New PRIPs rules to be released as a regulation
Legislation the European Commission is preparing for structured products is being circulated to European Union member states and will come in the form of a regulation. Richard Jory analyses the final draft document
The European Commission’s (EC) new rules on packaged retail investment products (Prips) are to be published in the form of a regulation and will be directly applicable to European Union member states, according to a final draft of the legislation that has been obtained by Structured Products. The emphasis of the regulation appears to be on retail clients, with limited applicability to private banking, notes one London-based structured products banker.
The EC published its consultation document on the legislative steps for the Prips initiative in November 2010, when rumours that the new rules would be presented in the form of a regulation first did the rounds.
The legal effect of a regulation is such that the disclosure practices for retail investment products will be interpreted horizontally, which means that the rules on Prips drawn up by the EC will be treated as on a par with or above all other relevant rules.
The EC and the European Banking Authority (EBA) and/or European Insurance and Occupational Pensions Authority (Eiopa) and/or European Securities and Markets Authority (Esma) have been charged with the task of adopting delegated acts and/or drawing up the technical implementing standards. Within that, there is an express requirement to prepare a harmonising methodology underpinning the presentation of risk and the calculation of costs, “and that will then be adopted by the Commission,” says the banker.
“Delegated powers are given to the Commission to specify the uniform presentation of information to achieve comparability across different types of investment products,” says the banker. “There is an explicit recognition that there is a difference between investment products – that is, wrappers.”
Product manufacturers get responsibility for key information document
Product manufacturers have been earmarked as the responsible parties for the key information document. “Investment product manufacturers are best placed to take on the responsibility of drawing up the Kid (key information document) for the investment products they manufacture,” states the document. “So that there is sufficient clarity in regards to the responsibility for drawing up the Kid, this regulation should place this responsibility on the investment product manufacturer.”
The regulation will lay down the “common standards on the length, presentation and style of the Kid designed to ensure its comprehensibility for the average investor and maximum level of comparability between different investment products, whilst also reflecting material differences between products,” the document continues.