One of the interesting developments on the horizon for 2014 is a Regulation that is currently suffering a rather bumpy passage throughout the European Parliament. The proposal for a regulation for a new key information document (KID) to be produced by investment product manufacturers and provided to retail investors when they are considering buying investment products. A key intention is to empower consumers to be able to compare the costs and fees of investment and savings products across Europe.
The proposed regulation sets out rules for a uniform format and content, and for the provision of the KID to retail investors.
The products covered by the Regulation would be capital accumulation products and marketed to retail investors. Such products can be in any form. This would then cover investment funds, insurance based investments, retail structured products and some private pension products. In particular:
- products with capital guarantees,
- investment funds, whether closed- ended or open-ended (including undertakings for collective investment in transferable securities (UCITS));
- all structured products, whatever their form;
- insurance products whose surrender values are determined indirectly by returns on the insurance companies’ own investments or even the profitability of the insurance company itself.
Auto- enrolment pensions would not be covered. This would exclude a huge number of retail investors who would benefit from knowing the effect of charges even if they have no choice in the pension provider. The definition would also probably exclude from the rules deposits, securities and insurance products which do not offer a surrender value.
UCITS would be excluded for at least five years as they currently produce a KIID – or Key Investor Information Document. However, the intention currently is to harmonise all such disclosure documents across the market.
The COLL source book, which governs how funds are regulated, gives guidance that all documentation including prospectuses, simplified prospectuses, annual reports, half yearly statements, facts sheets and any other financial promotions is directed towards investors making an investment decision. If having considered all the information the investor remains unsure about its suitability then professional advice is recommended.
KIDs must not be misleading and an investor could pursue a product manufacturer if there are incorrect statements.
In November 2013 members of the European Parliament proposed two significant changes, being in favour of implementing an online fund calculator and against capping advisor charges. The online calculator is intended to help investors understand the impact of fees and expenses on the value of their investment funds. In addition, products that a manufacturer deems unsuitable for retail investors would now display a “complex” label at the top of the key information document.
The way ahead for PRIPS is uncertain while the EU Parliament members cannot agree on the proposals before them. The EU commission’s ongoing work on the PRIPs rules is expected to be finalised later in 2014, but concerns have been raised that if this is not achieved by the European Parliamentary elections in May 2014, the directive may be entirely derailed. However, if passed, firms should have two years to prepare for its implementation.