EC Proposes Consumer Friendly Investment Standards
04 July 2012 (PLANSPONSOREurope.com) – European plansponsors could soon benefit from greater help in communicating the benefits of paying into defined contribution plans due to proposed EC rules on greater transparency around investment solutions including pension products.
Yesterday the European Commission presented a legislative package that aims to raise standards and removes loopholes for the benefit of consumers around investment products. The package proposes new, consumer-friendly standards for information about investments, raises standards for advice, and tightens certain rules on investment funds to ensure their safety.
The proposals include the introduction of a new standard for product information called the 'Key Information Document' (KID). The proposal will mean every manufacturer of investment products (e.g. investment fund managers, insurers, banks) will have to produce such a document for each investment product.
Each KID will provide information on the product's main features, as well as the risks and costs associated with the investment in that product. Information on risks will be as straight-forward and comparable as possible, without over-simplifying often complex products. The KID will also make clear to every consumer whether or not they could lose money with a certain product and how complex the product is.
The Commission adds KIDs will follow a common standard as regards structure, content, and presentation. In this way, consumers will be able to use the document to compare different investment products and ultimately choose the product that best suits their needs.
The products for which a KID cover all types of investment funds, insurance-based investments and retail structured products, in addition to private pensions.
The Commission is also proposing a revision of the IMD, which currently regulates selling practices for all insurance products, from general insurance products such as motor and household insurance to those containing investment elements.
The proposal aims to upgrade consumer protection in the insurance sector by creating common standards across insurance sales and ensuring proper advice and improve transparency and establishing a level playing field for insurance sales by intermediaries and sales by insurance undertakings.
To meet these goals the EC is also proposing:
• The same level of consumer protection will apply, regardless of the channel through which consumers buy an insurance product. Consumers will receive the same level of protection whether a consumer purchases a product directly from an insurance undertaking or indirectly from an intermediary (e.g. an agent or a broker).
• Consumers will be provided in advance with clear information about the professional status of the person selling the insurance product with rules introduced to address more effectively the risks of conflict of interest, including disclosure of the remuneration received by sellers of insurance products.
• The Commission adds insurance product sales will have to be accompanied by honest, professional advice.
• It will also be made easier for intermediaries to operate cross-border.
Internal Market and Services Commissioner Michel Barnier said: "In the aftermath of the biggest financial crisis in recent memory, the financial sector must place consumers at its heart. Retail products must be safer, information standards must become clearer, and those selling products must always be subject to the highest standards. That is why we have adopted a package solely dedicated to consumers, so that they can choose financial products based on clear and sound information and professional advice which puts the consumer's interests first."