European regulators rarely use enforcement to ensure investment firms’ compliance with conduct standards for retail investment advice, says a new report.
The European Securities and Markets Authority (ESMA) on Thursday published a peer review on how national regulators assess compliance with suitability requirements when firms provide investment advice to retail clients
Overall, “there is scope to adopt more proactive supervisory approaches and strengthen enforcement activities,” ESMA say in an announcement accompany the review’s release.
In particular, the review finds that most regulators: make limited efforts to verify whether clients are receiving investment advice in practice, or have the perception that they are receiving advice; do not perform targeted supervision as part of a specific suitability project; and rarely take enforcement action. “Many regulators considered their supervisory approach alone was sufficient to address issues,” ESMA says in the announcement.
Most of the national regulators have a good understanding of the investment advice market in their jurisdictions, the report indicates, and that they regularly review the distribution methods and business models of investment firms. However, they could be doing more in terms of compliance and enforcement.
“In many cases, regulators could improve how they publicly communicate with stakeholders on their supervision and enforcement activities and findings,” ESMA says.
“The suitability requirements are a key component of Europe’s investor protection framework and ESMA expects national competent authorities to be vigilant in ensuring firms comply with these important requirements,” says Steven Maijoor, chairman of ESMA, in a statement.