The Investment Management Association is warning that the EU risks “complete confusion” as it enters final negotiations on tough new disclosure rules.
The Council of Ministers, European Commission and European Parliament have agreed their positions and will enter trialogue negotiations over new rules for packaged retail investment products.
MEPs are pushing to introduce a “complexity label” for certain products to stop them being targeted at retail investors. But the EC and Council of Ministers oppose the measure, saying the label could put consumers off buying appropriate products.
The proposed label would need to be clearly visible and state: “Complexity label: This product is considered to be very complex and may not be appropriate for all retail investors.”
The label would be applied if certain conditions are met, such as if its risk-reward profile is overly complicated or if retail investors do not normally invest in the assets.
It would also apply if there are a number of ways to calculate returns, or if returns depend on teaser rates or other limited offers.
Products would also need a complexity badge if the global exposure, measured by its monthly value at risk, is above 20 per cent.
The IMA says there are differing definitions of complexity under other EU rules such as Mifid. It warns that advisers and providers could end up providing contradictory disclosure documents.
IMA director of regulatory affairs, retail and funds Julie Patterson says: “You could have complete confusion.
“We cannot have different definitions because which one do you use?”
With European parliamentary elections planned for next May, negotiations must be complete by March or it will fall into the next Parliament.
Murphy Wealth associate partner Adrian Murphy says: “It is a nightmare for us and clients already so more information is not the way to go.”