You would not expect me to waste the hours it took to plough through the latest European Union legislation on packaged retail investment products by only referring to it once (last week) would you?
The joy of a document stretching to more than 50 pages is that there are multiple gems hidden within. The Eurosceptics among us may discern a glimmer of hope which could, nay should, restore our faith in the Belgian behemoth.
Recent court cases have focused on the quality of literature that product providers must offer. Anyone who has received official investment documentation will recognise the standard warning that: “if you are in any doubt as to the suitability of this investment you should seek professional advice” (usually laughably followed by directions to your bank).
That aside there is a fundamental truth hidden in this throwaway warning. Read COLL, the Collectives Sourcebook which governs how funds are regulated. The rules and guidance are explicit that all documentation, including the prospectus, simplified prospectus, annual reports, half-yearly statements, factsheets and any other financial promotions, is directed towards investors making an investment decision. Not advisers; investors.
Then it is only if, having considered all that information, the investor remains unsure about its suitability, professional advice is recommended. And if the advice gap really is widening, this distinction becomes even more significant.
Producing this material cannot be seen as some kind of regulatory version of Minesweeper in which providers write anything they want and it is up to investors (or their advisers) to deduce the location of the investment bombs.
So why have I fallen in love with Europe again?
“Key information documents must not be misleading. If a small investor could show that a loss was caused by identified information in a Kid, then the investment product manufacturer could be liable under civil law.
“Competent authorities designated by EU member states would be able to impose penalties such as suspending or prohibiting the sale of a product, issuing a public warning and administrative fines of up to 10 per cent of the investment product manufacturer’s total annual turnover or up to ¤5m (£4.1m) for individual persons.”
Liability under civil law might focus the product provider mind in a way that regulation clearly has not. Bring it on, and the sooner the better.
Gill Cardy is managing director of the IFA Centre