06 July 2011

Steven Maijoor speaks on the European fund industry paradigm: Combining long-term investment horizons and risk profiles

Mr Maijoor outlined challenges he believes the financial services industry faces as it deals with improving investor protection in the post-crisis landscape. He also summarised several initiatives addressing certain of the most pressing issues as far as investor protection is concerned.

"In its advice to the Commission on its MiFID review in July last year, CESR specifically pointed out that the Commission could explore strengthening the right of retail (and professional) clients who trade OTC derivatives and other complex or tailor-made products (such as structured products) to request information in the form of a risk/gain profile in different market conditions prior to the transaction, as well as independent quarterly valuations of these complex products. That same CESR advice also suggested that the MiFID compliance controls around new products could be strengthened by requiring MiFID investment firms to have specific organisational requirements relating to the launch of new products and services.

CESR also addressed this issue in its technical advice to the Commission on MiFID conduct of business rules – including proposing amendments to clarify and to deliver a more graduated risk-based approach to the distinction between complex and non-complex products in the context of MiFID’s appropriateness test, including the suggestion that there was a case for considering treating structured UCITS and UCITS that employ complex portfolio management techniques as complex financial instruments for the purposes of the appropriateness test.

I think it is important to recognise that there are a number of other initiatives, at different stages of development, that will help us address some of the problems I highlighted earlier. The first one that I’d like to mention is the Key Investor Information Document for UCITS, the KIID. CESR did a huge amount of work over several years to develop technical advice to the Commission, then Level 3 guidelines, on the format and content of the KIID. The new disclosure document has become a reality for investors as of the first of July, the transposition date for the UCITS IV Directive. I am confident that the KIID will represent a major improvement in the quality of information provided to potential investors in UCITS, focusing on such key elements as risk/reward disclosures and charges. As far as selling practices are concerned, the relevant provisions of MiFID – such as the duty to treat investors fairly and avoid conflicts of interest – have been taken as a point of reference. ESMA looks forward to seeing the more detailed proposals from the Commission on the different aspects of PRIPs later this year, and of course we are ready and willing to provide any assistance necessary. Given the cross-sectoral nature of this work, we will look to cooperate closely with our counterparts at EBA and EIOPA wherever appropriate."

Full speech

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