The Investment Management Association (IMA) has welcomed the publication of three proposals by the European Commission to deliver consistent investor protection measures for packaged retail investment products (PRIPs):
1.The PRIPs proposal seeks to impose common product disclosure requirement for all PRIPs.
2.The review of the Insurance Mediation Directive (IMD) includes enhanced rules on the selling of insurance PRIPs, which mirror the Commission's proposals in MiFID for funds, structured products and structured deposits.
3.The UCITS V proposal includes measures on depositary duties and liability, remuneration policy of the management company and national sanctioning regimes.
Julie Patterson, IMA Director of Authorised Funds and Tax, said:
"We support the overarching objectives of these proposals. Consumers should be able to expect comparable standards of investor protection across all types of packaged retail investment products, irrespective of the domicile of the product provider or the domicile or type of product.
"It is essential that the substance of the rules is consistent for all products and that the rules are introduced at the same time. This will prove a challenge given that the proposals are split across three instruments - PRIPs, MiFID and IMD - at the first level of European legislation, with potential for them to become further disconnected at the second level."
In response to the three separate proposals, the IMA believes:
PRIPs:
The proposals provide a sound basis for discussion. However, the exclusion of certain forms of packaged pension product raises serious questions about the consistency of consumer disclosure. In particular, there seems to be an ambiguity about the information available in products that may be distributed and overseen in different ways, but that are basically the same from a consumer perspective. As it considers the broader pensions environment under the IORP review, the IMA encourages the Commission to consider how to ensure that pension scheme members and other long-term savers can access appropriate information.
IMD:
Consistency between the IMD and relevant MiFID/MiFIR proposals is essential otherwise there will be distortions in the marketplace, which is not in the interests of consumers. IMA does not support a ban on commission for independent financial advisers alone as this would further distort the marketplace.
UCITS V:
There should be similar standards of protection for consumers across all UCITS regardless of where they are domiciled within the EU. Also, the provisions relating to the duties and obligations of the depositary should be consistent with those under the AIFMD.
The proposals do not adequately address the potential for consumers to be disadvantaged due to conflicts of interests. IMA believes that each UCITS should have a manager authorised under this Directive and that the manager should be in a separate group from the depositary.
The proposals also perpetuate inconsistencies and gaps in AIFMD Level1 and include additional provisions that, in practice, are unreasonable or unworkable. For example, there should be a specific provision dealing with collateral. Depositaries should be subject to prudential, organisational and conduct of business requirements, but should not be restricted only to credit institutions or investment firms. The requirement for the depositary effectively to guarantee the outcome should a sub-custodian in any jurisdiction become insolvent will in practice restrict investors' options.
Furthermore, IMA objects to the suggestion that the remuneration policies of UCITS managers contributed in any way to the crisis, but has no objection in principle to the UCITS remuneration policy proposals. It is vital that the principle of proportionality is preserved.
Julie Patterson added:
"We are disappointed that the UCITS V proposals do not cater for UCITS OTC derivative transactions to be cleared under the new EMIR legislation. At present the UCITS directive OTC derivative counterparty limits might prevent this.
"Furthermore, the proposals do not deal with any of the technical issues identified during the implementation process of UCITS IV. IMA fully supports EFAMA's proposals in this regard."
Background information on UCITS is available here.
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