The European Commission was given a mandate by the ECOFIN in May 2007 to examine European Community law applicable to retail investment products with a view to assessing whether current investor protection standards are sufficient.
The three Level 3 Committees of European Financial Supervisors have now published a joint report, in October 2010, on packaged retail investment products (“PRIPs”). The report focuses on the following areas:
- The scope of the PRIPs regime
- Product disclosure requirements for PRIPs
- Regulation of PRIPs selling practices
On scope, agreement has been reached on the definition of a PRIP as a product where the amount payable to the investor is exposed to: (a) fluctuation in the market value of assets; or (b) payouts from assets, through a combination or wrapping of those assets, or mechanisms other than a direct holding. (However, leaving pensions and other types of annuities out of PRIPs’ scope for the time being has also been suggested.)
The report states that the PRIPs regime would be easier to enforce if regulatory competences and powers were harmonised across the EU, so that all products are subject to equivalent regimes as regards their structure and their marketing.
On product disclosure the report argues that, in principle, the concept of investor information provided through a key investor information (“KII”) document, as developed for UCITS, could usefully be applied to PRIPs. The report notes that the detail of the information that would be contained in such a document would not cover precisely the same areas as the KII template for UCITS, since some information is specific to UCITS. The report argues, however, that legal requirements on pre-contractual disclosure should be guided by common principles, supplemented where necessary by detailed requirements.
The report also considers whether there is merit in extending the MiFID client categorisation regime to PRIPs that are not currently covered by the same approach.
The Commission is now expected to publish a Consultation on PRIPs by the beginning of November 2010 and a proposal for legislation on disclosure in Q2 of 2011.