BETTER FINANCE Members’ Initiatives to try and help EU Investors navigate the Economic Fallout from the Coronavirus | | |
The continued spread of the COVID-19 virus around the world and the emergency confinement measures have severely disrupted capital markets. EU Citizens in their capacity as investors and savers are already feeling the squeeze and will be among the first in line to suffer from the economic and financial fallout that will undoubtably ensue following the large array of different financial measures taken by governments and financial institutions. BETTER FINANCE and its members are scrambling to put tools in place and to provide clear information and guidance for individual investors and financial services users across all EU Member States. Many initiatives are already in place and BETTER FINANCE issued a Press Release informing EU Citizens about them. More information: “Initiatives taken to try and help EU Savers and Investors navigate the Economic Fallout from the Coronavirus epidemic” | |
BETTER FINANCE and others ring the alarm bell, calling for measures to protect pension contributions, savings and pay-outs from a Covid-19-induced Crash | | |
Europe’s current and future pensioners are once again likely to pay a high price for the huge financial stimulus measures put in place, as financial repression deepens and endures, meaning that to a large degree government risk will be transferred to long-term saving and pension plans. The necessary health, quarantine and social distancing measures taken to fight the ongoing Covid-19 pandemic, are taking their toll on economies around the world. This strategy, although crucial to the fight against the epidemic, coupled with monetary and budgetary expansions of unseen magnitudes, will have lasting and damaging economic consequences due to the sudden and legally imposed shutdown of our economies. National governments, the European Institutions and central banks have now stepped in to try and mitigate the economic fallout from Covid-19 with even more ambitious and far-reaching fiscal and monetary stimulus packages and measures. Alas, as with the financial crisis, European citizens as savers and investors (i.e. the middle classes) are likely to disproportionately pay the price once again. Governments, desperate to find investors to buy bonds with negative or very low interest rate, will employ "financial repression" techniques to get central banks to massively buy sovereign bonds on secondary markets through quantitative easing campaigns. This will lead to major issues for EU pensions, with public pension (“pay-as-you-go”) systems strained further, worldwide and European equity markets collapsing and hitting nearly all pension products, interest rates remaining at historical lows for the foreseeable future and a likely surge in inflation that will further erode the purchasing power of pension savings and income. If no corrective action is taken, this will spell disaster for European pensions. Further reading: Press Release: "CORONA PENSIONS? AGE Europe, BETTER FINANCE and CFA Institute call for Measures to protect pension contributions, savings and pay-outs” | |
ESMA fails to recommend complete ban on inducements for retail products across the EU | | |
On 1 April 2020 the European Securities and Markets Authority (ESMA) published its advice on inducements and the disclosure of costs and charges under MiFID II, unfortunately pushing the issue off into the future and shifting the burden on to the European Commission (EC) by encouraging it to further deepen its assessment of the situation. BETTER FINANCE regrets that ESMA did not conduct its own investigations into the huge detriment caused by inducements, in particular in light of the overwhelming evidence that low-cost investment products such as index ETFs are simply not promoted or sold to individual investors in Europe. BETTER FINANCE has repeatedly drawn attention to the devastating impact of these conflicts of interest on the selection of investment funds by intermediaries and the damage this inflicts on long-term and pension savings. To be fair, ESMA does acknowledge BETTER FINANCE’s concern in its advice and, despite its apprehension that inducements bans for “closed architecture” networks may be counterproductive, notes that “it could be made clear that firms, even if operating in closed-architecture models, should assess their products against third-party products and should provide details in the suitability report of any cheaper and less complex alternatives”. Irrespective of the form they take, it is clear that inducements represent a major barrier preventing advisors from promoting plain-vanilla low cost listed index funds, equities or bonds, investment products that have obtained better long-term returns than the packaged and fee-laden ones they are solely promoting and selling. Further Reading: Press Release: "The EU Supervisor falls short of advising a complete ban on commissions for “retail” investment advisors" | |
Rejection of improvements in the Key Information for investment products would spell disaster for Individual Investors | | |
BETTER FINANCE is extremely concerned with the possible catastrophic impact of rejecting the draft Regulatory Technical Standards (level 2) on most retail products (Packaged retail investment and insurance-based products or PRIIPs), especially since three MEPs who recently wrote against the draft of revised level II rules always strongly and effectively supported a better protection of financial consumers otherwise. BETTER FINANCE has always been a strong and vocal supporter of the aim of the PRIIPs Regulation - the first, and, so far, only, “horizontal” EU set of investor protection rules that encompasses both non-insurance-based and insurance-based “retail” investment products. However, despite the PRIIPs Regulation’s admirable objective for a key information document (KID) “to enable retail investors to understand and compare the key features and risks of the PRIIP”, the current design of the level 2 rules and their execution fail to meet this goal. In fact, the new KID neither facilitates understanding of the products nor makes it possible for consumers to compare even with similar products. BETTER FINANCE is not alone in having stressed these major issues since 2015 and has been joined in its concerns by the entire EC Financial Services User Group (FSUG), the entire European Securities and Markets Authority Stakeholder Group, AGE Europe as well as by prominent academics. Following years of pointing to the fact that hiding information on past performance - whilst at the same time using it to disclose future scenarios - will spell disaster for individual investors, BETTER FINANCE again calls on the entire ECON Committee of the European Parliament, who has often supported financial consumers and mean well, to please look at actual samples of the 2-pager PRIIPs KIDs for themselves and compare them to the existing 2-pager KIID for investment funds. They will very quickly realize that the new KID is not intelligible, not comparable, incorrect, and highly misleading... More information: Open Letter to the EP's ECON Committee: "ESMA’s and EIOPA’s draft level 2 rules for the Key Information Document (“KID”) of “retail” investment products (“PRIIPs”)" | |
European Supervisors publish their second reports on Costs and Performance of Retail Investment Products | | |
On 6 April 2020, for the second time, two of the three European Supervisory Authorities (ESAs) - EIOPA, the European Insurance and Occupational Pensions Authority, and ESMA, the European Securities and Markets Authority - released their reports on costs and past performance of long-term and pension savings products sold or marketed in the EU, following a 2015 request from BETTER FINANCE. Alarmed by the fact that retail financial services continue to rank as one of the worst consumer markets in the entire European Union according to the European Commission’s Consumer Markets Scoreboards, the Commission decided in 2017 “to ask the European Supervisory Authorities (ESAs) to work on the transparency of long term retail and pension products and an analysis of the actual net performance and fees". This year, unfortunately, no such report was released by the European Banking Authority (EBA), leaving holders of bank Structured Deposits in the dark. Whereas BETTER FINANCE welcomes these very important reports and sympathises with the challenges encountered by the ESAs concerning data availability, the reports still fall short of meeting their objective and of fulfilling the European Commission’s request. BETTER FINANCE will analyse these reports in more depth and issue a detailed assessment, but in the meantime wonders how it is possible that the pan-EU financial supervisory authorities still do not adequately measure the performances of the consumer markets they are responsible for? After all, one cannot supervise what one cannot measure. Watch this space! More information: ESMA report stresses impact of costs on retail investor benefits EIOPA publishes second report on costs and pasts performance of insurance based investment products and personal pension products | |
BETTER FINANCE welcomes European Guidelines on Performance Fees | | |
On 3 April the European Securities and Markets Authority (ESMA) published its final guidance on performance fees in investment funds, applicable to Undertakings for Collective Investment in Transferable Securities (UCITS) and certain types of Alternative Investment Funds (AIFs). These guidelines aim to provide guidance for fund managers when charging performance fees to retail investors as well as for National Competent Authorities (NCAs) when supervising performance fees models and disclosure across the European Union (EU). BETTER FINANCE, as the representative of individual investors, provided extensive feedback to ESMA’s Consultation on the matter and is pleased to see that many of its proposals have been taken on board as part of the guidelines: UCITS/AIF managers can only charge a performance fee in case of outperformance of their own stated direct or indirect benchmark. Performance fees must be calculated on the basis of excess return, net of all costs, including the performance fee. If a performance fee is levied even in the case of negative returns - for instance when the fund’s benchmark is at -7% and the fund itself does slightly better at -5% - then the fund’s KIID must include a prominent warning in this sense. A fund whose asset class is not the same as that of its stated benchmark (e.g. an equity fund benchmarked against a money market index) is not allowed to charge a performance fee. These guidelines will be extended to AIFs marketed to individual investors. Unfortunately, ESMA did not follow BETTER FINANCE proposals on all counts and decided not to ban performance fees where investment objectives (such as for index-tracking fund) are incompatible with the concept of a performance fee. Nor did ESMA follow BETTER FINANCE on the principle of obliging UCITS managers who charge performance fees to reduce their management fee when they underperform. More information: Press Release: "BETTER FINANCE welcomes the new European Guidelines on Funds’ “Performance” Fees" ESMA publishes guidance on performance fees in UCITS and certain AIFs | |
Joint BETTER FINANCE and 2° Investing Initiative Webinar on Sustainable Finance & Consumer Protection | | |
BETTER FINANCE and 2° Investing Initiative co-hosted a webinar on Sustainable Finance & Consumer Protection, focussing on sustainability investment objectives of individual investors, compliance of environmental marketing claims, and consent of beneficiaries on the use of shareholder voting rights. Edoardo Carlucci, Research & Policy Officer at BETTER FINANCE spoke at the event and presented preliminary results of BETTER FINANCE's Research into Sustainable Investments. Besides the fact that two-thirds of individual investors have sustainability investment objectives, 67% of them have their total assets deployed in long-term investments with mainly long-term goals such as retirement, housing, children studies, transmission of wealth, etc. It is therefore key that sustainable finance ensures “long-term and sustainable value creation” and pension adequacy. Finance should, first and foremost, apply ESG criteria to its own activities and show exemplary compliance with EU consumer and investor protection rules, in particular on information disclosure. Participants also stressed the importance of eliminating "greenwashing" and ensure that funds who make environmental impact claims, comply with regulatory guidance that require claims to be specific, unambiguous and substantiated. More information on the Webinar | |
Historic victory for investors trapped by falsely active funds | | |
BETTER FINANCE congratulates the Norwegian Consumer Council (Forbrukerrådet) on its historic collective redress success On Friday 28 February, the Supreme Court of Norway unanimously upheld the 2019 decision of the Oslo Court of Appeals obliging DNB ASA, Norway's largest financial services group, to pay back the equivalent of € 34 million to nearly 180,000 individual savers. In a landmark case for European savers, the Norwegian banking group’s asset management arm was found guilty of "closet indexing", referring to the practice of fund managers claiming to manage portfolios actively when in reality the fund is managed passively and stays close to a benchmark. Managers of such falsely active funds charge fees for active management whilst in reality they merely track their mainstream benchmarks, a much cheaper service to provide. The case also sets a record, considering the vast number of participants, and precedent, in that the practice of closet indexing, due to a lack of a legal and measurable definition, is particularly difficult to demonstrate. BETTER FINANCE also feels encouraged by the statement from the NCC stating that the case has implications beyond the specific claim against DNB, giving “reason to expect that other banks and fund management companies [also in other countries], that have made similar mistakes now will clean up on their own initiative”. In March 2018, the UK supervisor (FCA) had sanctioned 64 falsely active funds and required them to indemnify the victims, but has refused to disclose the names of the offenders. More information: Read the full Press Release | |
Employee Share Ownership in times of Pandemic | | |
In these difficult times of the Covid-19 pandemic, with those on the frontlines being many underpaid people, it seems more appropriate, fair and urgent than ever to put Employee Share Ownership (ESO) at the forefront of financial policy agendas. BETTER FINANCE has been a proponent of ESO for many years now since it would be a real game changer towards accomplishing the CMU goals, and fully supports the latest call to go out from its Member Organisation, the European Federation of Employee Share Ownership (EFES). BETTER FINANCE supports the appeal from EFES to all European governments & institutions to urgently consider the benefits of ESO in countering the inevitable fallout from the fiscal measures employed to combat the Covid-19 crisis. As stated in the EFES Appeal, “many companies are suffering, encountering serious liquidity problems, and are looking to reduce salary costs, in order to cope. This can be offset by allocating shares to employees, especially as share prices have fallen. Taxation should not stand in the way of this compensation; it should encourage it. […] In addition, many businesses are at risk of bankruptcy. To cope, it is time to promote the other aspect of employee share ownership, that of the takeover of companies by employees.” It is now more important than ever to enable employee share ownership programs, including tax reductions. Currently personnel-related expenses are the main reasons for the reduced liquidity in companies. If such programs were to be introduced immediately, a portion of the salaries could remain in companies as a capital contribution by employees. This could work well if it is linked to tax advantages. More information: BETTER FINANCE invites you to join in its support for the EFES appeal. | |
Open Letter to the European Commission - EU Investors against any postponement of Shareholder Rights | | |
The heads of European and Member State organisations representing individual shareholders across Europe sent an Open Letter to the European Commission opposing lobbying attempts by powerful financial intermediaries to postpone the implementation of the Shareholder Rights Directive II. More information: Open Letter to the European Commission - EU Investors against any postponement of the implementation of the Shareholder Rights | |
BETTER FINANCE provides Feedback to European Auhorities on an Ecolabel for financial products | | |
The creation a of well-designed Ecolabel is key to addressing the very real issue of existing national labels being granted to products that do not comply with existing investor protection and disclosure rules. The creation a of well-designed Ecolabel is key to guiding European investors through the labyrinth of “green” investment products, especially since some existing national labels are too often granted to products that do not comply with investor protection and disclosure rules and that have no substantiated positive impact on environmental, social and governance issues. First and foremost, the Ecolabel should acquire and retain the trust of EU citizens, since they are the main source of long-term funding for the EU economy. This is a challenge given the very low confidence of EU consumers in finance as a whole. For this reason, BETTER FINANCE calls for a reassessment of the EU Ecolabel thresholds in order to ensure a high level of compliance with the expectations of individual investors and investor protections rules. The Ecolabel needs to set the criteria for future generations of sustainable financial products that: Prevent any form of greenwashing. Have a high-level of standards with regards to environmental / social aspects, and engagement. Are exemplary in complying with EU investors protection rules. Do not mislead individual investors with unreliable impact claims or have no positive impact at all on ESG issues. In addition, in order to achieve a higher level of ambition and compliance with consumer expectations, the EU Ecolabel needs to also encompass criteria for impact investing. We need more financial products that quantify and measure the impact of the investment. This can guarantee that what we invest in, has an impact on the ESG components of the real economy. More information: BETTER FINANCE response to the European Commission’s (JRC) Consultation on the second technical report on an Ecolabel for financial products | |
BETTER FINANCE joins Stakeholders in Call on Authorities to keep Markets Open | | |
BETTER FINANCE joined the Federation of European Stock Exchanges, FESE, and other major stakeholders in sending an open letter to European decision makers to emphasise the importance of keeping European regulated capital markets open during these extraordinary times. The markets continue to serve the needs of participants to raise capital, manage investments, access cash and manage risk that affects both retail and institutional investors. Closing them would have a devastating impact on the EU economy. Further Reading: Read the joint letter to European and national policy makers. | |
BETTER FINANCE President addresses EIOPA Roundtable on “Mortgage life and other credit protection insurance sold through banks” | | |
The European Insurance and Occupational Pensions Authority (EIOPA) organised a roundtable with external stakeholders on 5 March 2020, ahead of its launch of an EU-wide thematic review looking into consumer protection issues with mortgage life and other credit protection insurance sold through banks. “Mortgage life and other credit protection insurance, when adequately developed and targeted, can be beneficial for consumers, offering policyholders and their estates protection in the event that they become unable to pay a loan.” This being said, issues and risks related to these types of insurance products may lead to consumer detriment, as reported in EIOPA’s 2019 Consumer Trends Report. These risks include conflicts of interests, aggressive sales techniques and high commissions. Axel Kleinlein, spokesperson for the German Association of the Insured (BdV) and BETTER FINANCE President, addressed the roundtable to discuss the issues and risks, as well as benefits, for consumers, related to the insurance products within scope. More information: Please find more information on the event here. | |
First report from EFRAG's European Lab on good climate-related reporting practices | | |
In February EFRAG, the European Financial Reporting Advisory Group, published its first report of the European Lab on good climate-related reporting practices: “How to improve climate-related reporting: A summary of good practices from Europe and beyond”. EFRAG also published of a short video of the European Lab and its activities, to enhance the visibility of the European Lab. | |
Upcoming BETTER FINANCE events and upcoming consultations | | |
Cancelled: Unfortunately, BETTER FINANCE, IVA (the Austrian Shareholder Association and BETTER FINANCE Member Organisation) and the World Federation of Investors were contrived to cancel their planned event in Vienna on 24 April 2020 following the outbreak of the Coronacrisis. Aimed at taking a closer look at Investor Protection, Product Governance and Independent Investment Advice within the framework of MiFID II, the International Conference on “MiFID II: making the case for Real Investor Protection and Independent Investment Advice” may be rescheduled. Watch this space. Upcoming Consultations: 18 May: European Commission Public Consultation on the review of the MiFID II/MiFIR level 1 regulatory framework for investment firms and market operators 30 June: European Securities and Markets Authority (ESMA) Public Consultation on the cross-border distribution of funds End of August: The Governing Council of the European Central Bank (ECB) has decided to extend the timeline for the review of its monetary policy strategy to mid-2021. The deadline for input and feedback to the ECB’s monetary policy strategy has therefore been moved to the end of August 2020. Upcoming Events: 18 September 2020 - Hamburg*: Joint BETTER FINANCE and BdV (BETTER FINANCE Member and the leading German Association of Insured) International Conference -“European Pension Savers under Financial Repression: is PEPP a solution?” (Confirmed keynote address from EIOPA Chair Gabriel Bernardino) 2 December 2020 - Wiesbaden: Joint BETTER FINANCE - DSW (BETTER FINANCE Member and Germany's leading association for private investors) International Conference * Besides a physical event in Hamburg, BdV and BETTER FINANCE plan to make the conference available online as well. | |
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