EuroFinuse Response to Sven Giegold MEP Call for Input on UCITS, PRIPs and IMD Legislation
18 October 2012
The European Federation of Financial Services Users (EuroFinuse) responded to the questions specifically raised in the call from Sven Giegold MEP for comments and insights of professionals and stakeholders on the EU's UCITS, PRIPs and IMD legislation.
Before addressing the questions specifically raised by MEP Giegold, EuroFinuse made some general comments related to its experience with the aforementioned legislations:
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As stated in EuroFinuse's Position to the Consultation on legislative steps on PRIPs from the European Commission, EuroFinuse believes in the “horizontal” approach used for the PRIPs legislation, e.g. harmonising selling practices between a wide range of products;
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However, EuroFinuse believes that the PRIPs Regulation has too narrow a scope. EuroFinuse believes that all investment products in the retail point of sale should be included.
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In the same line, EuroFinuse definitely believes in standardised pre-contractual informative documents as considered in the UCITS Directive (the KIIDs or Key Investor Information Documents), and regrets that KIIDs have not been applied horizontally to all kinds of retail financial products;
EuroFinuse responded to the issues on which MEP Giegold was requesting specific input:
1. Remuneration of asset managers (UCITS V)
EuroFinuse has previously tacked the issue of the remuneration of on its Response to the European Commission's Green Paper on corporate governance in financial institutions and remuneration policies. More specifically, EuroFinuse considers that due to the long-term investment horizon that UCITS funds managers have to consider, their remuneration packages should include this long-term perspective as well.
A specific issue EuroFinuse would like to point out is that commissions from depositories or custodians to asset managers on transaction fees, which are relatively common in EU Member States such as France, should be forbidden.
2. Insights of professionals concerning sales commissions in insurance mediation (IMD II)
Although EuroFinuse is obviously not “professional” or belonging to the industry, it pointed out certain specific issues concerning sales commissions in insurance mediation.
In EuroFinuse's view, inducements in insurance products are even more widespread and more damaging to the interests of the end-user than for MiFID-covered products (i.e. securities and funds). EuroFinuse would like to draw the attention on the three main problems linked to this kind of products, especially for unit-linked insurance products:
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the existence of at least two layers of fees (instead of usually one for funds, except funds of funds);
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usually total consolidated fees (insurance contract fees + fees of the underlying “units”- most often funds) are almost never disclosed;
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the existence of at least two levels of inducements (on the insurance contract fees plus on the underlying units’ fees which explains why these are one of the most attractive product for insurance brokers, agents, etc. and why tied sales are so widespread: one can subscribe a straight life insurance contract with an attractive guaranteed interest rate for the first year provided he invests at least 20 per cent of the amount into a unit-linked contract (where typically he bears all the financial risks and where the broker is making much more money than on the straight life insurance part). This is a very widespread sales practice, for example in France, where life insurance is by far the number one retail investment product.If necessary, we would be willing to provide further evidence related to the aforementioned points.
3. Loopholes and flaws in the proposal for PRIPs
Unfortunately and contrary to the initial EC goal, the PRIPs Regulation proposal regards only pre-contractual information and not sales practices. Those will still be different according to the retail product although they are substitutable and can be sold by the same intermediaries: securities and funds will follow MiFID rules, insurance products IMD rules, etc. (certainly not IORP up to now) for non-mandatory so-called “occupational” pension products.
Regarding specifically pre-contractual information, EuroFinuse believes that the main loopholes in the proposal for a PRIPs Regulation mainly come from the restricted scope as considered by the European Commission. In general, EuroFinuse is very concerned that very ample and relevant categories of retail investment products are left outside the scope of the Regulation. This does not achieve the EC stated goal of consistent investor protection rules whatever the substitutable product. It also causes the risk to lead to massive regulatory arbitrage by the
financial industry.
In particular, EuroFinuse rejects the exclusion of the following categories of products from the scope (article 2 of the EC proposal):
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First of all, non-mandatory occupational pension products covered by Directive 2003/41/EC and Directive 2009/138/EC (e.g. occupational pensions arranged between the employer and the employee, either individually or collectively) can be considered as the biggest loophole in the Proposal for a PRIPs Regulation from the European Commission, according Article 2 e) of the proposal for PRIPs Regulation.
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Most surprisingly, this approach is inconsistent with the EC Green Paper on retail financial services (2007), which rightly recognised the need for pension savings products to be the most transparent of all due to their long term and critical nature: “Due to the nature of long-term savings and pension plans, particular care is needed to ensure that consumers are being offered products that are really adapted to their needs and marketed appropriately. These are major, once in a lifetime, financial decisions for consumers. Therefore, consumers must be in a position to make their choices in full knowledge of the product, correctly assessing their circumstances and needs”. Strangely and sadly enough, five years afterwards, the EC is now doing exactly the contrary by excluding part of long term savings products from the scope of the PRIPs Regulation, and also from the scope of harmonised sales practices provisions.
© EuroFinuse
