Updated report on Commission work on packaged retail investment products
16 December 2009
The Commission Services are still considering input from stakeholders, including detailed reports from CESR, CEBS and CEIOPS. Stakeholder input has already indicated however that the Commission’s commitment in the Communication to make the legislative changes necessary to achieve a horizontal regulatory regime for PRIPs sales and pre-contractual disclosures was appropriate.
Such an approach is the most effective and efficient way of ensuring that investors receive the right measure of protection irrespective of the legal form of the investment products they are seeking to buy or the channels through which they are seeking to buy them; and that a level playing field exists between different providers and distributors of PRIPs.
Stakeholder input has also confirmed the choice of the two benchmarks identified in the Communication (MiFID for sales rules, and the UCITS KID for pre-contractual disclosures); no major issues seem to impede the wider application of these benchmarks.
The outlines of the emerging approach are also becoming clearer, allowing for some preliminary conclusions to be drawn:
Preliminary Conclusions:
An approach relying on economic criteria is almost certainly necessary. It is important that the scope captures the core market for retail investment products where risks of consumer detriment are most prominent.
The criteria outlined in the issues paper are largely sound – building the definition on three legs, each of which must be satisfied for a product to be a PRIP:
• an element of packaging;
• a product capable of meeting an investor need for capital accumulation; and
• a product that creates exposure to investment risk for the investor
Further technical work is necessary to define the precise details of the scope. Considering that measures to enable comparability between products are being sought, which would be difficult to achieve if the scope is widened too broadly, it still appears sound to rule out direct investments in simple "plain" assets ('pure' shares, 'pure' bonds, commodities, property), especially with respect to requirements on pre-contractual disclosure. Unit-linked or index-linked insurance-based investment products are clearly in scope; in addition, a strong case has yet to be made for ruling out other insurance-based investments.
Scope
Inclusion or exclusion of pensions and annuities requires further work and analysis taking into account the dependency of Disclosure framework to be applied cross-sectorally, with detailed requirements containing both common elements and tailored elements. Framework to include requirements on use of plain language, document length.
Detailed contents of disclosures need to be subject to consumer testing so that document requirements fully reflect investor needs.
Common elements to allow for comparisons to include the structure of documents, order of sections, use of plain language, and focus on key information about nature of product, its risks, potential performance and costs.
Detailed requirements will be necessary for standardisation of certain elements, including common risk, cost and performance metrics.
© European Commission
