Investor protection regulation in an era of converging retail financial products

Abstract

Financial markets have, over the years, experienced an unprecedented trend of convergence where different financial products compete to meet the investors' demands for maximised returns. This convergence has led to interchangeability or substitutability between specific retail financial products, in particular securities, funds, structured products, structured deposits and unit-linked life insurance. The dissertation asks the question whether the sectoral approach adopted by the current EU legislative framework and implemented in Member States in particular Maltese Law is equipped to deal with this convergence and whether there are asymmetries in the level of investor protection in relation to particular types of retail financial products. There are four main regimes that regulate such substitutable products: the prospectus regime dealing with shares offered to the public or admitted to trade, the investment services regime, the collective investment schemes regime and the insurance regime. A detailed comparison between each of these regulatory spheres manifests that the Maltese regulator has taken a number of legislative steps to minimise discrepancies in investor protection measures across these spheres. Nonetheless, a number of inconsistencies continue to exist in the levels of consumer protection both at EU level and, to a lesser extent, at a Maltese law level. Furthermore, the manner in which specific retail financial products are classified as falling within one or more regimes also impacts on the investor protection measures available in relation to such products. In the interest of enhancing consumer protection, increasing consumer confidence, promoting healthier competition and eliminating legislative inconsistencies, there is a strong case in favour of corrective action being taken to address the identified inconsistencies. To be most effective, such action should take the form of binding rules and should, preferably, be effected at EU law level. Corrective action should focus primarily on reducing asymmetries by 'upgrading' the individual Directives to reflect MiFID standards of consumer protection. Each regime should require clear and separate presentation of information on underlying or linked funds or securities as well as of information on legal wrappers. Finally, the new UCITS Key Information Document should be adopted as a benchmark for summary disclosures in all the regimes under discussion.