As anticipated, the EU Commission published a consultation on legislative steps for the packaged retail investment products (PRIPs) initiative. As previously detailed in the Front Page, problems have been identified in the EU retail investment market, such as weak and complicated product information, conflicts of interest and fragmented regulation. The EU Commission announced legislative changes to address these problems in its April 2009 communication on PRIPs.
The consultation seeks feedback on possible ways to deliver the PRIPs initiative. The consultation is divided into the following areas:
- Scope of the PRIPs initiative. The consultation defines a PRIP as a product where the amount payable to the investor is exposed to fluctuations in the market value of assets or payouts from assets, through a combination or wrapping of those assets, or other mechanisms than a direct holding. The EU Commission also discusses potential exceptions to the definition and whether it would be appropriate to develop an indicative list of products which are PRIPs.
- Legislative approach. The consultation discusses the use of an "instrument" which would require pre-contractual product disclosure targeted at PRIPs sold in the retail market. Such an instrument would apply the same broad principles as developed for the UCITS key investor information (KII) document. The EU Commission also proposes to use its reviews of the Insurance Mediation Directive (2002/92/EC) (IMD) and the Markets in Financial Instruments Directive (2004/39/EC) (MiFID) to deliver the PRIPs initiative on sales rules.
- Product disclosure. The consultation explores a PRIPs pre-contractual product disclosure regime and discusses how this should be standardised and what the contents of a disclosure document might contain.
The EU Commission has also published a consultation on its review of the IMD which should be read alongside its PRIPs consultation.
A study (dated 29 September 2010) on the costs and benefits of potential changes to distribution rules for insurance investment products and other non-MiFID PRIPs has been published alongside the consultation.
Comments on the 43 questions in the consultation are requested by 31 January 2011.