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The near final text of the European Commission's (EC's) packaged retail investment products (PRIPs) regulation has added 'reverse burden of proof' to the previous draft and aimed responsibility for the creation of the key information document (KID) squarely at investment banks, reflecting a harder line taken by the EC on the creation of investment products by investment banks for retail investors.
The EC appears to have settled on a halfway house in the latest draft, which, subject to the level two (Member State implementation rules), defines what goes into the KID fairly broadly. The document requires that the creator must inform on the risk-reward profile, with the liability standard stated as "failure to comply with the regulation" and, it can be assumed, the level two implementation measures.
The remedy would be damages - although it is not clear whether this would be consequential damages or the full extent of the liability. The draft simply says that failure to comply with the regulation exposes the product manufacturer to "any damage caused to that retail investor".
The payment of damages to be made by the private sector, whether intentional or not, would dovetail neatly with the talk of the creation of a Europe-wide deposit insurance scheme, whereby the public sector would compensate investors for certain losses.
Of the national first movers, Germany created legislation that puts the responsibility for the creation of the KID on the product distributor. In the UCITS legislation, the responsibility for the KID has been directed at the fund manager, which makes the latest shift by the EC consistent with UCITS.
"We strongly encourage European Union institutional bodies to take as best practice those documents already being used in Member States that have a sophisticated and diversified retail product landscape, such as Germany, where product information sheets – Produktinformationsblätter – are already used", says Thomas Wulf, Brussels-based secretary general of the European Structured Investment Products Association (EUSIPA).
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