Press release 1 August 2014

Banks and insurance companies must ensure investor protection when selling products that strengthen capital adequacy or solvency at solo or consolidated level

The European Supervisory Authorities (ESAs) have issued a reminder to banks and insurance companies on their obligations to ensure investor protection when selling such products to their own clients as strengthen capital adequacy or solvency at solo or consolidated level. The reminder includes instruments qualifying as banks' own funds. In the sale of their products, banks and insurance companies must pay special attention to the management of conflicts of interest, the provision of information to clients and the suitability of the products for clients. Furthermore, remuneration policies for sales staff should be designed so as not to create incentives for staff to favour their own or the bank’s/insurance company’s interests at the expense of the clients.

The European Supervisory Authorities EBA, EIOPA and ESMA have issued a reminder to banks and insurance companies on their obligations to ensure investor protection, in response to the banks’ market launch of such products as are designed to prepare them for the new capital adequacy regulations and enhance their capital adequacy. Further products may be launched after completion of the comprehensive assessment of banks' balance sheets, including stress tests, conducted under the ECB’s lead. The return and repayment terms attaching to some of these products are highly complex, and the products are not generally suited to retail investors.

In addition, the European Securities and Markets Authority ESMA has issued its own statement highlighting to investors the risks associated with contingent convertible instruments or CoCos. The issuance volumes of CoCos have increased significantly and are expected to continue to do so. The studies conducted by ESMA do not clearly establish whether the institutional investors have fully accounted for the risks inherent in the return and repayment terms in the price-setting of the products.

The reminder issued by the ESAs was prepared by the Joint Committee Sub-committee on Consumer Protection and Financial Innovation (JC SCCPFI), while the statement of ESMA was prepared by ESMA's Financial Innovation Standing Committee (FISC). Director General Anneli Tuominen of FIN-FSA chairs both committees.  – We wish to remind the financial institutions of their duty to always act in the best interest of clients. This is currently a particularly topical issue for the banks, which are taking steps to enhance their capital adequacy, Tuominen says. – The mission of both FISC and JC SCCPFI is to monitor innovations and draw attention to potential defects. The CoCos market currently shows signs that the institutional investors have not fully considered the special characteristics of the instruments in their price-setting.

For further information, please contact

  • Anneli Tuominen, Director General, tel. +358 10 831 5300.


See the reminder to banks issued jointly by EBA, EIOPA and ESMA and the ESMA Statement on Contingent Convertibles Instruments