Political and regulatory news
Issue 3 - 22 July 2010
Europe seeks harmonised investment product distribution
The European Commission wants to introduce a harmonised regime for the distribution of ‘packaged retail investment products’.
The distribution of retail investment products has been a key focus for the FSA in recent years. This activity will culminate in the introduction of a new regime for the provision of investment advice in 2012 (see previous article). Europe is also now making moves in this area.
The Commission is concerned about regulatory gaps and inconsistencies in the regulation of the distribution of investment products across Member States. It now wants to introduce a harmonised regime for distributing retail investment products across Europe to increase investor protection and confidence. It has identified ‘packaged retail investment products’ or PRIPs as a priority. PRIPs include investment funds, insurance-based investment products, retail structured securities and structured term deposits. The precise scope is still subject to refinement but will encompass investment companies.
The Commission is looking at two general areas as priorities for reform. These are: standardising pre-sale disclosures and enhancing delivery of information to consumers before they make a purchase. The policy seeks to improve transparency, ensure retail investors receive a full explanation of the investment proposition and create a better alignment between product sales and investor interests.
Under current proposals, all PRIPs would have to produce a key information document or KID which would set out product features in a standardised format. This would be a short document and cover all information relevant to making an informed investment decision (including performance, risks and cost). It is intended to be a plain language text which incorporates a common format to enable better comparison between products. The intention is that this would be produced by the product provider and distributed by advisors.
Consideration of this regime is at a relatively early stage and a full consultation is expected later in the year. However, the Commission appreciates that there needs to be recognition of the different characteristics which exist across the PRIPs spectrum and that rules will have to be tailored accordingly. The AIC is engaged with this agenda and is keen to ensure that any new regulatory burdens introduced are proportionate. Our key concerns are that the unique features of the investment company structure should be recognised. This will mean the rules recognising the existing obligations companies are already subject to. It is also adamant that any new proposal should not undermine execution-only sales, which are particularly significant for the investment company sector.
This initiative represents another aspect of the increased regulatory and political attention being paid to the financial services sector. While additional compliance burdens are impossible to escape, the priority will be to make sure that they are as proportionate as possible and, where possible, provide real value for investors and product providers.
To view the European Commission’s communication on Packaged Retail Investment Products (April 2009), please click here.
To view the European Commission’s latest update on Packaged Retail Investment Products (December 2009), please click here.
Next article: Coalition to overhaul UK financial regulation
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