EU watchdog to bolster consumer protection role

The European Securities and Markets Authority (ESMA) is being closely watched by financial firms to see how it will use its sweeping retail powers, an area which traditionally a mainly national regulatory domain.

"In keeping with ESMA's overall 'enhancing customer protection' objective, ESMA may also consider issuing investor alerts or consumer warnings relating to specific product types or selling practices or activities," ESMA chairman Steven Maijoor told a conference.

ESMA would issue such warnings and even product bans when local supervisors failed to act or took insufficient measures, he said.

Its role in consumer protection and retail financial services is expected to grow further.

The EU's financial services chief Michel Barnier is planning legislation to beef up consumer protection and EU powers over retail products such as home loans, which are typically sold by local firms.

At the same time, Britain has been stepping up consumer protection after a string of mis-selling scandals and the industry is anxious to avoid conflicts in timing and substance between British and EU laws.

Maijoor welcomed Barnier's plans to update the EU's MiFID securities trading rules this autumn to bolster powers relating to bans on specific activities, products or practices.

ESMA is already studying the expected and observed returns of complex products sold to retail investors, he said.

One product that has been attracting particular attention is exchange-traded funds (ETFs), especially the move away from traditional ETFs into synthetic and more exotic structures, Maijoor said.

"As I announced publicly a few weeks ago, ESMA is in the process of finalising its policy orientations on ETFs and certain other types of UCITS (mutual funds) and we will be publishing them for consultation later this month," Maijoor said.

Britain's Financial Services Authority has questioned whether synthetic ETFs were suitable for retail investors.

Copyright Reuters, 2011