ESMA's Retail Investor Journey Report: What It Means for Compliance Teams

ESMA's Report on the Call for Evidence on the retail investor journey is not a rule change. It is not a consultation paper. But for anyone working in compliance at an EU-regulated investment firm, it may be one of the most useful regulatory documents published this year. It tells you where the framework is going before it gets there.

The report (reference ESMA35-243228190-7410) summarises the feedback ESMA received from 96 respondents, including investment firms, trade associations, consumer organisations, and the Securities and Markets Stakeholder Group (SMSG). It covers the full breadth of the retail investor experience under MiFID II: from onboarding and disclosures to suitability assessments, sustainability preferences, appropriateness tests, and marketing practices.

The feedback is extensive and at times contradictory, with industry and consumer groups pulling in different directions on several issues. But the most important part of the report is not the feedback itself. It is Section 4, where ESMA sets out its planned follow-up actions. That section is, in effect, a regulatory roadmap.

This article walks through the key themes and what they mean in practice for compliance teams, particularly those working at Cyprus Investment Firms (CIFs) and other MiFID-regulated entities.

1. Disclosure overload is officially on the agenda

One of the clearest signals from the report is that ESMA recognises the current disclosure framework is not working as intended. Respondents across the board, from both industry and consumer sides, agreed that retail investors are overwhelmed by the volume, complexity, and fragmentation of information they receive.

Some firms reported sending clients pre-contractual information packages of 50 to 100 pages, basic information brochures of 200 pages, and product-specific sales materials exceeding 70 pages per product. The report notes that in online environments, only 1 to 10% of clients actually open Key Information Documents.

ESMA's planned response is significant. The regulator intends to push for layered, digital-first disclosures, meaning a simple top layer with the most important information and detailed breakdowns available in deeper layers. It also wants to reduce duplication between MiFID, PRIIPs, and UCITS disclosure requirements, and to calibrate periodic reporting so that quarterly statements are only sent to clients who do not have access to near real-time portfolio information online.

What this means in practice: Firms that have built their disclosure processes around producing long, PDF-heavy documents may need to rethink their approach. The direction of travel is toward shorter, layered, mobile-friendly formats. Compliance teams should begin reviewing their current disclosure architecture now, even before formal rule changes, because the supervisory expectation is shifting toward substance over volume.

2. Suitability assessments: less friction, same protection

The suitability assessment remains broadly supported as a cornerstone of investor protection. But nearly every category of respondent acknowledged that the current process involves significant administrative burden for firms and can feel onerous or intrusive to clients.

A recurring concern was around periodic updates. Firms noted that requiring a full re-collection of client information is not useful when the client's circumstances and portfolio have not materially changed. The SMSG explicitly supported a more proportionate, event-driven model, where client profiles are refreshed only when the firm detects a significant change or the client requests one, with a simple periodic confirmation otherwise.

Several respondents, from both industry and consumer sides, proposed introducing a simplified suitability regime for simple, lower-risk products, operating alongside the full regime. Under such an approach, the assessment could focus more on client needs and objectives and require less granular detail on the client's broader financial circumstances.

ESMA's follow-up actions confirm this direction. The regulator plans to streamline the collection and updating of client information, explore further proportionality for simpler products, and promote the wider use of digital tools such as conditional questioning and pre-populated data fields within MiFID II's technology-neutral framework.

What this means in practice: If your firm still runs a one-size-fits-all suitability process, whether the client is investing in a diversified ETF or a complex structured product, that approach is likely to come under increasing scrutiny. The expectation is moving toward proportionality: lighter processes for simpler products, full rigour where it matters. Begin documenting how your current workflows could accommodate tiered approaches.

3. Sustainability preferences: a framework that even advisers struggle with

The report is remarkably candid about the state of sustainability preference collection under MiFID II. Stakeholders widely agreed that the current framework is too complex for both clients and advisers. Some respondents noted that over 80% of their clients state they have no sustainability preference at all. The SMSG observed that concepts such as taxonomy alignment, principal adverse impacts, and references to SFDR Articles 8 and 9 are difficult not only for investors but also for the advisers who are supposed to explain them.

Consumer associations reported that retail investors struggle to articulate their ESG priorities in the way the legislation requires. On the industry side, a recurring frustration was the sequencing rule: firms cannot present their sustainability product offering until after the client has finalised their preferences, which can lead to situations where stated preferences do not match available products, and the resulting need to revisit and adjust those preferences discourages engagement entirely.

ESMA plans a significant simplification of the definition of sustainability preferences, aiming to link them to clearer product categories under the forthcoming SFDR review. The regulator also intends to reduce operational complexity across the full cycle of collecting, adapting, and updating client sustainability preferences.

What this means in practice: If your firm has been investing heavily in complex sustainability preference questionnaires, be aware that the framework is likely to change substantially. The direction is toward simplification and alignment with revised SFDR product categories. In the interim, focus on training your advisers to have plain-language conversations about sustainability rather than relying solely on technical questionnaire design.

4. Gamification, finfluencers, and digital distribution practices

A theme that runs through several sections of the report is the impact of digital distribution on investor behaviour, particularly among younger investors. Respondents identified high return expectations, social media influence, gamification features, and the low explicit costs offered by neobrokers as key drivers of speculative behaviour.

ESMA specifically flags gamification features, finfluencer marketing, and aggressive digital design as practices that can amplify risk-taking without a corresponding increase in understanding. The report references design choices that optimise for engagement rather than informed consent, the opacity of algorithms used in digital distribution, and challenges around cross-border supervision of mobile-first investor journeys.

ESMA's response is to strengthen monitoring and oversight of emerging social media channels and affiliate marketing models, including through financial education initiatives and supervisory convergence activities. The regulator has already published a factsheet on finfluencers jointly with national competent authorities and appears to be treating this as an area of increasing priority.

Why this matters for Cyprus firms: Cyprus has a significant concentration of investment firms that operate primarily through digital channels and serve cross-border retail clients. The supervisory attention on gamification, dark patterns, and social media marketing is directly relevant to firms with app-based distribution models, affiliate marketing programmes, or any engagement with financial influencers. If your firm uses any of these practices, an internal review against the direction ESMA is signalling would be prudent.

5. AML/CFT: not a major barrier, but consistency matters

The AML/CFT section of the report offers a somewhat reassuring picture. A broad group of respondents, including the SMSG, indicated that customer due diligence measures do not pose significant barriers to retail investors. This is a useful data point for compliance officers who sometimes worry that onboarding requirements are driving potential clients away.

That said, the report does identify two friction points. First, firms apply AML/CFT requirements inconsistently, leading to clients being asked to provide the same information multiple times. Second, firms often do a poor job of explaining to clients why they need to provide certain information and how to do so.

The proposed solutions are harmonisation of AML/CFT standards across Member States to reduce duplication, and better communication with clients about the purpose and mechanics of due diligence requests.

What this means in practice: The main takeaway for compliance teams is that the onboarding process itself is not the problem. The problem is inconsistency and poor communication. If your firm can explain clearly why it needs the information it is collecting, and avoid asking for the same data repeatedly, the CDD process should not be a barrier to client acquisition.

6. The broader picture: what stakeholders disagree on

One of the most revealing aspects of the report is the tension between industry and consumer responses on fundamental questions.

Consumer associations emphasised lack of trust, high fees, and lack of product comparability as the primary barriers to retail participation. Industry respondents pointed to regulatory burden, low financial literacy, and cultural factors such as a preference for bank deposits. Where industry respondents saw the obstacles as lying outside their own practices, consumer associations argued that the practices themselves, particularly inducement-based distribution models, are part of the problem.

On the role of financial advisers, industry stressed that the inducement-based regime ensures broad access to advice and should be preserved. Consumer groups argued that independent, fee-based advice free from sales-driven incentives is essential for restoring trust. Both sides, along with the SMSG, agreed on the need for better adviser training and qualifications.

These tensions are not resolved in the report, and they are unlikely to be resolved quickly. But they set the stage for the policy debates that will follow the Retail Investment Strategy, and compliance professionals should be aware of where the pressure points are.

7. ESMA's follow-up actions: the summary

The full list of follow-up actions ESMA has signalled is extensive. Here are the key commitments, organised by theme:

Disclosures: Clearer cost and charges presentation, streamlined overlaps between MiFID/PRIIPs/UCITS, calibrated periodic reporting, digital-first approach for firm policies, and best practices on information layering in mobile environments.

Suitability and Appropriateness: Streamlined information collection and updates, further proportionality for simpler products, wider use of digital questionnaires and tools, elimination of perceived barriers to digital processes.

Sustainability: Significant simplification of sustainability preference definitions, reduced operational complexity in the collection and adaptation cycle, alignment with revised SFDR product categories.

Digital Practices: Increased monitoring of social media channels and affiliate marketing, supervisory convergence activities, financial education initiatives addressing digital distribution risks. ESMA also commits to consumer testing exercises to validate disclosure and design changes before implementation.

8. Timing: when will this happen?

ESMA has been clear that it will wait for the Retail Investment Strategy to be finalised before moving on Level 2 technical advice and Level 3 guidelines. At the time of drafting the report, the final legal text of the RIS was not yet available, though political agreement had been reached.

This means the specific rule changes will follow once the RIS is concluded and the Commission issues its mandates. But the supervisory expectations are shifting now. ESMA's closing paragraphs make this point explicitly: national competent authorities should ensure that firms do not engage in a purely formalistic or box-ticking application of requirements. A lengthy, technical disclosure where a short disclosure in plain language would suffice does not meet the standard.

The message to compliance teams is that waiting for the final rules to arrive before making changes is not necessarily the right strategy. The direction is clear enough to begin preparing.

Source reference

Document: Report on Call for Evidence — On the retail investor journey: understanding retail participation in capital markets
Reference: ESMA35-243228190-7410
Published: 12 March 2026
Call for Evidence period: 21 May 2025 to 21 July 2025
Respondents: 96 (15 confidential)
Pages: 33

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This article is for educational and informational purposes only and does not constitute legal or regulatory advice. The analysis is based on ESMA's published report (ESMA35-243228190-7410, 12 March 2026). The follow-up actions described are ESMA's stated intentions and are subject to the final legislative outcome of the Retail Investment Strategy and any related mandates from the European Commission.