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06 July 2015

ESMA: Advisers on your life savings should be “knowledgeable and competent” – shock horror!

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Capital Market Union (CMU) is designed to encourage citizens to hold a larger share of their savings in the form of securities – thus also encouraging them to take greater risks in return for the possibility of greater returns than those on `guaranteed’ bank deposits.

Therefore the onus is being placed squarely on the financial services industry to market products to its clients that are suitable for them and `investor protection’ is a major priority.

ESMA’s mantra on this topic is clear and unambiguous "a high level of investor protection is essential for a successful CMU. Only when investors feel sufficiently protected will they be willing to enter financial markets." It is built in to all speeches and underlines the seriousness of the intent.

CMU is often discussed as a long term project that is just getting underway – but such an analysis completely misses the point that many of the building blocks are already legislated – for example MiFID II comes into force on 3 January 2017 – just sixteen months away. MiFID II is wide ranging in its impact on market structures but it is also the mechanism for strengthening investor protection. The specific tools cover limits on the use of commissions; conditions for the provision of independent investment advice; stricter organisational requirements for product design and distribution; the disclosure of costs and charges; the regulation of cross-selling; and product intervention powers.

How is the mantra to be fulfilled? Given the industry’s lamentable record in recent years and the consequent public distrust, it is not surprising that ESMA is aiming to create a new degree of professionalism and ethical probity in virtually everyone engaged in financial services. ESMA has just closed its consultation on draft guidelines that are designed to draw virtually everyone involved in the securities business into proper professional standards: “This paper is also important for trade associations, investors, and consumer groups, because the guidelines seek to implement enhanced provisions to ensure investor protection with potential impacts for anyone engaged in the dealing with or processing of financial instruments…” [Author's emphasis]



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© Graham Bishop

Documents associated with this article

Graham Bishop on ESMA.pdf

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