Germany speaks out against EU ban on commissions for financial products
BANNING commission-based sales of financial products from banks and insurers would be a “serious setback” to the European Union’s (EU) capital market, and would limit choice for consumers, Germany’s finance minister Christian Lindner said.
EU financial services chief Mairead McGuinness last month set out a detailed case in favour of banning “inducements”, or commission paid by a bank or insurer to financial advisers who have sold their products.
In a letter to a member of the European Parliament, she said that a ban on inducements in the Netherlands and in Britain led to cheaper products for customers. She added that no decision had been taken on proposing an EU-wide ban.
McGuinness could propose a ban in her upcoming “retail investment strategy” to deepen the bloc’s capital market by attracting more retail investors. EU states and the European Parliament would have the final say on any ban.
In a letter to McGuinness dated Dec 28, Lindner said that he welcomed her goal to deepen the EU capital market, but that he was “very much concerned” about a possible ban on inducements.
Commission-based selling “predominates” in the German insurance market, he said.
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EU regulation on inducements was already “well-balanced, and forces investment firms to act in the best interest of their clients”, Lindner said. “I am strongly concerned that a general ban would inhibit the provision of investment advice in cases where it is mostly needed.”
“Banning inducements in general would mean a serious setback to efforts to increase retail investment in the capital markets,” he added.
Banks and insurers have also begun to push back.
The European Banking Federation, which represents lenders, said: “We believe that at this stage, there are still too many misunderstandings about how this system works, and what the consequences would be in banning these commissions.”
Insurance Europe, an insurance industry body, said that an outright EU-wide ban would undermine the goals of the retail investment strategy.
“In many markets, inducements are an indispensable part of the distribution system for retail investment products, without which consumers’ access to professional advice would be significantly curtailed,” it said.
German influence helped to persuade EU states not to back an EU-wide ban on “payment for order flow”, whereby brokers receive a commission in return for directing retail share orders to a specific trading platform. REUTERS
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