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Recent trends in Investor Protection Regulation Prof. Dr. Veerle Colaert KU Leuven Lisbon – 1 June 2017
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
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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
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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
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7
8
9
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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
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A. Information – Recent Trends
4. Combination with other types of investor protection
o Service quality requirements (conduct of business rules)
o Product Regulation
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B. Conduct of business rules - background
• Origin
• Definition
• Legal environment
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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
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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
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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
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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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