INTRODUCTORY EXPLANATIONS (for non-professional readers)
European Union (EU) authorities aim to improve the conditions of saving and investing in capital markets for EU households through several regulatory and supervisory actions. Currently, most of these initiatives stem from the recommendations of the High-Level Forum on the Future of the Capital Markets Union,[1] on which the European Commission will follow-up with the EU Strategy for Retail Investors,[2] planned for the first half of 2022. This strategy aims to provide individual investors, among others, with adequate protection, bias-free advice, and transparent, comparable and understandable product information.
In preparation of its proposals, the EC tasked the European Supervisory Authorities in financial services (ESMA, EIOPA, EBA)[3] to provide technical advice on a range of topics. As such, EIOPA launched this public consultation to gather evidence and proposals from stakeholders on the topics and products that fall under its remit, i.e.:
- addressing and enhancing investor engagement with disclosures and drawing out the benefits of digital disclosures;
- assessing the risks and opportunities presented by new digital tools and channels;
- tackling damaging conflicts of interest in the sales process;
- promoting an affordable and efficient sales process; and
- assessing the impact of complexity in the retail investment product market.
In parallel, other calls for advice were sent to ESMA and EBA, to which BETTER FINANCE already responded.
The products that fall under the remit of EIOPA, relevant for the EU Strategy for Retail Investors and the Capital Markets Union (CMU), are insurance-based investment products and occupational pensions.
Insurance-based investment products (IBIPs) are a mix between a typical insurance contract (providing coverage for an event) and an investment product (e.g. a mutual fund). Currently, life-insurances – one of the most sold type of IBIP across the EU – make for x% of EU households’ financial savings.
IBIPs vary based on their specific purpose or functioning, but the most common categories are:
- unit-linked products, whose returns are linked to the performance of underlying investments (such as mutual funds);
- capital guaranteed products, which aim at protecting the value of the invested amounts (part of the insurance premium) in care of economic downturns;
- profit participation products, which enable the policyholder to share in the benefit of investments made by the insurance company; and
- hybrids, mixing characteristics of any of the above.
Occupational pensions include defined-benefit and defined-contribution plans. The type that is specific under the supervision of EIOPA are the institutions for occupational retirement provision (IORP), which is simply a legal form under which occupational pensions are organised, allowing them to be also distributed cross-border.
[1] HLF CMU Report 10 May 2022.
[2] EU Strategy for Retail Investors
[3] European Securities and Markets Authority (ESMA), European Insurance and Occupational Pensions Authority (EIOPA) and European Banking Authority (EBA).