EU Strengthens Investor Protection Rules to Boost Market Confidence

The European Parliament and Council have reached a landmark agreement on new EU-wide rules designed to put retail investors firmly at the centre of financial decision-making.

The Malta Financial Services Authority (MFSA) has welcomed the reforms, which form part of the EU's broader Retail Investment Strategy aimed at boosting participation in capital markets and reducing reliance on bank lending, particularly for smaller companies. For Malta, the agreement reinforces a commitment to maintaining a well-regulated, investor-friendly financial services sector.

At the heart of the new framework is a strengthened duty on financial and insurance advisers to act in clients' best interests. Under the agreed rules, advisers will be required to carry out thorough suitability assessments before recommending any product or service, taking into account a client's knowledge and experience, financial situation, risk tolerance, investment objectives, and ability to absorb losses. The goal is to ensure that products genuinely reflect individual profiles, rather than being driven by sales incentives.

Transparency is another key pillar of the reforms. Products that fail to offer real value for money will not be permitted to reach the retail market, while clearer and more comparable information will allow consumers to assess costs, performance, and non-financial features with greater confidence. Firms will also face strengthened rules around inducements - the fees or commissions received from third parties, which will only be permitted where they deliver a tangible benefit to the client and where any conflicts of interest are properly managed.

The reforms also tackle an increasingly relevant issue: the influence of social media on investment decisions. EU countries will be required to promote financial literacy initiatives, with a particular focus on younger investors who may be more vulnerable to mis-selling through online channels. Investment firms that use so-called "finfluencers" to promote their products will need to have written agreements in place and maintain clear oversight of their activities.

Sarah Pulis, Head of Conduct Supervision at the MFSA, said the new measures are expected to significantly strengthen investor protection and enhance retail investors' confidence in financial products, potentially encouraging greater participation in capital markets. She also noted that careful consideration was given throughout the negotiations to ensuring that any additional obligations imposed on firms would deliver real benefits for consumers, without placing unnecessary regulatory burdens on the industry.