27 July 2012

ABBL: PRIPs - With the best of intentions

ABBL's Benoît Sauvage says that overall the ABBL is a true believer and supporter of this project but, as is always the case with drafts, there are some elements to address to make this regulation a success.

For clients and investors packaged retail investment products (PRIPs) are an important subject, since it will provide them, as is already the case for UCITS funds, with a two-page document with key features of collectively managed products. After the EU Commission consultation at the beginning of 2011, this issue finally saw its own draft regulation this July.

Interestingly, while nothing is said about the UCITS KID in the regulation, all other areas, ranging from structured bonds to life insurance, are covered with limited exceptions.

As is always the case with drafts, there are some elements to address to make this regulation a success. Article 11 is probably the focus of the ABBL’s mains concerns. Under this article, it is enough that an investor claims that the wording was not correct in order to claim damages, it being up to the investment firm to prove the opposite. But the most intriguing element is that, even if every detail was correct, if the investor is able to demonstrate that the decision he made based on the information contained in the document led to a loss, this would be sufficient to receive compensation. However, in the ABBL’s opinion, even with the best intentions in the world, financial products live by the ups and downs of markets. Moreover, this tool may be used with advice from investment firms or by the client on his own.

There is, on the other hand, one positive aspect: the EU Commission recognises that sometimes it is difficult to give the document in hand, and accordingly offers an alternative proposal that would also be most welcome in the case of the UCITS KID.

All in all, the ABBL is a true believer and supporter of this project. Indeed, via this standardised and harmonised document written in plain English (or French, or whatever the case may be) investors will have at their disposal a document for discussion with their relationship manager or investment firm. They may then discuss their risk-reward profile, fees or content, as well as the purpose of the investment.

The ABBL's optimistic guess as to the timeline would be an expected implementation sometime in early 2014, with a likely grace period of one year.

Press release

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