By Huw Jones
LONDON (Reuters) – The European Union’s executive body said on Thursday it would propose only a partial ban on banks offering cash incentives to financial advisers who have sold their products, after fierce opposition from industry and key EU states such as Germany.
EU financial services chief Mairead McGuinness is due to include the curbs in draft legislation to encourage more retail investors to buy and sell shares. It has already been delayed to May 24 as intense lobbying continues.
McGuinness said in January that a potential ban on commission or “inducements” paid by banks and insurers to financial advisers could be part of a wider shake-up to end conflicts of interest in retail financial services.
Debate has been polarised, but most agree that the status quo is untenable, she said, adding that some financial firms will have to rethink their business model.
“We’re looking at tightening the conditions under which inducements are allowed,” she said in a speech in Stockholm.
There should be a better breakdown of costs to make it easier for consumers to compare different options, she said.
“There should also be a targeted ban on inducements for execution-only transactions because it’s not right that inducements are paid even when there is no advice relationship at all with a client,” she said.
Retail investors are rarely offered the least expensive products, though these can often perform as well as the more expensive ones, McGuinness said.
Safeguards should also be strengthened around when inducements may be paid and when they must not be, she added.
“I want to be clear: even if we do not propose a ban on all inducements now, it does not mean a free pass for the financial sector,” she said. “And we will have a strong review clause in the proposed legislation. That will allow us to bring in a full inducement ban at a later stage if necessary.”
EU states and European Parliament would have final say on McGuinness’ proposals.
(Reporting by Huw Jones; editing by Kirstin Ridley and Richard Chang)
