By Huw Jones
LONDON Banks, insurers and asset managers in the European Union would only be allowed to sell funds and other products across the bloc if they could prove to regulators they offer value for money, draft proposals seen by Reuters showed.
The EU's executive European Commission is due to publish legislative proposals known as the retail investment strategy on May 24 to deepen involvement of small investors in capital markets, partly by using tougher protections to build up trust in investing.
The draft proposals, with further changes possible ahead of publication, form part of the bloc's push to build a more autonomous capital market after Brexit, and signal a step change in EU-level retail financial services regulation.
"Some retail investment products on the market still incorporate unjustifiably high costs and/or do not offer value to retail investors," the proposals said.
The draft law calls on EU securities watchdog ESMA and its counterpart for the insurance sector, EIOPA, to come up with benchmarks industry would have to use to show that the cost of a product is justified and proportionate.
"The benchmarks, as a tool of comparison, should make the pricing process – at both manufacturing and distribution levels – more objective," the proposals say.
"A deviation from the relevant benchmark should introduce a presumption that costs and charges are too high, and that the product will not deliver Value for Money, unless it can be demonstrated otherwise."
The draft law also calls for the commission to have powers to take "corrective measures" where costs levied on investment funds are not justified or proportionate to the expected returns.
The draft rules also contain a proposed ban on inducements or commission on advice-free sales of products, in a partial retreat from a potential blanket ban on inducements signalled by EU financial services chief Mairead McGuinness last month.
The European Parliament and EU states would have final say on the draft rules, with some lawmakers expected to push for a blanket ban on inducements.
(Reporting by Huw Jones; Editing by Christina Fincher)