Evidence Paper confirms failings of regulation for investors
29 June 2018 Brussels
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The European Financial Management Association (EFAMA) has published an evidence paper, which confirms the failings of the regulation for investors.
The paper supports EFAMA’s assessment of the negative consequences of the Packaged Retail and Insurance-based Investment Products (PRIIPs) rules by leveraging “live” data and direct insights from its corporate members on how the regulation is currently impacting the industry.
Six months into the implementation of the new PRIIPs rules, EFAMA published the paper, which showcased the disclosures made in the PRIIP key information documents (KID).
The rules are based on “real life” data from its corporate members, and the disclosures, originally designed to enhance investors’ understanding of retail investment products, are causing serious detriment to these same investors by mandating figures, the EFAMA revealed.
According to EFAMA, performance and costs are particular regions that are suffering as a result. The disclosures made in the PRIIP KID region are at best confusing investors and at worst misleading them.
The evidence supports several of EFAMA’s findings and conclusions; for example, the new methodology for calculating transaction costs produced confusing and unreliable figures.
As a result, PRIIP KID’s new methodology forced manufacturers to make claims for products that hinder investor’s understanding of them, EFAMA cited.
Additionally, EFAMA found that looking at future performance scenarios without context will not help investors make investor decisions.
Meanwhile, further findings suggested that meaningful comparisons between similar investment products would become impossible because costs are now averaged over a product’s recommended holding period.
As a result, cost comparisons will not be possible for products with different holding periods.
Peter De Proft, EFAMA’s director general, warned: “We urgently call on the European Supervisory Authorities (ESA) and the European commission to plan an immediate targeted revision of the PRIIPs delegated regulation, well ahead of any planned formal review of the rules.”
“The clock is painfully ticking, and time is of the essence as investors are currently presented with misleading information. We believe that a level of urgency is justified and we ask the ESAs and the European Commission to take swift action in order to stop systematic misinformation of investors and avoid further consumer detriment”
He added: “We are also extremely concerned that the current legal framework is such that it will require funds to produce both a PRIIP KID and UCITS, key investor information document (KIID) simultaneously by December 2019.”
“Given the compelling evidence of the negative impact of the PRIIPs KID rules on investors, we strongly recommend that the exemption for funds producing a UCITS KIID be extended until these issues are satisfactorily resolved in the upcoming PRIIPs review”, Proft concluded.
The paper supports EFAMA’s assessment of the negative consequences of the Packaged Retail and Insurance-based Investment Products (PRIIPs) rules by leveraging “live” data and direct insights from its corporate members on how the regulation is currently impacting the industry.
Six months into the implementation of the new PRIIPs rules, EFAMA published the paper, which showcased the disclosures made in the PRIIP key information documents (KID).
The rules are based on “real life” data from its corporate members, and the disclosures, originally designed to enhance investors’ understanding of retail investment products, are causing serious detriment to these same investors by mandating figures, the EFAMA revealed.
According to EFAMA, performance and costs are particular regions that are suffering as a result. The disclosures made in the PRIIP KID region are at best confusing investors and at worst misleading them.
The evidence supports several of EFAMA’s findings and conclusions; for example, the new methodology for calculating transaction costs produced confusing and unreliable figures.
As a result, PRIIP KID’s new methodology forced manufacturers to make claims for products that hinder investor’s understanding of them, EFAMA cited.
Additionally, EFAMA found that looking at future performance scenarios without context will not help investors make investor decisions.
Meanwhile, further findings suggested that meaningful comparisons between similar investment products would become impossible because costs are now averaged over a product’s recommended holding period.
As a result, cost comparisons will not be possible for products with different holding periods.
Peter De Proft, EFAMA’s director general, warned: “We urgently call on the European Supervisory Authorities (ESA) and the European commission to plan an immediate targeted revision of the PRIIPs delegated regulation, well ahead of any planned formal review of the rules.”
“The clock is painfully ticking, and time is of the essence as investors are currently presented with misleading information. We believe that a level of urgency is justified and we ask the ESAs and the European Commission to take swift action in order to stop systematic misinformation of investors and avoid further consumer detriment”
He added: “We are also extremely concerned that the current legal framework is such that it will require funds to produce both a PRIIP KID and UCITS, key investor information document (KIID) simultaneously by December 2019.”
“Given the compelling evidence of the negative impact of the PRIIPs KID rules on investors, we strongly recommend that the exemption for funds producing a UCITS KIID be extended until these issues are satisfactorily resolved in the upcoming PRIIPs review”, Proft concluded.
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