EBF adviser: Pauline Guérin

Publication date: 12 September 2019

EBF members welcome ESMA’s call for evidence on costs and charges and inducements which have been major changes to investor protection requirements and which have required heavy technical development for EU banks.

ESMA has so far produced Q&s on cost and charges disclosure on an ongoing basis. Most of these Q&As have gradually addressed the ex-ante disclosure, while very few Q&A have been released on the ex-post periodic disclosure. This approach proved challenging as:

1. clarifications have been provided too late when intermediaries have already made very large investments to adopt their own procedures;
   clarifications are fragmented and sometimes unclear or not applicable;
2. clarifications provided did not address the most important issues;
3. any change to the procedures already implemented by intermediaries aimed at following the ESMA’s clarification provided from time to time requires proper planning which takes into account the related costs and implementation times.

At this stage, in case ESMA should decide to go on providing further clarification on this subject we strongly recommend the use of the Guidelines tool instead of the Q&As in order to:

• allow intermediaries to take part in the consultation process by making their own contributions (Q&A does not provide any prior discussion with the industry) based also on the experience gained in the implementation of these complex requirements;
• ensure a more organic and systematic approach to interpretation;
• allow the industry to plan the necessary further changes and the related costs.

The call for evidence focuses on the disclosure rules relating to inducements. We would also like to point out that many of the implementation challenges relating to inducements rather relate to other areas of the regime such as divergent legal interpretations by competent authorities regarding the “quality enhancement” regime, the principle of  proportionality and application to primary market transactions. Whilst noting that the mandate to ESMA is restricted to disclosure, we would welcome a more extensive study on the impact of the inducement rules in MiFID II.

It should be noted that the industry (both manufacturers and distributors across EU) is heavily engaged in self-regulatory work through FinDatEx, under the governance of EU wide associations including EBF, to create a better standard and more harmonized framework for data exchange related to cost & charges and target market data. One of the consequences of the MiFID II cost & charges regime is that this has become a truly massive data exercise between manufacturers and distributors. This data exercise should be taken into consideration by the legislators and the regulators when setting out the rules. The industry’s self-regulatory work will take some time to finalize and implement, and the regulator should be aware of and should take this into consideration.