The European Union’s top financial supervisory bodies have told the European Commission to move towards a clearer and more effective framework for informing retail clients about costs and potential risks their run with investments, and told it to better integrate sustainability objectives into requirements for informing consumers.
The rules, applicable to key information documents, or KIDs, for packaged retail and insurance-based investment products, known as Priips, should be adjusted to the digital era, become more flexible and should better take into account sustainability and impact aspects, said the European supervisory authorities - EBA, EIOPA and ESMA - in their proposal.
“Supervisory experiences have shown that improvements are needed to ensure that the information provided is engaging to consumers, as well as to keep pace with developments such as digitalisation and insights from behavioural research,” said Petra Hielkema, Chair of EIOPA and the current Chair of the Joint Committee of the ESAs.
‘Much simpler and more user-friendly’
The ESA’s tabled recommendations on a range of issues where analysis has shown that changes are needed to achieve optimal outcomes for retail investors. In particular, the ESAs are of the opinion that the KID would prove more useful to retail investors if presented in a much simpler and more user-friendly format.
“This is an opportunity to reflect on the approach to the KID and we think the ESAs’ advice can be an important step towards a substantive review of the PRIIPs rules,” Hielkema said.
From Luxembourg, home to some 15.000 investment funds many of which are subject to EU requirements for informing retail clients, the Association of the Luxembourg Fund Industry, or Alfi, in December responded to the ESA’s call for evidence. Among others, Alfi noted contradictions in requirements between different EU regulations such as Mifid and the Insurance Distribution Directive (IDD) , especially when it comes to informing investors about product costs.
Alfi asked for guidance on ESG and impact reporting
Alfi also said the industry needed more guidance from the EU authorities on how to include information on environmental and social impact of investment products in the information documents.
The European Union considers Priips as a core aspect of the retail investment market. They are investment products that banks typically offer to consumers, for example, when they want to save for a specific objective such as a house purchase or for a child’s education. PRIIPs cover a range of investment products which, taken together, make up a market in Europe worth up to 10 trillion euro.
Despite their potential benefits for retail investors, PRIIPs are often complicated and lacking in transparency. The information which institutions make available to investors when selling these products can be overly complex. EU supervisors and consumer advocates believe that these info documents often contain too much jargon and can be difficult to use for comparisons between different investment products.
‘Appropriate consumer testing’
In their technical advice to the European Commission on the review of the PRIIPs Regulation, the ESAs recommend significant changes to the PRIIPs Regulation and encourage the commission to consider a broad review of the PRIIPs framework as well as to undertake appropriate consumer testing before formulating proposals for changes.
The recommended changes aim to improve the presentation of information provided to consumers and to make it easier for them to compare different products, the ESAs said.
The advice addresses all the issues requested by the Commission, including how to better adapt the key information documents to the digital age.
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