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Financial services (PRIIPs): European Parliament’s veto brings more transparency for investors


Today, the European Commission has adopted a revised set of rules to implement the so called PRIIPs regulation (“Regulation on Key Information Documents for Packaged Retail and Insurance-based Investment Products”) which aims at improving the information on complex retail investment products for consumers. Members of the European Parliament are currently working in cooperation with the European Commission and the European Supervisory Authorities (ESAs) on the implementation of a key pillar of the EU financial market reforms: an easily understandable stand alone document which aims at providing important information for investors on packaged retail investment products (such as investment funds or life insurances) under the so called PRIIPs regulation.

Last September the European Parliament rejected the key set of detailed rules to implement the PRIIPs regulation. Key reason for this rejection: The originally proposed future return projections for PRIIPs products had been based on a methodology, which would lead unacceptably often to over optimistic outcomes, thereby misleading consumers. Moreover, the European Parliament had criticised the lack of guidance for implementation of a “comprehension alert” for specifically risky products in the original proposals. Through its rejection the European Parliament issued a mandate to the Commission to review its original proposals.

In its subsequent review as published today, the Commission taken into account in account these key concerns of the European Parliament. The Commission now proposes to introduce an additional and obligatory “stress scenario”, which projects outcomes under extreme but plausible market conditions. Thereby, consumers would be provided with a clearer picture of what could happen to their investment, if strongly negative economic conditions materialise. Furthermore, the Commission now proposes a methodological basis, which allows to include comprehension alerts on a common European basis, thereby providing a signal for retail investors that they would invest their money in a product that is hard to understand. In order to allow for a proper implementation of these reviewed rules, the application date of the PRIIPs regulation has been extended to 31 December 2017.
MEP Sven Giegold, financial and economic policy spokesperson of the Greens/EFA group commented:

“Today’s adoption is a success for consumer protection. The revised rules will provide a clearer picture to consumers about the risks and benefits of complex retail investment products. Instead of being mislead by over optimistic future return projections, an additional critical outlook (“stress scenario”) will strike a sensible balance of information on gains and losses without overloading retail investors with information.

Moreover, the rules provide a solid basis for improving transparency among the vast selection of retail investment products: the short “comprehension alert” can effectively flag to retail investors that certain products are particularly complex.

Today’s adoption also reveals the strength of the European Parliament as a legislator of implementation rules. Many interest groups and especially the insurance industry have tried to use this review process to promote their inappropriate special interests. Also all lobbying failed to introduce “past performance senarios” which are prone to mislead investors as the past is a bad indicator for predicting the future. However, through good cooperation, the negotiators from the Commission and European Parliament stood firm and did not fall for these special interest voices. It is now time to fast track the new rules through an early non objection decision by the Parliament.

The work on the review of the implementation rules between European Parliament and Commission has revealed a strong commitment on all sides to make an effective contribution to put the PRIIPs regulation in practice. Both parties should now build on this spirit for a swift and effective work on the implementation for the information disclosure on ecological, social and governance objectives for PRIIPs products.”

 

Please find the documents of the revised PRIIPS RTS here:

http://www.sven-giegold.de/wp-content/uploads/2017/03/C_2017_1473_1_COMMISSION_DELEGATED_REGULATION_EN_V2_P1_880588.pdf

http://www.sven-giegold.de/wp-content/uploads/2017/03/C_2017_1473_1_ANNEX_EN_V2_P1_880612.pdf

 

Please find the resolution which states the reasons for the European Parliament’s objection to the original implementation rules proposed by the European Commission (from 14 September 2014), here:

http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//NONSGML+TA+P8-TA-2016-0347+0+DOC+PDF+V0//EN

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