EU Weighs Easing Burden for Banks Dealing With Wealthy Clients

Jorge Valero and Nicholas Comfort
·2 min read

(Bloomberg) -- The European Union’s executive arm is planning to propose making it easier for banks to advise affluent clients as part of a sweeping overhaul of investment rules in the bloc.

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A draft document obtained by Bloomberg would reduce the criteria for being classified as a professional investor to having wealth of €250,000 ($271,890), down from the current level of €500,000. Such clients are considered to be more sophisticated and can be subject to less onerous disclosure requirements about products. That means banks stand to boost fee income if transactions are facilitated.

The European Commission is expected this month to present a wider “Retail Investment Strategy” to help savers build up wealth while also channeling investments in the economy. The plan sparked a significant lobbying push from the industry, which also successfully managed to push back against an earlier proposal that had been aimed at protecting consumers from products that were allegedly too expensive.

EU financial services commissioner Mairead McGuinness said last month that her institution had listened to feedback from the industry and governments that completely prohibiting fees that funds pay banks to offer their investments “could be too disruptive at this stage.”

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The commission is now seeking “a targeted ban of inducements in execution-only environments,” according to the draft document, referring to services that don’t include advice on investments. Commission officials declined to comment on a draft document.

Disclosure rules would also call for including a simple explanation of inducements. Three years after the package is adopted, the commission would assess whether alternative measures — including a broader ban — are needed.

Europe’s financial industry has been lobbying for years to water down Mifid II, a package of rules introduced in 2018 that changed everything from how investing giants pay for research to how private bankers speak to individual clients.

Other points in the draft document include:

  • A reinforced “best interest of the client” principle in both MiFID and the Insurance Distribution Directive

  • Strengthening product governance and oversight rules and simpler disclosures so clients have better visibility on costs

  • Enhanced rules against misleading marketing communication

  • Stricter standards for investment advisers’ knowledge and competence.

  • Including a financial literacy requirement to request EU states to promote the education of retail investors

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