The European directive on markets in financial instruments known as "MiFID II" now imposes strict conditions on the collection by investment service providers (ISP) and distributors of financial instruments of retrocessions of commissions as remuneration for services rendered to their customers, going so far as to prohibit them in certain cases.
As part of the ongoing MiFID II review, the European Commission has decided to re-examine the regulatory framework applicable to these retrocessions of commissions, considering possibly a general ban. In this case, the investor would remunerate the ISP/distributor by paying them a fee directly. In particular, the customer wishing to be advised on his savings would then have to pay his financial intermediary directly to benefit from this service. This fee-based model is the one practiced in the United Kingdom and the Netherlands.
To contribute to this debate, decisive for the access of retail investors to financial products, several French, Spanish and Italian professional associations, including AMAFI[1], have mandated KPMG to carry out a comparative study of these two models. The study focuses notably on the costs borne by the investor, with the objective thus to verify the competitiveness of the model with retrocessions of commissions, present in all the Member States with the exception of the Netherlands, compared to the model based on fees.
Main findings
In terms of costs, the study finds that the two models are comparable for retail investors. The total cost of ownership of the products borne by an individual investor does not depend on the distribution model, commission- or fee-based.
Furthermore, the study concludes that, in countries where retrocessions are banned, investment advice is only accessible to investors with a certain amount of financial assets: £100,000 in the United Kingdom and £500 000 € in the Netherlands. Below this threshold, customers are offered standardized and/or digital advice, delivered by robo-advisors for example. This finding should be put into perspective with the observation that a very large majority of retail investors in these countries, as well as in France, consider that advice should always include some human interaction[2].
Finally, the study looks at the arrangements put in place by financial intermediaries remunerated by commissions, to prevent and manage conflicts of interest. It concludes that robust guarantees to protect investors are in place, in particular since MIFID II strengthened its requirements in this regard.
Based on this study, the participating Associations conclude that no model should be favoured over another. Investors must have the freedom to choose the advice model that best suits their needs, as long as they benefit from clear information on the method of remuneration used.
Download the study
[1] In France: AFG, FBF (Fédération bancaire française), AMAFI (Association française des marchés financiers), AFPDB (Association française des produits d’investissement de détail et de bourse) and the four associations of financial advisors: Anacofi (Association nationale des conseils financiers), CNCEF (Chambre nationale des conseils experts financiers), CNCGP (Chambre nationale des conseils en gestion de patrimoine) and the Compagnie des CGP.
In Spain: INVERCO (Asociación de Instituciones de Inversión Colectiva y Fondos de Pensiones), AEB (Asociación Española de Banca), CECA (Confederación Española de Cajas de Ahorros) and UNACC (Unión Nacional de Cooperativas de Crédito).
In Italy: FeBAF (Federazione Branche Assicurazioni Finanza), ABI (Associazione Bancaria Italiana), ASSOGESTIONI, ASSORETI (Associazione delle Società per la Consulenza agli Investimenti) and ASSOSIM (Associazione Intermediari Mercati Finanziari).
[2] Investment Trends’ Survey, Europe Advice Accessibility Report, July 2021
Dans le cadre de la mise en production de son nouveau système « ROSA » (Référentiel des Organismes, Sociétés et Autres tiers) en remplacement de l’application « GECO », l’AMF a mis à disposition sur son site institutionnel, l’enregistrement du Webinaire de présentation à tous les PSI qui s’est tenu le 14 février 2022 : Présentation des modalités d'ouverture du nouveau système d'information ROSA – vidéo | AMF (amf-france.org).
Interview AMAFI - DDV on Capital Markets Union
AMAFI, together with AFTI and FBF, responded to the European Commission's consultation on the listing act, which aims to make European capital markets more attractive to companies and more simple for SMEs. The objective is to facilitate companies' access to markets while preserving a high level of investors’ protection. This objective is also part of the UMC package. AMAFI believes it is important to promote liquidity and to maintain high standards of investors’ information, to promote research, including issuer-sponsored research, and to restrict product governance requirements for certain types of products. The Association also points out that legislative stability is necessary and that any new intervention must be strictly calibrated to the objectives.
AMAFI attended the Eurofi Forum in Paris on 23-25 February. It was represented by Chairman Stéphane Giordano, Director of European and International Affairs Arnaud Eard, and several members of the European Action Committee. On the sidelines of the public sessions, AMAFI representatives met with a number of key figures, including Alexandra Jour-Schroeder, DG FISMA Deputy Director General; Harald Waiglein, Director General at the Austrian Finance Ministry; Eva Wimmer, Head of Financial Markets at the German Finance Ministry; Michael McGrath, Assistant Secretary General at the Irish Finance Ministry; and financial services advisors for Bulgaria, Denmark and Finland.
The talks covered three priority issues for AMAFI: the competitiveness of EU firms and attractiveness of European markets (AMAFI / 22-09), the MiFIR review (AMAFI / 22-11) and the Listing Act (AMAFI / 22-08).
Given the financing challenges facing the European Union, which range from economic recovery and energy transition to the digitised economy and population ageing, and in view of the reforms introduced by the United Kingdom as part of its Wholesale Markets Review, AMAFI stressed the need to put business competitiveness and the attractiveness of European markets at the heart of reforms aimed at completing the Capital Markets Union initiative. The current MiFIR review has a major role to play in this regard, notably in reforming the transparency regimes for equity and bond markets and establishing a consolidated tape.
Regarding the latter point, the aim is to gradually introduce a dual system: a preand post-trade tape for equities and a post-trade tape for bonds. Meanwhile, to make sure that EU markets and financial firms stay attractive, competitive and positioned to provide the requisite financing for the European economy on a sufficiently independent basis, possible UK regulatory amendments must not be ignored, given their potential to attract EU issuers and investors.
AMAFI teamed up with the French Association of Securities Professionals (AFTI) and the French Banking Federation (FBF) to respond to the European Commission’s consultation on the Listing Act, which seeks to make European capital markets more attractive to companies and simpler for small and midsized enterprises, or SMEs (AMAFI / 22-12). Specifically, the goal, set within the framework of CMU, is to facilitate companies’ access to markets, while ensuring a high level of investor protection.
AMAFI’s feedback stressed the importance of promoting liquidity and hence of maintaining stringent investor disclosure standards, promoting research, (including sponsored research), and alleviate product governance obligations for ordinary shares. The reason is that these requirements make it harder for investors to finance the economy, while offering no real benefits in return. Importantly, AMAFI also reiterated the importance of legislative stability at a time when markets are being called on to provide long-term financing. Any new legislative intervention must be strictly calibrated to its objectives.
A new label for ESG structured products
Structured products offer flexible investment solutions and enable investors to gain exposure to sustainable assets, often through benchmark indices focused on environmental, social and governance issues. Accordingly, there is a strong sense that ESG promises should be underpinned by a more secure framework. While the SFDR provides this kind of framework for structured products marketed as UCITS, it does not apply to products issued as euro medium-term notes.
The Paris financial community therefore came up with the idea of creating a label for ESG structured products that could be used to identify them easily, while also providing a quality guarantee. The French Structured Products Association (AFPD), the FBF and AMAFI presented members with draft specifications, which are being finalised for presentation to the AMF in the near future. An initial step, before creating the label itself, might be to draw up an industry charter that could provide an interim frame of reference and help participants to get accustomed to the requirements of the future label.
FBF-AMAFI Charter on synthetic hedging of ESG funds
The FBF and AMAFI have published a joint charter on the synthetic hedging of ESG funds. Compliance with the charter will allow funds to communicate centrally on non-financial features, subject to certain requirements.
In December 2020, the AMF published Position-Recommendation 2020-03 to restrict “synthetic” funds from communicating about compliance with nonfinancial ESG criteria. These funds replicate the performances of an index or basket of assets through total return swaps (TRS), but do not invest directly in them, since the investments are conducted by the TRS counterparty banks. At the same time, the AMF asked the financial community to prepare a robust framework for funds’ use of such derivatives for ESG exposure purposes.
AMAFI and the FBF responded by drawing up a charter intended to ensure that synthetic hedges are aligned with funds’ ESG objectives. In addition to setting out the commitments that must be met by synthetic hedging instruments used by funds in this area, the charter seeks to ensure consistency between the ESG promises made to investors and the assets acquired by counterparties for hedging purposes.
The AMF has accordingly updated Position-Recommendation 2020-03 on the required disclosures by collective investments incorporating non-financial approaches, by authorising “synthetic” funds to communicate centrally on the recognition of ESG criteria, provided, among other things, that the derivatives used comply with the provisions of the FBF-AMAFI charter.
