Disclosure, inducements, and suitability rules for retail investors study

• Published in: Policy File 2022
• Main Authors: De Groen, Willem Pieter, Amariei, Cosmina, Oliinyk, Inna, Magtegaal, Jelmer
• Format: Report
• Language: English
• Subjects: Centre for European Policy Studies

Financial markets, within and beyond the EU internal market, are characterised by their complexity. Consequently, the risk is that consumers make decisions that go against their interests as (potential) private buyers. Instead, their decisions could benefit the suppliers or intermediaries involved in the sale of financial products. Product diversity and how products are presented make it very challenging for many consumers to make an informed decision by weighing up the (absolute and relative) risks and costs of different investment offers against their (potential) returns. There is therefore a risk that (new) investment decisions are driven by factors other than rational choice. EU legislation in retail investor protection aims to address, at least partly, challenges stemming from such information asymmetry and the lack of product transparency. It aims to make the supply of financial products more easily 'navigable' for consumers through pre-contractual disclosure, and also to ensure that advisors act in the client's best interests and are able to offer impartial advice on the basis of a clear assessment of the client's needs, objectives and financial situation. The legislation aims to prevent conflicts of interest and ensure that potential conflicts of interest are disclosed.