LONDON, Jan 6 (Reuters) – A European Union ban on inducements for recommending gross sales of economic merchandise may minimize prices for retail prospects by greater than a 3rd, the bloc’s monetary companies chief Mairead McGuinness has mentioned.
Inducements, already banned in Britain and the Netherlands, discuss with funds, akin to within the type of fee, paid by banks to distributors, brokers or funding advisors who advocate their merchandise to a retail buyer.
McGuinness is because of set out a brand new retail funding technique to assist deepen the bloc’s capital market.
In a letter dated Dec. 21 and seen by Reuters to Markus Ferber, a senior member of the European Parliament, she backs scrapping inducements, which might set off a basic change in banking enterprise fashions.
Ferber instructed McGuinness in October he would strongly advise towards banning inducements.
“The one method such small-scale retail prospects can get entry to funding recommendation is by going the route of non-independent recommendation that’s partially funded by inducements,” Ferber instructed her.
Banning inducements would additionally cease a serious income for banks, which is usually used to subsidise branches, he mentioned.
McGuinness mentioned she was nonetheless assessing completely different coverage choices, however the present dominant inducement-based mannequin for promoting retail funding merchandise usually means merchandise are extra expensive than different cheaper alternate options in the marketplace.
“The great retail funding examine has discovered that merchandise on which inducements are paid are – on common – about 35% costlier than funding merchandise on which no inducements are paid,” McGuinness mentioned in her letter.
“Against this, within the Netherlands and the UK, which launched a ban on inducements, product prices have fallen, with the consequence that shoppers in each nations have higher worth for cash when buying funding merchandise,” she mentioned.
Automated recommendation doesn’t have to be costly, she added.
A ban on inducements would pressure banks to alter their enterprise mannequin, however not impede them from promoting their merchandise and making a revenue, McGuinness mentioned.
Reporting by Huw Jones; Enhancing by Susan Fenton
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