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EC consults on Prips disclosure rules and sales practices

The European Commission has issued a consultation on its packaged retail investment products initiative, which includes new pre-contractual disclosure rules.

The Prips initiative will apply to all investment funds, whether closed ended or open ended, structured products, structured deposits, derivative instruments and unit-linked insurance contracts.

The plans include a strict new Prips format for issuing key investor information documents. The rules are benchmarked on the current key investor information document rules contained in the Ucits rules, but under Prips they will be applied to all investment products under the scope.

The consultation also lays out plans for a clampdown on investment sales practices. The EC plans to do this by adapting Mifid and via new rules under the insurance mediation directive, which were published today.

The consultation says: “Product information about investments is often weak and difficult to use, conflicts of interest bedevil the distribution of products and the regulation of the market is fragmentary and inconsistent.”

The Prips pre-contractual disclosure rules will include a requirement for investment providers to present investor information “in an appealing and consumer-friendly manner”.

The EC also expects to make changes to the Ucits framework to ensure that direct sales by Ucits fund managers are “fully subject” to Mifid sales rules.

But the consultation stops short of proposing stricter rules on how providers will disclose fee structures, saying further work is necessary to identify what information should be disclosed for different types of product.

It also stops short of proposing a common format for how funds should report performance, saying further work is necessary. It says “particular attention” will need to be paid to performance information on structured products and insurance-based investments.

The consultation is open until January 2011.

In a separate document, published today, the EC says implementing Prips will cost member states up to £466m.

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  1. As the draft rules for fee disclosure and past and future performance have not been laid down to be consulted upon (as these are the most important facts an investor needs to know) how can the consultation process work properly? Looks like the industry needs to do the work again to tell the regulator how disclosure can work.

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