Date: 5th January 2021

Author: BETTER FINANCE

With the termination of the intra-EU bilateral investment treaties (BITs) in 2020 – which received significant criticism for overlapping with the EU single market rules – the EC launched an initiative to improve the investor protection and facilitation framework at EU level. This initiative was reiterated in the new Capital Markets Union (CMU) Action Plan (AP): “The Commission will propose to strengthen the investment protection and facilitation framework in the EU”,[1] identifying the need to improve dispute resolution mechanisms, to ensure consistent protection vis-à-vis State measures and gather information on investor rights.

Cross-border investments are particularly important for EU citizens as individual, non-professional investors. In order to develop local capital markets and integrate them into the CMU, in order to enable to citizens optimise their returns and enable businesses across the EU to benefit of stable, long-term funding, the intra-EU investor protection and facilitation regime must be modernised and improved.

This side of the topic of cross-border investments refers to direct investments by EU individual investors, as for indirect investments (packaged products) there are other harmonised regimes allowing investment products to be sold (passported) across the EU. Those regimes, including the rules on distribution, marketing provisions and regulatory reporting (pre-contractual disclosure), are intrinsic to a well-functioning and attractive CMU and must be developed in parallel.

EXECUTIVE SUMMARY

Single rulebook for investment protection	BETTER FINANCE believes that a Single Rulebook for cross-border investments would significantly improve the issue of information availability for individual, non-professional investors. What individual investors need is clarity on the applicable rules, as well as predictability and stability of the regulatory framework (including changes in laws and regulations which impact your investment). In addition, there are insufficient safeguards in procedural rules of the EU Member States and a lack of availability of interim measures in establishing state liability.
Uneven investor protection	A key factor hurting cross border investment by EU citizens are the administrative barriers (often illegal), especially in the taxation area. Decisions to invest cross-border are also hampered by a lack of research availability A centralized information mechanism which includes easily accessible, reliable, understandable and comparable public information both for companies and individual investors would therefore be very helpful to mobilize cross-border investments.
Enforcement	The Wirecard case is an example that raises severe concerns about the effectiveness of national/EU supervisory mechanisms. BETTER FINANCE believes that creating an Ombudsman-like EU administrative body, or even a specialised EU investment court, where investors could bring cross-border investor-to-State complaints, would prove to be very effective and beneficial to individual investors.
Supervision	The current system of financial supervision comprises flaws and requires stronger, international cooperation between local supervisors and EU authorities. Moreover, systems to assess the effectiveness of supervision, as well as improvements on penalties and communications concerning shareholder damage are also needed.