Brussels, 09/05/2012 (Agence Europe) - The European Commission is putting the finishing touches to draft legislation, due to be published this month or next, to increase protection for retail financial investment purchasers. The Commission will be unveiling a retail investment product regulation to introduce EU rules for the format of pre-sale information to be given to potential retail investors. Two other items of legislation will cover updating directives on how agents are paid, the liability of depositors, penalties, and insurance intermediaries (an impact assessment on the latter is still being carried out at the Commission).
In the draft legislation put out to consultation within the Commission a few weeks ago and which this newsletter has seen, the Commission says that the 2008 financial crisis showed that retail investors had lost money on investments, the risks of which had been hidden and not understood by the investors. Based on the financial product information system introduced in 2009 (see EUROPE 9817), the Commission says that all retail investors in Europe should be given brief, comparable and standard information in key documents for any kind of product in which they may be considering investment. The Commission, aware of industry fears about the extra costs involved in producing such documents, says they should be seen as an opportunity to communicate efficiently with potential investors.
Scope of application. The common characteristic of the retail products covered by the draft legislation is to build up capital. They are sold to individuals directly by their creator or by means of an intermediary. The draft legislation will cover products with capital guarantees and those where, in addition to capital, a proportion of the return is also guaranteed; investment funds, whether open-ended or closed-ended, including UCITS; all structured products; insurance products such as life insurance used as capital accumulation vehicles for pension planning; and derivatives. The legislation will not cover products where the exact rate of return is guaranteed in advance for the entire life of the product; plain shares and bonds; and unstructured deposits (i.e. those with a pre-determined interest rate).
The responsibility for producing the key information document will rest with the product manufacturer or anyone providing a product to retail investors if the seller makes material changes to an existing investment product. The information must be in a non-technical language and provide the details needed by the investor to clearly assess the product in question, its aims, the risks involved, the potential gains, past performance and forecast future performance. Other information might be required for products specifically designed for pension planning. The timing of the provision of such documents is crucial, explains the Commission, which is suggesting a degree of flexibility depending on exactly how the product is sold - details that will be set out in an application directive. In the event of misleading, inaccurate or incomplete information, the civil liability will rest with the company responsible for drawing up the standardised documents and investors will be entitled to withdraw. It will be the member states who will have the responsibility of ensuring that the new rules are respected, but penalties are included in the EU rules to ensure that infringements of the rules are dealt with in an equivalent manner across the EU. (MB/transl.fl)