Regulatory Update: European legislation on retail investments. Overview of presentation

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1 Regulatory Update: European legislation on retail investments 20 th June 2013 Katharine King Investments Policy Department 38 Overview of presentation European context Consumer protection ti agenda Looking ahead on: MiFID 2/MiFIR IMD 2 PRIPs Regulation Opportunities for consistency? Other initiatives on the horizon 39 1

2 European context Council Presidencies EP elections Changing Political landscape Commission turnover Review of the ESAs 40 European context: a new approach? Less restrictive, more positive policy agenda New approach may open up a Pandora s box on funding, structures of intermediation and incentives Revisits concept of disclosure to investors Interest in alternative channels of finance and access to products and services Focus on shareholder engagement incentives 41 2

3 Consumer protection agenda Consumer protection was at the heart of financial reform in the form of IMD 2, PRIPs, and conduct requirements in the MiFID Review To achieve best protection for the investor, retail investment products should have consistent disclosure requirements, and selling standards irrespective of their legal form PRIPs was originally meant to deal only with disclosure issues, while the IMD 2 and MiFID 2 dictated selling standards, for comparable and substitutable products 42 MiFID 2 progresses Last week, Irish Presidency secured a General Approach in Council, paving the way for Trialogues between Commission, Council and Parliament Recently, most of the contentious issues have related to market access and market structures, rather than retail investments Disparities between Council and Parliament text now of interest: which standards will prevail? Starting gun fired for ESMA s implementing measures 43 3

4 MiFID 2 in the Council Restrictions on inducements for independent advisers and discretionary managers Interest in staff remuneration reflected Explicit recognition of need for Member State flexibility to bring in stronger requirements in regard to selling standards. MiFID 2 in the Parliament Confusion over inducements: text appears to allow commissions if they are rebated or disclosed Interest in staff remuneration reflected Recognition of need for Member State flexibility in regard to inducements Some interest in bringing insurance-based investments into MiFID for selling standards 44 Little progress on IMD2 IMD2 extends the scope to cover direct sales by insurers and apply increased disclosure requirements for all firms selling insurance. IMD2 is currently being considered by the European Parliament (EP) and Council. Progress is slow and there is little chance of IMD2 being finalised before the EP breaks up for elections in April We support increased selling standards for insurance investment products, but in order to prevent regulatory arbitrage, it is essential that these are consistent with MiFID2. Current proposals fail to deliver the required consistency and this is likely to be exacerbated at Level

5 IMD 2 in the Council With ministries of finance being briefed by their insurance regulators, there is opposition to the idea of simply adopting MiFID standards for insurance-based investments Council working groups are scheduled for Q IMD 2 in the Parliament Some support in Parliament for having all sales standards for investment products in MiFID or copying them into IMD II Key risks include restrictions on non-advised sales and tying, as well as divergence with MiFID Tabled amendments divide along political lines (EPP want limited scope and additional rules; S&D/Greens/ALDE have adopted strong counter positions) 46 PRIPs/IMD/MiFID PRIPs may prove difficult to achieve The aim is to reach an agreement on the Level 1 text during the summer of 2013; however, with the Parliament looking to introduce far-reaching changes to the text (including a radical widening of the scope) this may prove difficult to achieve There is significant uncertainty about the actual purpose of the KID (i.e. whether it should be primarily designed to help investors compare different products or whether it should be a high-level KID with the aim of helping the investor understand the nature of a particular product) There is a reasonable likelihood that the liability for the KID will rest with the product manufacturer, while having an annex for more customized information which would be completed by the intermediary In the meantime, ESMA, EIOPA and EBA attempt to make progress on issues of detail through the Joint Committee 47 5

6 PRIPs in the Council Progress has been made towards General Approach but will it bear fruit under the Irish Presidency? Council may leave details of the KID to be determined at Level 2 FCA continues to highlight the technical challenges of accommodating products with multiple fund choices and where factors such as age and sum invested affect charges payable PRIPs in the Parliament Compromise proposals are yet to be circulated, but could water down previous demands for an all-encompassing scope (including shares, deposit accounts, pensions etc.) Some MEPs have tabled amendments covering product design and product intervention (akin to those in MiFID 2/MiFIR) Not clear what will happen to proposals to include environmental information in KIDs 48 Opportunities for consistency? Could the regulatory patchwork be stitched together? Selling standards MiFID 2: opportunity to add in insurance-based investments still left open by Parliamentary text IMD 2: willingness to copy across standards from MiFID in some quarters Product disclosure PRIPs: risk that desire by some MEPs for an all-encompassing scope could overwhelm the Regulation and prevent meaningful harmonisation 49 6

7 Other initiatives Bank account package proposed This proposal has three key elements: the right for EU residents to a basic bank account anywhere in the EU; provisions on payment account switching (domestic and cross-border); and the provision i of information to consumers on fees and charges for bank accounts. Progress in the Council is expected to be slow but the EP is expected to push the dossier forward in the next couple of months. UCITS V sees little progress MEPs met to discuss proposals for UCITS V on 22 May top of the agenda was the proposed p bonus cap ratio of 1:1 between variable and fixed pay for UCITS fund managers. 50 The backdrop Data Protection Regulation UCITS V PRIPs Insurance Mediation Directive Gender Balance Directive Corporate governance action plan EU framework for Bank Recovery and Resolution CSD Regulation Single Supervisory Mechanism + EBA Regulation ( Banking Union ) EU Fiscal Integration Treaty Review of Savings Tax Directive Amending ETS Directive/Regulation Communication on tax evasion E-signature legislation Regulation on Insolvency Proceedings Recovery of cross border assets in criminal cases Short Selling & CDS Level 2 EMIR Level 2 AIFMD Level 2 ESMA ETF Guidelines Non-Banks Recovery and Resolution Money Market Funds Regulation ( Shadow Banking ) Review of the Shareholders Rights Directive Disclosure of non-financial information UCITS VI Review of IORP Directive Green paper on Long-Term Financing FTT under enhanced cooperation Identifying Shadow Banking Entities ( Shadow Banking )* Insurance Guarantee Schemes Insurance SIFI regime Review of the European Financial System of Supervision Securities Law Regulation ( Shadow Banking ) Liikanen / Banking structure proposal Single Resolution Mechanism ( Banking Union ) Harmonisation of bank insolvency regime EU Benchmarks & Indices Regulatory Framework Close-Out Netting Directive Short Selling Regulation review Access to basic bank accounts legislation Follow up to Green Paper: Towards an integrated European Market for card, internet, and mobile payments Review of Payment Services Directive Legislative proposal on multi-lateral l t l interchange fees Review of Anti-Money Laundering Directive Financial Collateral Directive review Review of existing legislation on VAT reduced rates Additional EMU reforms Communication on Collective Redress for breach of EU Anti Trust rules Single EU Deposit Guarantee Schemes ( Banking Union )* BCBS Review of the Securitisation Framework* BCBS Review of Large Exposure Regime* Financial Conglomerates Directive review* EMIR review PRIPs Level 2 UCITS V Level 2 Solvency II Level 2 MIFID Level 2 CRD IV Level 2 Transparency Directive Level 2 Market Abuse Level 2 CSD level 2 Crisis Management Directive Level 2 CRA3 Level

8 Questions? Katharine King Investments Policy Department Financial Conduct Authority 52 8