RegTech Intelligence

Convergence of regulation, supervisory practices and outcomes and a high level of investor protection are key to creating a successful CMU

JWG analysis.

At CISI’s Annual Conference, Verena Ross presented the latest outlook on EU regulation, covering the Capital Markets Union (CMU), ongoing work in relation to investor protection and the digitalisation of financial services.

Ross once more emphasised how a successful CMU, based on a single capital market in the EU, promotes the attractiveness of the EU for investors, which should – in turn – create more jobs and stimulate economic growth.  For the objectives of the CMU to be met, a single rulebook, that is applied in a predictable way across the EU, is of critical importance.  In addition to regulatory and supervisory convergence, a high level of investor protection is key to reduce barriers and fragmentation between national capital markets and to achieve the ambitions of the CMU, as Ross mentioned.

To attain a high level of investor protection, MiFID is crucial.  MiFID aims to strengthen further protection for retail investors through limits on the use of commissions, stronger conditions for the provision of independent investment advice, stricter organisational requirements for product design and distribution, the disclosure of costs and charges, the regulation of cross-selling and product intervention powers.

At present, ESMA is further refining the framework of investor protection measures.  It does so, for example, through its CP on knowledge and competence.  As Ross discussed, “It is crucial for the protection of investors that the people who provide them with investment advice or with information on investment products and services are sufficiently knowledgeable and competent, so that clients can safely rely on the advice or information being provided“.

The guidelines on knowledge and competence that ESMA is developing set minimum standards that national competent authorities and other relevant national bodies need to take into account when determining the specific qualifications and experience that are expected from investment advisors and others providing information on investment products and services – standards that they are expected to maintain.  The consultation ends soon on 10 July.

ESMA‘s guidelines are an important tool for achieving supervisory convergence.  With regard to this, Ross also highlighted the cross-sectoral work to improve consumer and investor protection with the other ESAs.  Ross mentioned how “from an investor perspective it is important to have consistent standards whatever product or service the consumer is looking for, we have done a lot of work jointly with the other European Supervisory Authorities (ESAs).  Consumer protection is a statutory objective that all three authorities have in common.

Ross concluded her speech by focusing on digital innovations and new applications of existing technologies.  The increasing digitalisation of financial services has resulted in a lowering of the barriers to access financial products and services, but it also implies that investor protection is even more important.  Ross stressed that “investment firms need to act in the best interest of their clients, regardless of the channel through which they provide their products and services“.  Also, digitalisation increases vulnerability to certain operational risks (such as IT failure) that firms and regulators need to be aware of and be able to react quickly to.  Ross mentioned that the three ESAs have recently started working on the topic of the automation of financial advice.  We can look forward to some work being delivered in this space at some point.

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