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IMA’s Julie Patterson: Euro squabbling delaying disclosure rules

The European Parliament needs to stop arguing about what qualifies as a Prip and push on with introducing the much needed key information document.

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The Prips initiative aims to ensure that all forms of Prips (packaged retail investment products) are subject to common rules on product disclosures and selling throughout Europe.

A no-brainer, surely? Unfortunately, the Commission chose to spread the draft rules across three different proposals, which we warned might lead to slightly different rules for different type of Prips. Disappointingly, it seems our concerns were under-stated.

One proposal is the introduction of a key information document for all PRIPs. It will ensure a higher level of protection for retail investors via the provision of easily accessible product information produced to common standards. The original intention was for the KID to be similar to the KIID already introduced for Ucits funds, and which was subject to extensive consumer testing before its introduction.

European Parliamentary discussions have been progressing slowly and now seem to have stalled. A proposed vote on the latest draft, which was due on the 17 September, was postponed as there was insufficient support between the parties on a compromise text.

We now understand that there may be no vote this year, which, worryingly, sounds the death toll for the proposal to be adopted in this Parliamentary term. 

Reaching a political compromise is rarely a straightforward task but this file, in particular, is suffering from disagreement on the fundamental question of which products should be in scope, together with many proposed amendments and additions as to the substance of the KID, which would result in the original concept being largely lost. 

Prips such as personal pensions may be taken out, and the powerful European insurance lobby is trying to get pretty much all insurance investment products out, too. On the other hand, some are proposing that all types of ordinary shares and corporate bonds should be in.

So, we will have a very small number of Prips that are Prips, many Prips that are not Prips, and non-Prips that are Prips. Confused?  Me, too.

All forms of savings and investments should have proper and effective disclosure but the same parliamentary committee that seems likely to remove many Prips from scope is arguing to put even more non-Prips in.

Moreover, this same committee debated not long ago a Commission proposal to improve the “simplified prospectus” for listed shares and bonds (the broad equivalent of the KID) and, in our view, weakened a number of the proposed requirements. 

Plus there are two other proposals covered under MiFID and IMD, looking at inducements, which are also heading in opposite directions – but I’ll return to that another time.

In the interest of ordinary retail investors the KID should be introduced as quickly as possible. It could still be voted on in this parliament and we urge all MEPs to ensure this happens.

We should not allow the important aim of this document to be lost. Let us all get on with producing a Prip KID for all Prips and use the important review clause in the regulation to allow for the debate on the future of the UCITS KIID and the simplified prospectus for listed share and bonds not to be rushed.

Julie Patterson is director of regulatory affairs, retail and funds at the Investment Management Association

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