ESMA report on CfE on retail participation in capital markets

ESMA report on the retail investor journey

On 12 March 2026, the European Securities and Markets Authority (ESMA) published its Report on the Call for Evidence (CfE) on the retail investor journey, providing a comprehensive summary of stakeholder feedback on retail participation in capital markets. The Report follows ESMA's May 2025 CfE, see our article on that here: Understanding the Retail Investor Journey: ESMA's Call for Evidence | Simmons & Simmons.

The findings will feed into ESMA’s future work on the Markets in Financial Instruments Directive II (MiFID II), particularly in the context of the implementation of the Retail Investment Strategy (RIS). Importantly, however, ESMA emphasises that this Report does not present final positions, policy recommendations, or draft proposals, but is intended to facilitate continued dialogue and guide the next stages of analysis. The work remains separate and complementary to the legislative process on the RIS, which had recently reached political agreement at the time of drafting. ESMA also sought the advice of the Securities and Markets Stakeholder Group (SMSG), which is included as an annex to the Report.

Key policy conclusions

A central conclusion of the Report is that no single factor is responsible for deterring retail investor participation in capital markets. Rather, a combination of regulatory and non-regulatory obstacles creates barriers that discourage individuals from investing. ESMA acknowledges that enhancing the investor journey will need to remain a continuous priority for the foreseeable future. The Report identifies several areas where regulatory requirements could be streamlined while maintaining appropriate levels of investor protection, with particular focus on disclosures, suitability assessments, and sustainability preferences.

1. Simplifying disclosures and reducing information overload

Respondents widely support the objective of disclosures, but they also see limited effectiveness due to the volume, complexity, fragmentation and technical language of information. Views on the usefulness of the Key Information Document (KID) are mixed, with the SMSG pointing out that performance scenarios and cost information are too complex and difficult to understand for retail investors. Several stakeholders, including the SMSG and some consumer associations, prefer past performance over performance scenarios for products such as investment funds.

Some respondents mentioned that many cost-efficient products, such as ETFs, are not available in smaller Member States because KIDs are not translated into the local language. Respondents also noted that requirements are not fit for the digital age, having been designed primarily around static PDF documents, and should be adapted for mobile-first investor journeys, with suggestions including the use of layering or collapsible sections.

In response, ESMA has identified the following potential areas for improvement:

• First, ESMA will work to make disclosures, particularly those relating to costs and charges, clearer and better timed within digital investment journeys. This includes using layered, concise presentation and clarifying when ex-ante and ex-post information should appear. ESMA will also seek to streamline overlaps between MiFID disclosures and those required under the PRIIPs Regulation and UCITS Directive to reduce duplication and regulatory burden.
• Second, ESMA proposes a more digital-first approach, including allowing firms to satisfy certain disclosure obligations by making key policies (such as best execution and conflicts of interest policies) freely accessible on their websites, rather than personally addressing them to each client.
• Third, the Report suggests calibrating periodic reporting requirements so that quarterly statements are provided only to clients who do not have access to near real-time information through online platforms. The existing MiFID II Delegated Regulation already provides an exemption from quarterly reporting where clients have online access, but respondents noted the current conditions are difficult to administer on a client-by-client basis each quarter.
• Fourth, ESMA intends to address the impact of local language requirements for Key Information Documents (KIDs) on the availability of cost-efficient products in certain Member States. Several respondents observed that many cost-efficient products, such as ETFs, are not available in smaller Member States because KIDs are not translated into the local language, effectively preventing retail investors from accessing these products and leaving them with more expensive alternatives. A suggested solution is to allow clients to opt-in to receive KIDs in other languages.

2. Reducing complexity in suitability and appropriateness assessments

Stakeholders broadly affirm the importance of suitability assessments for investor protection, but the Report highlights concerns about the administrative burden these assessments impose on firms and the time they require from clients. Consumer associations report that retail investors frequently find the process opaque, not understanding why such granular personal and financial data is required or how the information affects the advice given. Some retail clients perceive questions on topics such as income and assets as intrusive.

ESMA has identified several measures to reduce complexity while maintaining investor protection:

• First, ESMA will support measures to streamline the collection and updating of client information. Stakeholders noted that periodic updates can feel onerous, and firms experience difficulties obtaining updated information where a full re-collection is required even if the client's situation has not materially changed. A more proportionate, event-driven model has been proposed, refreshing the profile only when a significant change occurs or at the client's request, with a simple periodic confirmation of no change otherwise.
• Second, ESMA will consider introducing greater proportionality for the distribution of lower-risk or simpler products. Several respondents, including both industry and consumer associations, suggested that a simplified suitability regime restricted to simple products would improve retail investors' access to advice, with the assessment focusing more on client needs and objectives rather than detailed client circumstances.
• Third, ESMA will promote the wider use of digital tools, including digital questionnaires, within MiFID II's technology-neutral framework. Some contributions called for dynamic digital workflows (such as conditional questioning, pre-population of known data, and event-driven refreshes) to reduce friction and improve client understanding.

3. Simplifying MiFID II sustainability requirements

The Report confirms widespread agreement that the integration of sustainability preferences into suitability assessments has introduced significant complexity for both clients and advisers. Consumer associations report that while retail investors show interest in sustainable investing, they face considerable hurdles in their investor experience, whether due to lack of awareness of the ESG regulatory framework or inadequate investment advice. Trade associations echo these concerns, with some reporting that over 80% of their clients state they have no preference for sustainability, and that the complex mapping of sustainability preferences as regulated by legislation deters many customers from investing in sustainable securities.

The SMSG and other respondents noted that concepts such as ‘taxonomy alignment’, ‘principal adverse impacts (PAIs)’, ‘minimum proportion’, and references to ‘SFDR Articles 8 and 9’ are often seen as overly complex, not only for investors but also for advisors. Clients rarely differentiate between the three product groups provided for by Article 2(7) of the MiFID II Delegated Regulation, and many do not understand how their answers translate into concrete product choices.

In response, ESMA proposes the following measures:

• First, ESMA will support significant simplification of the definition of ‘sustainability preferences’, aiming to link them (where possible) to any new product categories developed under the SFDR review. Many respondents, including the SMSG, advocate completing the SFDR review and establishing clearer product categories before aligning the MiFID II sustainability-preference framework.
• Second, ESMA will work to reduce operational complexity throughout the entire cycle of collecting, adapting, and updating client sustainability preferences.
• Third, ESMA will support financial education efforts on relevant sustainability topics. Financial education remains a challenge, particularly on sustainability matters.
• It is notable that responses underline the essential role of financial advisers in bridging the understanding gap. Data cited in the Report shows that when accompanied by a competent adviser, clients are capable of expressing their preferences in a meaningful and structured way.

4. Other key findings from stakeholders

The Report identifies multiple non-regulatory barriers affecting retail participation, though consumer associations and industry respondents hold divergent views. Consumer associations emphasise a lack of trust in capital markets (linked to conflicts of interest, mis-selling, and insufficient enforcement), high fees, and limited product comparability. Industry respondents point instead to regulatory barriers, limited financial literacy, and a lack of incentives, broadly considering that barriers lie outside industry practices. Both groups call for greater use of tax incentives, including an EU framework for Investment and Savings Accounts (ISAs) and harmonisation of taxation for cross-border investments.

The Report also highlights that young investors are increasingly attracted to speculative products, driven by high return expectations, social media influence (including ‘finfluencers’), easy digital access through neo-brokers, and distrust of traditional institutions. ESMA will strengthen monitoring of social media channels and affiliate marketing models, and take forward measures through financial education initiatives and supervisory convergence activities.

Next steps

ESMA underlines that effective supervision and enforcement remain essential to the regulatory framework. National competent authorities must ensure firms avoid a purely formalistic or ‘box-ticking’ approach to compliance. ESMA states clearly that a lengthy, technical disclosure where plain language is required simply does not meet the requirements. Consumer testing exercises will be important to validate improvements in disclosure practices and ensure requirements do not unnecessarily burden firms without benefiting clients.

For firms, the emphasis on substance over form means that formalistic compliance approaches may face increased supervisory scrutiny. The Report signals potential simplification of sustainability preference requirements, though ESMA's follow-up work will be undertaken once the RIS legislative process concludes. Industry calls for a new ‘semi-professional’ client category received a cautious response, with ESMA observing this could run counter to simplification goals.

The Report confirms ESMA's measured approach to reform, recognising the interplay between regulatory and non-regulatory barriers while resisting calls for wholesale deregulation. Notably, many areas identified for improvement concern implementation and supervisory convergence rather than wholesale legislative change. However, the acknowledgement that political agreement on the RIS has only recently been reached, and that the final legal text was not available at the time of drafting, suggests concrete regulatory changes may take some time to materialise.