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The European Parliament today endorsed the outcome of the inter-institutional trilogue of 1 April and voted in a new pre-contractual information document for retail consumers. This document will have to be given to all retail consumers before they buy an investment product offered to them by a bank, an insurance company or an investment fund. The new information document will have to indicate what the product invests in, what its risks and potential rewards are and what total costs will come the consumers' way in the course of the product's life cycle.
The new information document will cover a wide range of investment products that retail consumers can buy through banks, financial intermediaries and on the internet. The document will explain the essential features of structured products offered by banks, insurance-based investments (including unit-linked and 'with-profit' products) and investment funds.
The new information document will enable retail investors to compare products and make a more informed investment choice. The document addresses the fact that consumers often cannot make sense of the multiple and confusing products offered by the financial sector. The document is designed in a user-friendly format that aims to facilitate a true and fair comparison of a product's risks and costs. To allow comparisons to be made, the financial sector will also be required to specify whether products provide for guarantees covering the invested capital or whether all the invested capital is permanently 'at risk'.
However, a Key Information Document (KID) has only to be produced when the products are to be sold to retail investors: this is not a document for professional investors. Occupational pension schemes, pension products for which the employer is required by law to contribute financially and where the employee has no choice as to the pension provider, do not need the document.
Comments
Internal Market and Services Commissioner Michel Barnier said: "Too often, retail investors are caught out because the financial industry sells them products they neither understand nor need. European consumers need to know in simple language what they are investing in, and what the risks are. In line with the Commission’s original proposal, Parliament has agreed that all investment products offered to retail investors must have a basic information document to help consumers make the right choice. This measure is essential to restore consumers' confidence in the financial sector. I want to thank the European Parliament, particularly the rapporteur, Pervenche Beres, and the shadow rapporteurs for their work on this proposal."
Next steps
After the European Parliament's vote, the proposal will be formally adopted by the Council before publication in the EU Official Journal.