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‘Prips clampdown will add to complexity and could conflict with RDR’

Aifa has warned that a European regulatory clampdown on packaged retail investment products will introduce unneeded complexity to the market.

It says the European Commission’s Prips rules may be appropriate for other European states but they are not appropriate for UK IFAs who will be working under new RDR rules.

The EC last week issued a consultation on Prips, including new pre-contractual disclosure rules, which closes in January.

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

The pre-contractual disclosure rules will bring in strict Ucits-style disclosure rules for key investor information documents issued by all funds under the scope of Prips.

The consultation stated that Prips will reform product sales practices, with the EC set to adapt Mifid in a forthcoming consultation and via new rules under the insurance mediation directive, also published last week.

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

The consultation stopped short of launching new rules on how fund fee structures and performance are disclosed, saying that more work is required.

Aifa director of policy Andrew Strange says full disclosure in key investor information documents could conflict with the RDR. He says: “After the RDR, this would be at best incredibly complex, with the varying models and methods of charging for financial advice. It would also be unclear how an adviser would be able to offer advice on a product where a provider cannot acc-ommodate an adviser charge or fee within the document.”

Fidelity Investment Managers says the Prips plans do not go far enough and calls for a single EC framework for financial services products.

Chief executive and president (Europe) Robert Higginbotham says: “Consumer protection in European financial services has grown up as a patchwork of different regulations with different characteristics. The rules are no longer fit for purpose.”

The Investment Management Association says the initiative should enable consumers to make informed choices and urges the EC to ensure all products, including structured deposits, fall under the scope of Prips.

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