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European Commission to ramp up protection on investment products

The European Commission has committed to improving investor protection for core investment products bought by retail investors.

Its proposals focus on product disclosures and sales processes for all packaged retail investment products such as investment funds, insurance-based investments and the various types of structured products.

The EC say inconsistencies in existing standards can be detrimental to investors and can lead to competitive distortions in the retail investment market.

The Commission’s conclusions, set out in a communication on packaged retail investment products, are that product information requirements and rules on product sales need to be improved and made more coherent.

The Commission says it will now begin work on the detailed legislative proposals required for a new horizontal legislative approach and will provide an orientation on the work by the end of 2009.

Internal market and services commissioner Charlie McCreevy says: “The financial crisis has underlined once again how important it is that retail investors are able to make informed investment decisions. It is vital that investors receive information they can trust and understand about the investments they make, and that those selling investments always treat investors fairly and focus on their needs.

“The ambitious programme of work we have announced today is designed to take us a good way towards this goal, by ensuring that information about and sales of packaged retail investment products are regulated to high and consistent standards.”

City law firm CMS Cameron McKenna partner Paul Edmondson says: “FSA’s retail distribution review has already had to abandon reforms because they breached EU law. Today’s announcement from the EU on retail investments shows that Europe is taking over the policy agenda in this sector. What, one wonders, will be left for FSA in its next RDR consultation due in the summer?

“The EU has finally woken up to the point that in the retail sector it was crazy for Mifid to impose European rules on sales of some packaged products but not on insurance wrapped products such investment linked and with profits policies.”

IMA chief executive Richard Saunders says: “I am delighted to see today’s announcement from the Commission that the consumer protection playing field between the lightly regulated structured products on the one hand, and funds is to be levelled. IMA has been calling for this for a long time and this response is most welcome.”

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