EU Retail Investment Strategy: Political Agreement – Key Points and Implications for EU and non-EU Firms
Overview
The EU Parliament and Council have reached a political agreement on an updated Retail Investment Strategy (RIS) package. This has followed on from the EU Commission’s original proposal in May 2023, which has been subject to protracted negotiation due to the various complex and controversial issues raised. The reforms cut across MiFID, UCITS, AIFMD, IDD and PRIIPs, with significant implications for firms subject to each of them. The RIS will also have a significant impact on UK and other non-EU product manufacturers with EU distribution networks. We have summarised the key outcomes of the political agreement below.
Technical work on the political agreement will continue, with the aim of finalising the legal texts in early 2026. Firms should therefore anticipate reviewing the detail of the new rules early next year. Practically, this is likely to then translate into a review of any potentially affected governance and distribution arrangements.
After publication in the Official Journal, EU member states will have 24 months to transpose the new rules, with them applying 30 months after publication in the Official Journal. The PRIIPs changes will be an exception, as they are intended to apply 18 months following publication. This suggests a phased implementation over the course of 2027-2028.
Value for Money and Product Governance
The agreement reached is that firms advising retail clients must identify and quantify all costs and charges borne by investors and assess whether total costs are justified and proportionate by reference to agreed product peer groupings and supervisory benchmarks. Products failing this test should not be approved for sale. Benchmarks will be introduced nationally over four years from entry into force, with peer groupings embedded under MiFID/UCITS/AIFMD and supervisory benchmarks under IDD.
Compared to the 2023 proposal, which envisaged ESMA/EIOPA running EU cost/performance benchmarks and associated manufacturer and distributor reporting, the deal calibrates this into sectoral peer groupings and phased supervisory benchmarks, while preserving the core pricing‑process obligation to justify costs and bar poor‑value products. The concern will remain that this is in effect a form of price control as deviating from benchmarks may prove difficult in practice, and it is likely to be difficult to shoehorn bespoke products into groupings for the purposes of price comparison.
Linked to this, KID standards are strengthened: firms must use updated templates for costs, risk and expected returns, with KIDs mandated to be machine‑readable 30 months after entry into force of the new PRIIPs rules.
Client Journey and Suitability
The agreement aims to streamline the suitability process for advice on diversified, non‑complex and cost‑efficient instruments: for these, advisers will not need to assess clients’ knowledge and experience as part of the suitability assessment.
Inducements and Conflicts of Interest
Inducements rules are tightened EU‑wide, but the agreement appears to be less stringent than the original proposals, which extended the inducements ban and were widely considered to be inappropriate and disproportionate, potentially affecting the distribution of structured and bespoke/tailored products that are created for particular markets. The agreement strengthens obligations to act honestly, fairly and professionally in clients’ best interests, any inducement must confer a tangible client benefit and its cost must be disclosed clearly and separately. Member States may still introduce national inducements bans as “gold-plating”. This appears to mark a departure from the Commission’s staged plan for an EU‑wide partial ban on inducements for execution‑only services (and non‑advised IBIPs), paired with strengthened best‑interest tests.
Financial Literacy and Marketing/“Finfluencers”
The agreement introduces new provisions to encourage Member States to advance financial literacy initiatives. These include strengthening provisions to ensure marketing is fair, clear and not misleading. The agreement has explicit focus on the risks posed by social‑media “finfluencers”, which has already been a theme in actions by national competent authorities.
Professional Client Elective Criteria
More retail investors will be able to opt up to professional client status under the agreement. To do so, clients must meet two of three criteria:
- they carried out 15 significant transactions over the last three years, 30 transactions over the previous year, or 10 transactions over €30,000 in unlisted companies over the last five years (the current rules stipulate 10 transactions per quarter over the previous four quarters);
- the size of their portfolio has exceeded €250,000 on average over the last three years (currently €500,000 at the moment of their request for exemption);
- they have worked and carried out related activities in the financial sector for at least one year or, in a newly added alternative criterion, can provide proof of education or training in these activities and an ability to evaluate risk.
Certain managers, directors and AIFM employees with relevant expertise will be treated as professional clients.
It is worth noting that the EU has retained a partially “quantitative” approach to elective professional client status, unlike recent proposals from the FCA in the UK (see our client note here).
