Understanding the Retail Investor Journey: ESMA's Call for Evidence

On 21 May 2025, the European Securities and Markets Authority (ESMA) published a Call for Evidence (CfE) on the retail investor journey, aiming to gather insights from stakeholders on key aspects of the investment process. This consultation paper, titled "On the Retail Investor Journey: Understanding Retail Participation in Capital Markets," seeks to evaluate the effectiveness of current regulatory requirements under MiFID II and their impact on retail investors engaging with capital markets.

Purpose and Scope of the CfE

The primary objective of this CfE is to assess whether MiFID II regulatory requirements effectively support investor protection while ensuring accessibility and ease of engagement for retail investors. ESMA is 'particularly interested' in understanding whether certain disclosure, suitability, and appropriateness requirements might create 'unintended obstacles' for retail investors. The consultation is directed towards investor and consumer organisations, investment firms, credit institutions, and other stakeholders involved in financial regulation and retail investment market developments. See our analysis of the paper below.

Background to the CfE

The CfE sits within a broader move by the EU under its Savings and Investment Union (SIU) vision to simplify the EU regulatory framework and reduce barriers to ensure EU firms can effectively compete on the global stage. In this regard we have already seen the EU Commission publish its SIU Communication, a Targeted Consultation on integration of EU Capital Markets in April and a related SIU Call for Evidence in May (see our article here for more details).

The CfE highlights the importance of encouraging retail investor participation in capital markets as a key component of the SIU vision, see our article on the SIU here. Such participation supports long-term investment and provides individuals with opportunities to grow their savings. Despite efforts to promote retail participation, a significant portion of household savings in the Euro area remains in low-yield bank deposits, limiting the potential for increased investment across European households, which could bring broader economic benefits.

Investor protection is a cornerstone of EU financial regulation, with MiFID II and other frameworks playing a crucial role in safeguarding retail investors. However, there is concern that some regulatory requirements may have unintentionally introduced unnecessary complexity, potentially deterring capital market participation by making the investment process feel daunting or inaccessible to non-professional investors. The aim of the CfE is to assess whether MiFID II requirements strike the right balance between protection and accessibility, ensuring that retail investors can easily understand and navigate the investment process.

A condensed version of the CfE has been prepared for national consumer organisations to facilitate engagement with key questions relevant to their work. The focus is on the retail investor experience in relation to investment products within the scope of MiFID II, such as shares, bonds, investment funds, and structured products, while excluding insurance-based or pension products, which fall outside ESMA's remit.

Key themes explored

The CfE seeks to understand how retail investors experience key aspects of the investment process and whether certain regulatory requirements support or hinder their engagement with capital markets.

The CfE first examines non-regulatory barriers to retail investor participation in capital markets. In this context ESMA seeks input on whether factors beyond regulation such as the perceived complexity of financial products, high fees, past experiences of low returns, limited risk appetite, and lack of trust in investment service providers contribute to retail investors' hesitation to invest.

Speculative Investments Among Young Investors: The CfE also examines why younger investors are drawn to speculative and volatile assets, such as cryptocurrencies, over traditional investment products. Factors contributing to this trend include the promise of higher returns, lower perceived costs, ease of access, and influence from social media.

The CfE then explores specific regulatory requirements that directly impact retail investors, which are structured as follows:

1. Effective Disclosures for Retail Investors

Transparency is crucial for investor protection, but excessive or complex disclosures can overwhelm investors. ESMA seeks input on whether current disclosure requirements genuinely support informed decision-making or if they overwhelm retail investors.

2. Suitability Assessments

The suitability assessment process is crucial for ensuring that investment advice and portfolio management align with clients' knowledge, experience, financial situation, and investment objectives. The CfE asks whether the suitability assessment process strikes the right balance between investor protection and accessibility/simplicity.

3. Appropriateness Assessments

The CfE also examines the appropriateness assessment for non-advised services and asks whether it strikes the right balance between investor protection and accessibility/simplicity.

Next Steps

This CfE represents a significant opportunity for stakeholders to influence the future of retail investor engagement in capital markets. By addressing both regulatory and non-regulatory barriers, ESMA's stated intention in the CfE is to create a more accessible and effective investment environment for retail investors across the EU to enhance both investor protection and retail engagement in financial markets.

The deadline for responses is 21 July 2025. ESMA intends, in Q3 2025, to use the responses to determine whether regulatory adjustments or clarifications may be needed.