By Matis Joab, Executive Director of BETTER FINANCE*
In recent years, investor protection in Europe has increasingly come into focus, as individual investors struggle to benefit from capital markets and face significant losses due to corporate misconduct, unclear governance, and poor and fragmented market conditions. These issues have eroded trust, preventing EU citizens from putting their savings to productive use, both for their own benefit and for the European economy. Strengthening safeguards and creating a unified regulatory framework are crucial to restoring confidence and supporting economic growth. The right to fair compensation is a fundamental pillar of justice, yet for many European investors, achieving a swift and fair settlement in cases of corporate misconduct remains elusive.
Over the years, these challenges have led to substantial losses for individual investors across Europe, further deepening the erosion of trust in capital markets. While in the long term, well-diversified investments in capital markets (in shares, bonds and low-cost investment funds) always lead to much better returns and better inflation protection than cash or bank savings accounts, even rare cases where savers would lose their money due to fraud or bad-faith actions can disproportionately damage trust and discourage people from investing.
Europe and the world face significant challenges – including the demographic and pensions time bomb, the exponential acceleration of digitalisation and AI, growing geopolitical security concerns, as well as the urgent need to address climate change. In this context, there have been increasing calls for “cutting red tape” and “simplification”.
Ensuring better regulation and removing excessive red tape that hampers EU competitiveness could allow Europe to regain much-needed competitiveness. However, it is crucial that some key safeguards remain in place, in order not to repeat mistakes from the past. This is especially true in capital markets, where the trust of European citizens and individual savers in the financial markets is too low, which leads too many Europeans to keep all their savings in cash or bank accounts, where these savings are eroded by inflation. This misallocation of savings is both a detriment to those citizens directly, through the loss of purchasing power of their savings, and it also leads to a lack of sufficient investment in overcoming the challenges our continent faces and a lack of competitiveness compared to countries where investments in capital markets are much higher – for example the United States.
This disastrous misallocation of EU citizens savings cannot be fixed simply by more regulation, but rather less, but more effective, principles-based regulation and better enforcement, to ensure that individual investors and users of financial services are not left without solutions when something does go wrong. Individual investors must have access to redress when their rights are harmed. This would help to restore much-needed trust in capital markets and the financial sector.
Bureaucracy and high legal costs often deter small shareholders from asserting their rights, leaving them vulnerable to speculative operations and opaque corporate practices.
A notable example of European investor vulnerability is the Fiat Chrysler (now Stellantis) case. Between 2014 and 2017, the company was embroiled in a scandal involving "defeat devices" installed in vehicles to cheat emissions tests. This misconduct misled both regulators and investors, resulting in significant losses for shareholders, especially smaller investors.
While US-based investors who bought shares on the New York Stock Exchange received a $110 million compensation settlement, European investors are still seeking justice, highlighting the disparity in investor protection between the US and Europe.
In Italy, for example, while CONSOB has oversight tools, the absence of effective collective redress mechanisms limits small shareholders' ability to seek compensation. Though some EU countries, such as the Netherlands, have stronger protections, differing legal systems hinder uniform safeguards across Europe.
Another issue is the lack of a unified European regulation for mergers and acquisitions, which allows large companies to bypass fair representation of retail investors. To improve investor protection, creating an efficient mechanism for collective justice is essential. Eurobarometer polling has shown that 79% of Europeans would be more likely to assert their rights if given the opportunity to act collectively.
- To better protect retail investors, a more effective regulatory framework at the European level is needed. Key reforms should include:
- Greater transparency: Companies should provide clear, simple and comparable information to investors on all material issues which may affect investment decisions
- Stronger collective redress: Accessible collective redress mechanisms would help small investors seek justice for corporate misconduct.
- Enhanced regulatory oversight: Authorities like CONSOB and ESMA should be empowered to act swiftly against unfair practices.
- Harmonised European regulations: A more unified system would ensure equal rights for investors across all member states.
The Fiat Chrysler case is just the tip of the iceberg of a much larger issue: the lack of effective protection for European retail investors. If the European Union fails to adopt concrete measures to improve transparency and legal protections, more small investors will lose confidence in financial markets, damaging the entire economic system.
Investor protection is not just a matter of justice—it is crucial for ensuring stability, growth, and long-term competitiveness in Europe.
*BETTER FINANCE (short for the European Federation of Investors and Financial Services Users) is a non-governmental organisation serving the public interest, advocating for and defending the interests of European citizens as financial services users at the European level. Its mission is to engage with policymakers and the public to promote research, information, and education on investments, savings, and personal finance. It is the only European-level organisation exclusively dedicated to representing individual investors, savers, and other financial services users. Founded in 2009, BETTER FINANCE now comprises approximately 40 independent national and international member and sub-member organisations from 21 EU Member States, and beyond.
BETTER FINANCE is informing all investors who purchased FCA shares (directly or indirectly) through the Milan Stock Exchange during the relevant period of the possibility of joining a collective redress action against Stellantis and encourages them to visit the FCIRS website for more information on the action and to evaluate their participation: www.fiatchryslerinvestorsrecovery.com.