As part of an effort to boost capital markets by curbing regulatory burdens, European regulators are launching a consultation into the retail investor experience that aims to determine how its rules are helping, or hurting, investors.
The European Securities and Markets Authority (ESMA) issued a paper that’s seeking feedback on how retail investors are engaging with the investment industry, and whether there are regulatory or other barriers to their participation in capital markets.
Among other things, the paper examines trends in retail investing, including the role of social media in retail investor decision-making and speculative investment by younger investors; the practical application of suitability and disclosure requirements; crowdfunding rules; and, finding the balance between investor protection and enabling investors to engage in informed risk-taking.
ESMA said that it is “particularly interested in understanding whether certain disclosure, suitability and appropriateness requirements — as designed or implemented — may create unintended obstacles for retail investors.”
The paper indicated a concern that certain rules that are designed to boost investor protection may be unintentionally adding needless complexity.
“Regulatory disclosures, suitability assessments, and periodic reporting may not always translate into better investor outcomes. Instead, they may potentially deter capital market participation by making the investment process feel daunting or inaccessible to nonprofessional investors,” it said.
“While robust investor protection measures are essential, it is important to assess whether they remain effective and proportionate, especially in a digitalized investment environment,” the paper noted.
Based on the feedback received, in the third quarter, regulators will decide whether specific changes are needed to enhance investor protection, or to improve retail participation in the capital markets.
The deadline for providing feedback to the consultation is July 21.