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EU to set the standard on product disclosure

Providers of retail investment products across Europe will have to disclose information to investors in a standardised key information document, according to leaked proposals from the European Commission.

A leaked draft of the EC’s packaged retail investment products proposals, seen by Money Marketing, proposes making the KIDs mandatory for all regulated retail investment products across all 27 member states.

The draft says KIDs must include the nature of the product and its objective, any guarantees or capital protection, the product’s risk and reward profile and its costs, including a “summary figure” as well as “appropriate” information on the past or possible future performance of the product.

Harmonised methodology underpinning risk and calculation of costs will be set by the European Supervisory Authorities.

The draft says: “There is a risk, in the absence of uniform rules at a European level, that member states would take divergent and uncoordinated action to address shortcomings in investor protection measures, further fragmenting the single market.”

Aifa director of policy Chris Hannant says: “IFAs in the UK already have to disclose a huge amount of information. If the KID organises what is already there it would be fine but we would be concerned if it adds to it.”

Investment Management Association senior adviser for retail distribution Andy Maysey says: “This brings all other investment products in line with Ucits, which will have to provide a Key Investor Information Document from June. It enables consumers to make a fair comparison.”

The final rules will be introduced as regulation, rather than as a directive, so there will be no room for member states to make changes when transposing them into national rulebooks.

When the European Commission first consulted on Prips in November 2010, it said it wanted to make changes around product disclosure and retail sales processes.

Prips will now address just the changes to product disclosure while changes to European sales rules are being implemented through Mifid II and the insurance mediation directive II. The two directives are expected to apply the same rules to investment and life sales, although the EC’s proposals for IMD II are yet to be released.

The EC’s proposals for Mifid II include a ban on commission for independent advisers but the European parliament is looking to amend that to require all advisers to disclose commission. The European Council is yet to clarify its position on commission.

Zurich Assurance head of Government affairs for UK life Matthew Connell says the council is likely to influence the result of negotiations between the three bodies.

He says: “If the council backs the EC’s ban on commission for independent advisers, that is more likely to end up in the directive and if it backs the parliament’s proposal for disclosure then the balance tips that way.”

The FSA says it is confident it will have discretion to continue the commission ban, which will be introduced by the RDR, even if Mifid II ends up allowing disclosed commission to be retained across Europe.

The regulator negotiated a carve-out from the original Mifid on a number of issues and Connell says it is likely to get one for Mifid II but he says question marks remain.

He says: “The last Mifid carve-out was down to the commission but it is not yet clear whether the commission or ESAs will issue it.
“There is still a question mark over that and the negotiations around the fiscal compact and the UK’s veto might have hit relations to the point where this becomes political.”

Because Mifid and the IMD are directives, they must be updated with new directives, Mifid II and IMD II, which means there could be some flexibility in how the UK implements them.

In October, the European Commission proposed markets in financial instruments regulation that will apply mainly to wholesale markets but it proposes to give the European Securities and Markets Authority the power to ban products or particular financial practices on a rolling three-month basis.

The Financial Conduct Authority is set to get a power to ban products it considers a risk to consumers for up to a year.

Mifid will see Esma deciding whether action taken by the FCA is “justified and proportionate” and, if not, it will be able to overrule its decision.


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