MiFID - Investor Protection

The European Securities and Markets Authority (ESMA) today publishes its first Annual Statistical Report (Report) on the cost and performance of retail investment products. The Report covers Undertakings for Collective Investment in Transferable Securities (UCITS), Alternative Investment Funds sold to retail investors (retail AIFs) and Structured Retail Products (SRPs). 

The analysis complements ESMA’s risk assessment, supervisory convergence and investor protection work, and contributes to the European Commission’s project on cost and performance of investment products under the Capital Markets Union Action Plan.

The report documents the significant impact of costs on the final returns that retail investors make on their investments:

  • the charges for UCITS funds, taken all together, reduce their gross returns by one quarter on average;
  • the cost impact varies widely, especially depending on the choice of product, asset class, fund type; and
  • management fees and other on-going costs constitute over 80% of investors costs, whilst entry and exit fees have a less significant impact.

Market transparency is particularly limited for retail AIFs and SRPs for which practically no up-to-date data on costs and performance are available.


The data shows that for UCITS the total costs of a fund presents a significant drain on fund performance, impacting retail investors to a much higher extent than institutional investors.  On average, retail clients pay twice as much as institutional clients. The impact varies across asset classes, with costs on average accounting for 25% of gross returns in the period from 2015 to 2017. On-going costs such as management fees constitute over 80% of the total cost paid by customers, whilst entry and exit fees have a less significant impact.

In terms of overall returns, passive equity funds consistently outperform active equity funds. This is further demonstrated by the fact that costs for actively managed equity funds are found to be significantly higher than for passively managed funds and ETFs.

Moreover, the report finds significant variation in costs and gross performance across Member States. Finally, the report highlights the lack of available and usable cost and performance data, especially for retail AIFs and SRPs, which is a significant issue from an investor protection perspective.

The report provides National Competent Authorities with useful information to support the implementation of the Capital Markets Union, and aims to facilitate increased participation by retail investors in capital markets by providing consistent EU-wide information on cost and performance of investment products. It also demonstrates the relevance of disclosure of costs to investors, as required by the MiFID II, UCITS and PRIIPs rules and the need for asset managers and investment firms to act in the best interest of investors, as laid down in requirements of MiFID II, the UCITS and AIFM Directives.

On 14 December 2018, the European Securities and Markets Authority (ESMA) adopted a Decision under Article 40 of Regulation (EU) No 600/2014 to renew the prohibition on the marketing, distribution or sale of binary options to retail clients. The Decision renews ESMA Decision (EU) 2018/795 on the same terms as the previous renewal decision, ESMA Decision (EU) 2018/1466.

In accordance with Article 40(5) of Regulation (EU) No 600/2014, this Notice provides details of the Decision and the time from which the renewed measure will take effect. The full text of the Decision will soon be published in the Official Journal of the European Union.

The European Securities and Markets Authority (ESMA) has agreed to renew the restriction on the marketing, distribution or sale of contracts for differences (CFDs) to retail clients, in effect since 1 August, from 1 February 2019 for a further three-month period.

ESMA has carefully considered the need to extend the intervention measure currently in effect. ESMA considers that a significant investor protection concern related to the offer of CFDs to retail clients continues to exist. It has therefore agreed to renew the measure from 1 February 2019 on the same terms as the previous renewal decision that started to apply on 1 November 2018.

Renewal of restriction on CFDs

The renewal was agreed by ESMA’s Board of Supervisors on 18 December 2018 and includes renewing the following:

  1. Leverage limits on the opening of a position by a retail client from 30:1 to 2:1, which vary according to the volatility of the underlying:
  • 30:1 for major currency pairs;
  • 20:1 for non-major currency pairs, gold and major indices;
  • 10:1 for commodities other than gold and non-major equity indices;
  • 5:1 for individual equities and other reference values;
  • 2:1 for cryptocurrencies;

     2. A margin close out rule on a per account basis. This will standardise the percentage of margin (at 50% of minimum required margin) at which providers are required to close  out one or more retail client’s open CFDs;

     3. Negative balance protection on a per account basis. This will provide an overall guaranteed limit on retail client losses;

     4. A restriction on the incentives offered to trade CFDs; and

     5. A standardised risk warning, including the percentage of losses on a CFD provider’s retail investor accounts. The standardised risk warning will continue to allow use of the  additional abbreviated risk warning introduced in the previous renewal decision for cases where the standard terms of a third party marketing provider have a character limit which is lower than the number of characters comprising the full or the abbreviated risk warning, provided that the advertisement also links to a webpage of the provider on which the full risk warning is disclosed. 

Next steps

ESMA intends to adopt the renewal measure in the official languages of the EU in the coming weeks, following which ESMA will publish an official notice on its website. The measure will then be published in the Official Journal of the EU and will start to apply from 1 February 2019 for a period of three months.

The European Securities and Markets Authority (ESMA) has issued today a statement to remind firms, providing investment services, of their obligations to provide clients with information on the implications of the United Kingdom’s (UK) withdrawal from the European Union (EU) on their relationship with clients and on the impact of Brexit-related measures that a firm has taken or intends to take.

The statement is addressed to UK firms that provide services in EU27 Member States, as well as EU27 firms that deal with clients based in the UK.   

Information to clients

In order to avoid any potential disruption arising from client confusion, firms that will be impacted by Brexit should ensure that they provide clear information to clients whose contracts and services may be affected. The information should be provided as soon as possible, once available, and should cover at least the following areas:

·         Impact of UK departure for the given firm and its business, and the implications this has for the relationship between the client and the firm;

·         Actions the firm is taking such as organisational arrangements to deal with client inquiries;

·         Implications for clients of any corporate restructuring and, in particular, any relevant changes to contractual terms; and

·         Contractual and statutory rights of clients in these circumstances, including the right to cancel the contract and any right of recourse, where applicable.

Next steps

ESMA and national competent authorities (NCAs) will continue to monitor developments, including by engaging with firms to assess the level of firms’ preparedness and to ensure that their clients are appropriately informed in the context of the firms’ preparation for Brexit.