategy (RIS).

The growing pressure on the EC includes a letter from Germany's finance minister Christian Lindner saying that a ban on commission-based sales of financial products from banks and insurers would be a "serious setback" to the European Union's capital market and limit choice for consumers.

EU financial services chief Mairead McGuinness last month made a detailed proposal in favour of banning "inducements", or commission paid by a bank or insurer to financial advisers who have sold their products.

According to a Reuters report yesterday (16 January), Lindner said in a letter to McGuinness, dated 28 December that he welcomed her goal to deepen the EU capital market, but he was "very much concerned" about a possible ban on inducements.
Commission-based selling "predominates" in the German insurance market, he said.

EU regulation on inducements was already "well balanced and forces investment firms to act in the best interest of their clients", Reuters also quoted Lindner as saying. 

Meanwhile, Insurance Europe set out in a statement yesterday that "if properly calibrated, the RIS presents a significant opportunity to promote an open and competitive financial market where consumers can invest with confidence and have access to a diverse range of investment opportunities.

"To achieve the goals of the RIS, it is important to recognise the value offered by professional advice to consumers. Such advice enables consumers to take effective investment decisions, plan for their future and meet their sustainability preferences. Therefore, an EU-wide ban on commission, which would limit consumers' access to advice, would disrupt the market at the expense of consumers."

The European insurance and reinsurance federation also said that while any professional service and advice come at a price, the cost of not being able to access advice when needed would be extremely high for consumers. 

"Some risk turning to other sources of information like social media and being more exposed to scams or high-risk investments, while others would be less likely to invest, and then less prepared for retirement. Furthermore, an EU-wide ban would not respect market diversity in terms of distribution systems, clients' preferences and supervisory culture."

It added: "Moreover, the Insurance Distribution Directive (IDD) introduced strong safeguards against conflicts of interest and mis-selling, and member states have added specific national provisions where appropriate. The approach taken in the IDD must, therefore, be preserved.

"The RIS should focus on what is really useful and necessary for a simple and smooth consumer experience; make disclosures more consumer-friendly and fit for the digital age; and promote much needed financial and insurance education."

The other signatories to its statement were: The European Fund and Asset Management Association, the European Association of Cooperative Banks, the European Structured Investment Products Association, the European Banking Federation, the European Association of Public Banks, and the European Savings and Retail Banking Group.

In a separate announcement the European Securities and Markets Authority (ESMA), the EU's financial markets regulator and supervisor, launched a common supervisory action (CSA) with national competent authorities (NCAs) on the application of MiFID II disclosure rules with regard to marketing communications across the European Union (EU). 

The CSA will be conducted over the course of 2023.

ESMA said it was aware of the key role that marketing communications and advertisements can play in determining consumer behaviour and influencing investment decisions and therefore launched this exercise to assess the application by investment firms and credit institutions of the MiFID II requirements on marketing communications.

"As part of the CSA, NCAs will review whether marketing communications (including advertisements) are fair, clear and non-misleading and how firms select the target audience for the marketing communications, especially in the case of riskier and more complex investment products.

"ESMA is also aware that younger, less experienced investors, are particularly vulnerable when they operate online. For this reason, the CSA will also closely consider marketing and advertising by firms through distribution channels including apps, websites, social media and collaborations with affiliates such as influencers."

ESMA added: "Finally, the 2023 CSA will also be an opportunity collect information about possible ‘greenwashing practices' observed in marketing communications and advertisements. ESMA believes this initiative and the related sharing of practices across NCAs, will help ensure consistent implementation and application of EU rules and enhance the protection of investors in line with ESMA's objectives."