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2019 | OriginalPaper | Chapter

EU Investor

Authors : Michele Siri, Shanshan Zhu

Published in: Dictionary of Statuses within EU Law

Publisher: Springer International Publishing

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Abstract

This chapter aims to define the current investor protection regime under European Union (EU) rules. The reforming process that involved the entire financial regulatory framework in the last decade clearly signed a shift towards a more ‘paternalistic’ approach, intended to prevent further episodes of financial misbehaviour. In particular, the objective of the recent cross-sectorial reforms can be identified in the attempt to establish an investor protection regime harmonised in all banking, investment and insurance sectors that encompasses the largest number of financial services and instruments. This paper analyses the main regulatory innovations concerning (1) the disclosure of product information, (2) conduct of business (COB) rules, (3) product governance and intervention and (4) financial education.

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See Recital 3 and 4 of Directive 2014/65/EU.

Directive 2004/39/EC (MiFID I), recently revised with the Directive 2014/65/EU (MiFID II).

Regulation 648/2012/EU.

Directive 2016/97/EU.

Regulation 1286/2014/EU.

In this paper, we decided not to treat enforcement mechanisms in order to focus on ex-ante mechanisms.

Articles 27 and 28 of Directive 1985/611/EEC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS Directive).

Article 1 of the UCITS Directive.

Art 78 of Directive 2009/65/EC (UCITS IV).

Regulation (EU) No. 1286/2014 on key information documents for packaged retail and insurance-based investment products (PRIIPs).

Recital 12 of PRIIPs Regulation.

Recital 6 of PRIIPs Regulation.

Article 6(1), (2) and (4) of PRIIPs Regulation.

Art 23 of the Proposal for a Regulation of the European Parliament and of the Council on a pan-European Personal Pension Product (PEPP) (COM (2017) 343 final).

For a review of the literature on behavioural finance, see Barberis and Thaler (2003).

Directive 93/33/EEC. This followed the European Recommendation to introduce some basic COB rules (Recommendation 77/534/EEC, OJ L 212/37).

International Organisation of Securities Commissions (IOSCO), ‘International Conduct of Business Principles’ (1990).

Directive 2004/39/EC on Markets in financial instruments (MiFID I).

Directive 2006/31/EC, Directive 2007/44/EC, Directive 2008/10/EC, and Directive 2010/78/EC.

Article 24(1) MiFID II.

Section 1, Annex I (5), Recital 4 and Par. I, Annex II of MiFID I.

Recital 72 and Article 24(4) of MiFID II.

Recital 73 and Article 24(7)(a) of MiFID II.

Recital 74 and Article 24(7)(b) of MiFID II.

Article 23 of the Proposal for a Regulation of the European Parliament and of the Council on a PEPP (COM (2017) 343 final).

Article 24(1) of MiFID II.

Article 23 and Recital 56 of MiFID II. MiFID II does not define or prohibit conflicts of interest. Instead, conflicts of interest shall be avoided, taken into account and managed (Brenncke 2017; Herbst 2015, p. 94). For further discussion, see also Grundmann and Hacker (2017).

Article 24(8) and (9) of MiFID II.

Article 24(10) of MiFID II. Staff should not be remunerated in such a way that they recommend a particular financial instrument without taking into account the retail client’s best interest.

Article 27 of MiFID II. Investment firms shall take all reasonable steps to obtain the best possible result in the execution of clients’ orders, with a different regime depending on the nature of the investor (i.e., either professional or retail).

Article 25(2) and (3). In particular, the suitability assessment (Art. 25(2)) requires that portfolio managers and financial advisors shall gather information about their client’s knowledge, experience, investment objective and risk tolerance—in relation to investment products and services—in order to recommend to the client the investment services and financial instruments that are best aligned with the client’s profile. The appropriateness requirement provides that the investment firm gather information on the client in order to assess if the product or services offered or demanded were appropriate.

Article 11 of ISD.

Article 24(3) of MiFID II.

Article 24(4)(a) of MiFID II.

Article 24(11) of MiFID II.

In the past, in order to support market innovation, the EU legislator avoided to impose any quality requirement for financial products (Colaert 2017).

Original directive 1985/611/ECC.

Directive 2011/61/EU on Alternative Investment Fund Managers Directive (AIFMD).

See Colaert (2017).

European Securities and Markets Authority (ESMA), ‘Opinion. Structured Retail Products – Good practices for product governance arrangements’ (ESMA/2014/332, March 2016).

Article 16(3) of MiFID II and Article 25 of the IDD. See also ESMA, ‘Final Report: Guidelines on MiFID II product governance requirements’ (2017), ESMA35-43-620.

See Article 9(3)(b) of MiFID II.

To ESMA for financial instruments, to EBA with reference to structured deposits, to the European Insurance and Occupational Pensions Authority (EIOPA) in relation to insurance-based investment products.

Article 40–41 of MiFIR and Article 16 of PRIIPs Regulation.

Expert Group on Financial Education, The Financial Crisis and Financial Education (2009).

EIOPA, ‘Report on Financial Literacy and Education Initiatives by Competent Authorities’ (2011).

EBA, ‘EBA Financial Education Report 2017/2018’ (2018).

EIOPA, ‘Report on Financial Literacy and Education Initiatives by Competent Authorities’ (2011).

de Larosière, The High-Level Group on Financial Supervision in the EU, Report (2009).

Barberis, N., & Thaler, R. (2003). A survey of behavioural finance. In G. Constantinides, M. Harris, & R. M. Stulz (Eds.), Handbook of the economics of finance: Financial markets and asset pricing (pp. 1051–1121). Amsterdam: North-Holland. https://doi.org/10.1016/S1574-0102(03)01027-6

Brenncke, M. (2017). Commentary on MiFID II conduct of business rules, Arts 21-30 MiFID II. In M. Lehmann & C. Kumpan (Eds.), Financial Services Law (1st ed.). Oxford, UK: Hart Publishing.

Busch, D. (2017). Product governance and product intervention under MiFID II/MiFIR. In D. Busch & G. Ferrarini (Eds.), Regulation of the EU financial markets: MiFID II and MiFIR (pp. 123–146). Oxford, UK: Oxford University Press.

Clark, R. C. (1976). The soundness of financial intermediaries. Yale Law Journal, 86(1), 1–102.CrossRef

Colaert, V. (2017). Building blocks of investor protection: All-embracing regulation tightens its grip. Journal of European Consumer and Market Law, (6), 229–244.

Davies, R., Dufour, A., & Scott-Quinn, B. (2006). The MiFID: Competition in a new European equity market regulatory structure. In G. Ferrarini & E. Wymeersch (Eds.), Investor protection in Europe: Corporate law making, the MiFID and beyond (pp. 163–198). Oxford, UK: Oxford University Press.CrossRef

Enriques, L., & Gargantini, M. (2017). The overarching duty to act in the best interest of the client in MiFID II. In D. Busch & G. Ferrarini (Eds.), Regulation of the EU financial markets: MiFID II and MiFIR (pp. 85–122). Oxford, UK: Oxford University Press.

Enriques, L., & Gilotta, S. (2015). Disclosure and financial market regulation. In N. Moloney, E. Ferran, & J. Payne (Eds.), The Oxford handbook on financial regulation (pp. 511–536). Oxford, UK: Oxford University Press.

Giudici, P. (2017). Independent financial advice. In D. Busch & G. Ferrarini (Eds.), Regulation of the EU financial markets: MiFID II and MiFIR (pp. 147–163). Oxford, UK: Oxford University Press.

Grundmann, S., & Hacker, P. (2017). Conflict of interest. In D. Busch & G. Ferrarini (Eds.), Regulation of the EU financial markets (pp. 165–204). Oxford, UK: Oxford University Press.

Herbst, J. (2015). A practitioner’s guide to MiFID II (2nd ed.). London, England: Sweet & Maxwell/Thomas Reuters.

Möllers, T. M. J. (2016). European legislative practice 2.0: Dynamic harmonisation of capital markets law – MiFID II and PRIIP. Banking & Finance Law Review, 31(1), 141–176.

Moloney, N. (2010). How to protect investors: Lessons from the EC and the UK. Cambridge, UK: Cambridge University Press.CrossRef

Moloney, N. (2015). Regulating the retail markets. In N. Moloney, E. Ferran, & J. Payne (Eds.), The Oxford handbook of financial regulation (pp. 736–765). Oxford, UK: Oxford University Press.CrossRef

Paredes, T. A. (2003). Blinded by the light: Information overload and its consequences for securities regulation. Washington University Law Quarterly, 81, 417–485.

Silverentand, L., Sprecher, J., & Simons, L. (2017). Inducements. In D. Busch & G. Ferrarini (Eds.), Regulation of the EU financial markets: MiFID II and MiFIR (pp. 205–225). Oxford, UK: Oxford University Press.

Tuch, A. F. (2015). Conduct of business regulation. In N. Moloney, E. Ferran, & J. Payne (Eds.), The Oxford handbook on financial regulation (pp. 537–567). Oxford, UK: Oxford University Press.

Title: EU Investor
Authors: Michele Siri
Shanshan Zhu
Publisher: Springer International Publishing
Book: Dictionary of Statuses within EU Law
Print ISBN: 978-3-030-00553-5

Electronic ISBN: 978-3-030-00554-2

Copyright Year: 2019
DOI: https://doi.org/10.1007/978-3-030-00554-2_27

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