RegulationFeb 12 2014

EU Prips rules: A level playing field for retail investors

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      The pendulum toward far greater protection of retail financial investors swung even further late last year after the EU parliament’s first reading and the amendments proposed by the committee on economic and monetary affairs with respect to the EU Commission’s proposal for a regulation on packaged retail investment products (Prips).

      The Prips regulation – initially proposed in July 2012 – requires all entities producing Prips to draw up a key information document (KID) and addresses only retail investor pre-contractual disclosure. It does not address other rights or obligations of product manufacturers, persons selling investment products or investors where a EU directive might be the appropriate legal form.

      This regulation based the movement on the KID in large part on the similar KID currently provided for Ucits funds.

      In addition, the EU proposal contains general criteria regarding the form of the KID as well as a list of mandatory information that each KID must contain. The KID should be easily understandable by the average retail investor, and must therefore be written in a concise manner and in non-technical language; provide information that is fair, clear and not misleading; and be clearly distinguishable from any marketing document.

      It should be a separate document allowing the investor to understand the key features and risks of retail investment products, without the need for the investor to read any other documents to understand the main characteristics of the products and to take informed investment decisions.

      The aim of the Prips Regulation is twofold:

      - to increase the transparency and comparability of complex products subscribed by retail investors through the definition of a standardised document

      - to establish homogeneous information conditions for investment products aimed at the retail market.

      Provisions

      The Prips regulation expects to do this by creating a level playing field between different products at national level through directly applicable provisions that do not require member states to take further measures.

      Indeed, divergent national approaches have led to different levels of investor protection, depending on the legal form of the product and distribution channel as well as increased costs and uncertainties for product providers and distributors. For this reason, the EU Commission’s objective is to seek a level of protection that does not change depending on the legal form of the product or distribution channel.

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