13 Financial services: key information
for retail investors
(34087)
12402/12
+ ADDs 1-2
COM(12) 352
| Draft Regulation on key information for investment products
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Legal base | Article 114 TFEU; co-decision; QMV
|
Department | HM Treasury
|
Basis of consideration | SEM of 5 October 2012
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Previous Committee Report | HC 86-xii (2012-13), chapter 9 (12 September 2012)
|
Discussion in Council | Not known
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Committee's assessment | Legally and politically important
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Committee's decision | Not cleared, further information requested
|
BACKGROUND
13.1 Packaged Retail Investment Products (PRIPs) allow retail
customers exposure to a range of securities without requiring
a direct holding in these securities. Examples of such products
include investment funds, investment life insurance and structured
products issued by banks. EU legislation already exists to protect
those who invest in these products. But legal requirements on
product transparency, sales and advice differ according to the
legal form of the product and the distribution channel, making
effective comparisons difficult for consumers.
13.2 In a Communication of April 2009 the Commission set out
proposals to bring the EU's legislative framework for mandatory
disclosure and sales practices for PRIPs into line with market
realities.[58]
13.3 In July the Commission presented this draft Regulation
to improve transparency in the investment market for retail investors.
making effective comparisons difficult for consumers. The draft
Regulation would ensure that retail investors receive short, comparable
and standardised disclosures, termed Key Information Documents
(KIDs) whatever the investment product they were considering.
13.4 The draft Regulation has a number of specific aims.
These are to:
- define what constitutes a PRIP so as to ensure all relevant
products are captured the proposal includes personal pensions,
but not workplace or occupational pensions, simple deposits or
pure insurance;
- place responsibility for producing a KID on the
investment product 'manufacturer';
- set out the form and content of KIDs so they
are as harmonised as possible it is proposed that a KID
should use the principles introduced for the Key Investor Information
Document for undertakings for collective investment in transferable
securities (UCITS), which have been compulsory for UCITS since
1 July 2012;
- oblige the distributor to provide a KID before
the sale;
- ensure Member States have effective complaints
procedures for PRIPs investors, including alternative dispute
resolution (ADR);
- introduce harmonised sanctions for breaches of
the PRIPs rules;
- provide a transition period for UCITS of five
years the Key Investor Information Document has been introduced
only recently and it would be disproportionate and disruptive
to subject these providers to the proposed PRIPs Regulation at
this stage; and
- complement, rather than replace, existing disclosures
set out in the Prospectus Directive (applying to securities offered
to the public or admitted to trading on a regulated market) and
the Solvency II legislation (applying to insurance).
13.5 The draft Regulation was presented as part
of the Commission's retail package that also includes the draft
Directive to amend the UCITS Directive[59]
and the draft recast Directive on insurance mediation.[60]
It is expected that a further legislative proposal will follow
shortly to address the remaining imbalances in investor protection
as well as bringing wider reforms to UCITS funds.
13.6 When we considered this proposal in September
we recognised its possible utility in improving protection for
retail investors. But we noted the Government's reservations
in relation, first, to personal pensions, including contracts
of insurance. The second reservation was about ADR, where we heard
that:
- the Government supports the
proposal that, where Member States have ADR procedures, participation
in the procedure should be compulsory for firms;
- however, imposition of specific criteria that
restricts the ability for Member States to design such services
is a cause for concern; and
- in particular, the proposed Regulation as currently
drafted would require that the ADR procedure results in decisions
which are non-binding on firms this would represent a
significant weakening of the Financial Ombudsman's powers, whose
decisions are binding on firms, but not consumers.
13.7 We asked, before considering this proposal
further, to hear about developments in the Council's consideration
of these matters and to have the Government's provisional impact
assessment and an account of the outcome of its planned consultation.
Meanwhile the document remained under scrutiny.[61]
THE
SUPPLEMENTARY EXPLANATORY
MEMORANDUM
13.8 The Economic Secretary to the Treasury (Sajid
Javid) says that he is sending us this Supplementary Explanatory
Memorandum because it has come to light that the provisions on
ADR may be a measure pursuant to Title V TFEU. Reminding us that
the proposed legal basis for the draft Regulation is Article 114
TFEU the Minister says that:
- the draft Regulation includes
a provision on ADR which may impose requirements on the operation
of the UK's civil justice system, in terms of the operation of
limitation and prescription periods and the availability of interim
remedies;
- this provision appears to be a measure pursuant
to Title V, more specifically Article 81, TFEU, to the extent
that it concerns cross border disputes; and
- as such it engages the UK's opt in for Justice
and Home Affairs (JHA) matters and should be adopted in a separate
measure with an Article 81 TFEU legal base.
13.9 The Minister reminds us that:
- the Government's policy is
to insist on a Title V TFEU legal base for any measure containing
JHA obligations but, if it is unsuccessful, to formally put the
UK's position on the record (normally by means of a minute statement);
- the Government's policy is to split the instrument
so that the JHA obligations are contained in a separate measure
with an Article 81 TFEU legal base; and
- if the Government is unsuccessful in securing
such a legal base, the policy is to assert that the opt-in applies
nevertheless, in order to preserve its position on the opt-in.
13.10 The Minister says that in this case, as
the Government agrees with the wider policy position, it intends
to formally give notice of an opt-in.
13.11 The Minister also says that:
- to the extent that the criteria
for ADR are intended to apply to purely domestic disputes, there
is a question as to whether this properly relates to the single
market and therefore whether the EU has competence to legislate
for these criteria under Article 114 TFEU; and
- the Government intends to ask for an explanation
from the Commission as to why it believes that this is an single
market matter to ensure that the Government is satisfied that
there is competence under Article 114 TFEU to legislate in respect
of purely domestic disputes.
CONCLUSION
13.12 Whilst we are grateful to the Minister
for this additional information, it is regrettable that the JHA
issue was not identified and drawn to our attention at an earlier
stage. We note the Government's intention to assert a UK opt-in
in the absence of a Title V legal base, a policy which is not
consistent with the terms of Protocol 21. Be that as it may, we
presume that this intention will be formally notified to Parliament
in accordance with the procedure promised by the Minister for
Europe (Mr David Lidington) in his Written Ministerial Statement
of 20 January 2011.
13.13 As for our further consideration of the
draft Regulation, in addition to the information we have already
requested, we should like to hear about developments in the Council's
consideration of the new aspects now drawn to our attention. Meanwhile
the document remains under scrutiny.
58 (30623) 9493/09 + ADDs 1-2: see HC 19-xviii (2008-09),
chapter 26 (3 June 2009). Back
59
(34086) 12397/12 + ADDs 1-2, see chapter 12 of this Report. Back
60
(34089) 12407/12 + ADDs 1-2, see chapter 14 of this Report. Back
61
See headnote. Back
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