European policymakers should facilitate the provision of basic retail investment advice and the creation of basic retail products, as well as review the tax incentives for investors, regulators suggest in a consultation on revitalizing the region’s capital markets.
The European Securities and Markets Authority (ESMA) published a paper that sets out a series of recommendations for improving the capital markets to better serve the needs of investors, enhance capital raising and streamline regulation.
“Creating effective and attractive EU capital markets requires improving the wider market ecosystem and putting investors and companies at the heart of it,” said Verena Ross, chairwoman of ESMA, in a release accompanying the consultation.
To better serve investors, the paper makes several recommendations aimed at facilitating the creation of simple cost-effective options for retail investors.
In particular, it said the European Commission “should explore the idea of creating a voluntary ‘basic’ investment product label” that could apply to simple financial instruments, such as basic investment funds, and certain equity and debt securities.
“The investment products could be selected based on a set of common features related to complexity and cost efficiency,” it said, with these products targeted at investors with relatively simple investment needs and limited investment knowledge.
It recommended that policymakers consider creating a simplified, streamlined advice segment for retail investors with basic investment needs, creating a link to the “basic product” label concept.
“This advice could be based on a streamlined suitability assessment and lighter reporting requirements, thus reducing compliance costs for firms (not just independent advisors) and incentivizing a shift away from promoting complex and costly products in favour of ‘basic’ labelled products,” it said.
Additionally, it calls for policymakers to embrace digital solutions for retail investors.
“The European Commission, ESMA and financial sector should examine and foster the use of technology in helping citizens access capital market investment products, by supporting investor-friendly innovations, promoting interactive financial education, and incorporating safe and suitable investor tools,” it said.
The paper also recommends that governments review the adequacy of their pension systems and long-term savings, with a view to supporting more capital markets–based pensions and investments, while also re-evaluating the incentives created by their tax systems for retail investors.
On the issuer side, the paper includes recommendations for facilitating capital raising by public companies and addressing barriers to integration, particularly for market infrastructures.
It also includes proposals for modernizing the regulatory framework and harmonizing regulatory oversight across the region.