Would you be prepared for a complete commission ban in relation to retail investment and insurance products in Sweden?

hugoInsurance, Legal & Compliance, Risk & Analytics

FCG’s experts suggests that credit institutions, investment firms, insurance companies and fund management companies should now seriously consider how a complete commission ban would affect their business models.

The updated EU regulation on investment firms (MiFID II) partly introduced a ban on commissions (also known as inducements) related to investment services in EU member states including Sweden. Nowadays, it is prohibited to receive and keep commissions from a fund management company in connection with the provision of investment advice on an independent basis or portfolio management. Commissions received and kept in relation to distribution of investment funds are only allowed if they are proportionate and correspond to an ongoing service of a certain quality to the client. The insurance distribution regulation (IDD) includes similar restrictions on the usage of commissions.

Even before MiFID II entered into force in 2018, the debate on a complete commission ban was quite vivid. The UK and the Netherlands took action and banned inducements in relation to retail investment products with a certain success already before MiFID II. In accordance with the view of the Dutch FSA and the FCA in the UK, the inducements ban encourages the distribution of more cost-effective investment products, reduces conflicts of interest for advisers and increases competition between product manufacturers to the benefit of consumers. The view is that the distribution of less expensive products in these jurisdictions emerges. However, it has also been noted that, if an EU-wide inducement ban were to be introduced, the impact would likely vary across Member States because of the existing distribution models. This is because such a ban may not have the desired consequences depending on the structure of specific national markets.

Since 2018 there is also a trend towards a complete ban in Norway and Denmark where the supervisory authorities have made it more difficult to pay, receive and keep commissions and the levels are typically lower than in Sweden. New business models are also emerging in these markets.

The European Securities and Markets Authority (ESMA) last year published a report that was made by request of the European Commission. ESMA says in the report that it does not recommend to the Commission to ban inducements completely for all retail products across the EU “at this stage”. However, ESMA stresses the need to assess the matter further.

The debate on a complete commission ban has recently come alive again in Sweden. The background is that the Swedish Government has appointed the Swedish FSA to during 2021 evaluate commissions both related to insurance products and investment products (such as investment funds). The Director General of the Swedish FSA, Erik Thedéen, recently made an interview with Swedish state television where he suggested that a complete ban should be introduced in Sweden.

“We have followed the development of the implementation of MiFID II during the last years. What we see is that the current regulation, that enables producers of financial products to pay commissions to the distributors in certain situations, creates uncertainty and leaves room for different interpretations”, Anna Fryklund, says.

Considering the latest development in the area, FCG suggests that affected companies, such as credit institutions, investment firms, insurance companies and fund management companies should now seriously consider the effects of a complete ban in Sweden.

“It is recommended that firms put this topic on the board’s agenda again. Firms should ask themselves what are the consequences of a complete ban and what their options are? To perform a scenario analysis where the effects on e.g. income, liquidity and capital requirements could be a start but more important is to consider what a new business model could look like.” says FCG’s Anna Gårdö.


Need assistance with questions on commissions/inducements related to investment and insurance products? Don’t hesitate to contact us at FCG!