29 June 2018

Vice-President Valdis Dombrovskis: "Making the Capital Markets Union work for retail investors"

[...]We welcome the progress made by Member States last week in building the Capital Markets Union by reaching a common position on our proposal for a Pan-European Personal Pensions Product, or PEPP. PEPP would be a European quality label, complementing existing public and occupational pensions, and opening up new opportunities for financial providers. PEPP could provide Europeans with an additional possibility to save for their retirement, and unlock savings currently lying idle on low-interest rate bank accounts.

Portability is an essential feature of the PEPP, so our proposal suggested creating a system of national compartments. By allowing savers to continue contributing to their PEPP when moving to another Member State, this would guarantee the pan-European nature of the product. I understand those who express concerns on the requirements to open compartments when a PEPP saver changes residence. But we are open to finding solutions.

What matters is to preserve the pan-European nature of the proposal, as many consumer organisations have also called for. This is particularly crucial to develop PEPP in those countries where the supply of personal pension products is currently most limited.

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This brings me to the third part of my speech, on our future actions. Before deciding to invest, consumers must have confidence that investment products will earn them a long-term return at an acceptable risk.

That is why, as part of CMU, the Commission decided to investigate more closely how well the market for retail investment is working. For example, what are the costs that retail investors face when investing in financial products across Europe? And how easily can they compare these products and make an informed choice? This is essential to ensure decent earnings, especially in today’s low return environment. In addition, we wanted to look at the investment advice that investors are offered by their local bank or insurance provider. How impartial is it, and how well does it fit their profile?

As a first step in this effort, we recently published an external study on the distribution of retail investment products in the EU. This work gives an independent look at the market from the perspective of end-investors. It shows the difficulties they face when trying to buy the most suitable investment fund, life insurance or private pension.  The study also showed that there is a wide variation in the fees that Europeans get charged when investing in retail financial products. For example, the median entry fee for equity funds in the EU across different Member States ranged from as low as 0.30% to as high as 5%. Such wide differences should not exist in a single market.

The data for this report was collected in 2017, so before the entry into application of MiFID II, the PRIIPS Regulation, and the insurance distribution directive. This is why it will be used as a baseline for monitoring how the new regulatory framework is working.

But we are also taking additional actions, in particular to help retail investors find the best offers available on the market. That is why we requested the European Supervisory Authorities to report on a recurrent basis on the cost and past performance of the main categories of retail investment, insurance and pension products. The first report is expected by the end of the year. It should provide us with precious information that will help identify issues where further action is required. We also hope the results will make retail investors more aware of the impact of diverse fees and charges on net returns.

In addition, we want to look at how Fintech can help us reach our goals. It is worth asking whether digital technology, such as artificial intelligence, big data analytics or block chain can help consumers find the information they need. Such tools could be based on publicly available disclosures, and provide a user-friendly interface linking existing databases. To find out more, we will soon examine the current landscape of technology- driven digital interfaces, and their potential to facilitate retail investment. [...]

Full speech

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