Investor protection has been set back by last week’s rejection by the European Parliament of a proposed ban on inducements to independent financial advisers, according to commentators.

The European Commission proposed the ban in its review of the markets in financial instruments directive, but the Parliament’s Economic and Monetary Affairs Committee amended the text to call only for disclosure of commission payments.

“This goes backward even from Mifid I,” said Jean-Baptiste de Franssu, an asset management consultant and former president of the European trade body Efama.

The European Federation of Financial Services Users also condemned the move by Econ, with managing director Guillaume Prache seeing it as “a worsening of the situation for retail investors in comparison to the first Mifid”. He pointed out that in some cases, advisers would not be required to make full disclosure of commission arrangements.

Mr de Franssu said the vote was just a postponement of the inevitable. “The question is not whether inducements should or should not be banned, it is when. Participants in the financial services industry should realise it will happen one day.”

He advocated engaging with regulators to ensure future rules are implemented in such a way that the industry has time to adjust, while ensuring investor protection is improved.

The UK and Netherlands are already implementing bans on commissions.

“Research conducted by the UK regulator, the FSA, shows commission leads to sales, product and provider bias as well as numerous mis-selling cases,” said Arlene McCarthy, a UK Labour MEP.

Ms McCarthy said the UK would go ahead with its ban under the retail distribution review regardless of what happens under Mifid II.

She said both consumers and the industry would benefit from the ban, the former through better advice, and the latter because it “will no longer have to pay out massive compensation claims [for mis-selling]”.

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