Recent trends in Investor Protection Regulation

Prof. Dr. Veerle ColaertKU Leuven

Lisbon – 1 June 2017

Building blocks of investor protection

PRODUCT INFORMATION

PRODUCT

REGULATION

CONDUCT OF

BUSINESS RULES

A

C

B

2

A. Information – background

• Information paradigm

o Cf Prospectus obligation

• Limits to the information paradigm

o Information overload

o Limits to investor rationality

o Cost

o Responsibility shift

4

A. Information – recent trends

1. Increased focus on short information

o Summary prospectus

o UCITS simplified prospectus

2. Increased focus on presentation and form

o UCITS KIID

o National measures introducing standardized information

documents

o PRIIPs KID

o Prospectus KID

5

7

8

9

10

3. Towards a more cross-sectoral scope of application of product information regulation

Deposits: • no EU regulation

Insurance products:• No EU product

information

Financial instruments:• Prospectus /

summary prospectus

• UCITS funds: Prospectus and KIID

• Non-UCITS funds: no EU regulation

• Derivatives: no EU regulation

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3. Towards a more cross-sectoral scope of application of product information regulation

Deposits

- Simple - Structured

Deposits Deposits

No EU harmo-

nisation

Insurance products:

- Life - Life (some)(some) - Non-life:

EU - IDD :

standardizedinformation document

Financial instruments:

- Non-UCITS funds

- Derivatives

- Structuredsecurities

- Simple securities: prospectus KID (to be

modeled after the PRIIPs KID)

- UCITS funds: KIID (temporary exemptionfrom PRIIPs)

PRIIPS: KID

12

A. Information – Recent Trends

4. Combination with other types of investor protection

o Service quality requirements (conduct of business rules)

o Product Regulation

13

B. Conduct of business rules - background

• Origin

• Definition

• Legal environment

14

B. Conduct of business rules – recent trends

1. Increasing detail from ISD to MiFID II

o E.g. investment advice

o E.g. inducements

o E.g. information obligations

2. Increasing number of conduct of business rules

o E.g. Cross-selling practices

o E.g. product governance

3. Increased need for interaction between product provider

and services provider15

IMD:

“Light” regulation forinsurance products

4. Widening scope of application of COB rules

Deposits:

no EU regulation

MiFID:

Extensive regulation forfinancial instruments

16

4. Widening scope of application of COB rules

Financial instruments

MiFID II

“Enhanced COB regime”

Insurance products

IDD COB-regime:

Inspired on MiFID II

BUT: important differences remain

Deposits

No EU

regulation

for

“simple”

banking

products

Structured

deposits in

scope of

MIFID II

17

C. Product Regulation - overview

1. Product quality requirements

o UCITS-rules

o AIFMD is more encompassing (exceptions)

o Other specific fund rules (ELTIFS, Money Market Funds)

Ban on marketing non-regulated funds in the EU

2. Product design: MiFID II “product governance obligations”

o “Know-your-customer at group level”

o Interaction between product manufacturer and product distributor

Restrict marketing of products to clients outside the

target market 18

C. Product Regulation - overview

3. Product intervention by the supervisor

o National measures ban the sale or marketing of certain

complex products to retail clients

o EU: MiFIR and PRIIPs Regulation

• Product intervention competences for EBA, ESMA and EIOPA

• Product intervention competences for National Authorities under

coordination of ESAs

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Scope of application of product intervention measures

Financial instruments

MiFIR

- Competence of ESMA

- Competence of MS under coordination of ESMA

BUT: Competences only target Credit institutions and investment firms, not direct

selling by fund managers (ESMA opinion)

Insurance products

PRIIPs

- Competence of EIOPA for IBIPs

- Competence of MS under coordination of EIPA

Deposits

- Competenceof EBA forstructureddeposits

- Competenceof MS undercoordinationof EBA

20

Conclusion

• Information

o Focus on presentation and short standardised KIDs

o Towards a more cross-sectoral approach to the financial sector

• Still too limited?

• Conduct of business rules

o Ever more detailed (“enhanced”)

o Towards a more cross-sectoral approach to the financial sector?

• In different sectoral directives…

• Need for general consumer protection principles for the entire fin.

Industry?

• Product Regulation

o Towards a more “hands-on” approach21

Conclusion

• Challenges:

o Efficiently defining scope of application of rules

o Closely knit 3 levels of investor protection into a strong

investor protection scheme

• E.g. product governance

• E.g. PRIIPs – MiFID

o Close cooperation between different sectoral ESA’s and

between the EU and nat. level

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