Knowledge is power – unless you drown in it

Retail investors lean on the investment environment’s predictability and longevity. They need relevant information – but there is such a thing as too much information. Ease is an important factor in investing: when everything goes right, investing is a simple and routine task without much excitement. 

The European Commission is therefore striving to enhance the investor protection scheme based on the Retail Investment Strategy. It is seeking to modernise the rules to ensure that they address the needs of retail investors more fully, increase their variety of choice and thereby encourage their participation in the capital market. The Commission highlights that investors need transparent, comparable and understandable information on investment products. These objectives are supportable.

Investors must not be inundated with information, however. It would be wise to evaluate existing regulation before imposing completely new disclosure obligations. Current regulation specifies in detail the information that must be provided to investors – and there is a lot of it ‒ but it does not address the clarity of this information. We believe this is an issue the reform should pay particular attention to.

Current regulation does not address the clarity of information.

More information does not always mean better customer protection. Current legislation suffers from inconsistency and has overlapping, even contradictory requirements regarding information disclosure. Customers need relevant, intelligible information on the expected yields, relevant risks and overall costs of their investments.

The excessive regulation burdens not only customers but also the providers of investment services. Heavy administration may push costs up and thereby centralise markets, eventually reducing the variety of choice for investors.

Customers need relevant, understandable information

on the expected yields, risks and overall costs of their investments.

Clear rules foster investor confidence and encourage participation in the capital market. Finance Finland underlines the importance of retaining retail investors’ freedom to choose and diversify their investment portfolios to manage their investment risks according to their own objectives, risk bearing capacity and personal preferences. The current quality criteria, disclosure and transparency obligations, suitability requirements and neutral adviser remuneration systems guarantee a high level of investor protection.

Finance Finland is actively involved in European dialogue on how the problems in investment services could be solved. We present ideas for ways in which the decision-making of investors could be supported and facilitated. Merely increasing disclosure obligations would do little to improve the position of retail investors; instead, regulation should direct investment service providers to provide information that is timely, intelligible and relevant. Legislation can also be a means to expand the spectrum of the investment market with diverse products, service providers and service concepts.

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