The European Commission has published the opening remarks made by Charlie McCreevy (European Commissioner for Internal Market and Services) at the open hearing on retail investment products.

In his speech Mr McCreevy focuses on product disclosures and intermediary regulation.

In relation to improving product disclosures and point of sale regulation Mr McCreevy sets out five basic principles that should guide public policy. These are:

  • Investors need clear and accurate information which is presented in a form that they can understand. The information should cover the nature of the proposed investment, charges and the expected risks and rewards.
  • Investors need to be able to rely on distributors operating to high standards. Investment products are frequently sold on the basis of advice from financial intermediaries. In these cases, the investor needs to be confident that the distributor will only propose products that are appropriate to the investor's needs and circumstances.
  • Prospective investors need to be confident that the advice given is driven by their needs and not by the profitability of the product for the distributor.
  • Advertisements for financial products should not paint a misleading picture of the risks and likely performance of a product.
  • The respective responsibilities of product originator and distributor should be clear.

Mr McCreevy then looks at what needs to be done at an EU level. He states that the Commission has reviewed existing EU rules to see how they measure up to the above five principles. The review identified a range of areas where financial institutions appear to be operating subject to different levels of fiduciary and transparency obligations.

Mr McCreevy highlights 3 examples:

  • Product disclosures. Retail investors do not currently receive key information in a clear and accessible format. 
  • Management and disclosure of conflicts of interest. Questions have been raised about the robustness of EU rules for conflict of interest management and disclosure for intermediaries distributing unit linked life insurance products.
  • Products outside the scope of EU regulation. Certain product types, notably structured term deposits, are not currently subject to disclosure and distribution rules in European law.

Mr McCreevy states that European rules are only part of the story. Even more important is national implementation and effective enforcement.

In his conclusion Mr McCreevy states that by the end of this year he would like to be able to set out a number of steps that can be taken to improve product disclosures and point of sale recognition.

View Open hearing on retail investment products, 15 July 2008