The European Association of Co-operative Banks welcomes the proposed Regulation aiming towards more efficient selling practices in order to enhance investor protection for retail clients. We furthermore welcome the envisaged introduction of a level playing field concerning the rules for the sale and disclosure requirements for different types of retail products.
European co-operative banks are characterised by a decentralised network of branches with a very strong retail base serving approximately 181 million retail clients in the European Union. Co-operative banks are therefore amongst the major distributors of a large variety of retail investment products.
We would like to raise the following key points:
• The EACB welcomes the Regulation’s aim to provide a Key Information Document (KID) for different types of retail products to enhance comparability and investor protection.
• EACB understands the Regulation’s original aim to be horizontally applicable across all kinds of financial instrument. The way this objective has been framed into the text in terms of scope, creates some confusion. In particular, EACB considers that the scope of the Regulation needs to more clearly define the nature of an investment product.
• EACB agrees that the information presented about the investment product should be “accurate, fair, clear and not misleading” but wants to stress the fine balance that needs to be struck between simple, understandable concepts and legally precise terminology. The need for “simple, understandable concepts” is somewhat at odds with the reverse burden of proof for product manufacturers and is in contrast to the current practised liability scheme for UCITS KIDs.
• EACB believes that the future risk indicator should not only contain an oversimplified numerical scale (i.e. from 1 to 7), but should also include the possibility of a narrative to explain the numerical risk indicator in further detail.
• EACB is of the opinion that the Regulation should allow the product manufacturer to insert additional information into the KID that enhances the retail investors understanding of the product.
• EACB would like to caution that not all information is available to the product manufacturer at the time of producing the KID, which rings especially true for the information on cost. Overall cost are only finalised on retail distribution level and are unknown to the manufacturer.
• EACB understands the intention of the Regulation to be providing retail clients with comparable information before making his/her informed investment decision. The introduction of a continuous obligation to alert the client of every update and revision of the KID seems to be contradictory, as the investment decision has already been made. This obligation would only create excessive costs to the industry without practically helping the customer in advance of his/her decision.
• A transitional provision should be established clarifying that a KID shall only be required for investment products that are issued after the Regulation shall come into effect. Application for investment products already issued would result in a burdensome legacy that could potentially affect the secondary market of existing investment products.