92003E0013

WRITTEN QUESTION E-0013/03

by Theresa Villiers (PPE-DE) to the Commission

(20 January 2003)

Subject: Investment Services Directive

What is the Commission's intention with regard to the extent to which the Investment Services Directive, as revised, should prohibit the making of rules which would permit the sale of investment products or services where they have not been preceded by measures to ensure that they are suitable to individual potential customers?

Answer given by Mr Bolkestein on behalf of the Commission

(12 February 2003)

The Commission's intention is to strengthen the Community's legislative framework to protect investors by enhancing obligations of investment firms when providing services to clients.

To this end, Article 18 of the proposal(1) requires Member States to ensure that investment firms obtain the necessary information from the client regarding its knowledge and experience in the investment field, its investment objectives and financial situation so as to enable the investment firm to determine the investment services and financial instruments suitable for that client. The Commission's approach is based on the current Article 11 of the existing Investment Services Directive(2). This approach is in line with the harmonised conduct of business rule-book agreed by CESR.

The Commission believes it is indispensable for an investment firm acting on behalf of a client, in order to properly fulfil its agency obligations to its clients, to obtain that information and to assess the suitability, for that client, of services or transactions in financial instruments which are being considered. Having said that, the Commission fully accepts that the intensity of this assessment and the manner in which it is undertaken needs to be carefully worked out to take into account, inter alia, the nature of the service (what would be appropriate for an automated execution-only service might not be for a discretionary portfolio management service) and of the financial product.

Article 18 clearly provides for a differentiation in the level of suitability and know your customer requirements, taking into account the nature of the investment service. This will ensure that the form and extent of this assessment are implemented in a way which is appropriate for the provision of low cost and flexible brokerage formats to clients, while still taking account of the extent to which transactions in different financial products represent different degrees of market risk for the investors.

(1) COM(2002) 625 final.

(2) Council Directive 93/22/EEC of 10 May 1993 on investment services in the securities field OJ L 141, 11.6.1993.