COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT Accompanying the document Proposal for a Regulation of the European Parliament and of the Council on key information documents for investment products
Date: 2012-07-03
Institutions: European Commission
Subjects: access to information, consumer information, documentary reference recording, investment protection, official market, regulation of investments

EUROPEAN COMMISSION 

Strasbourg, 3.7.2012  
SWD(2012) 187 final 

COMMISSION STAFF WORKING DOCUMENT 

IMPACT ASSESSMENT 

Accompanying the document 

Proposal for a Regulation of the European Parliament and of the Council 
on 

key information documents for investment products 

{COM(2012) 352 final} 
{SWD(2012) 188 final} 

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COMMISSION STAFF WORKING DOCUMENT 

IMPACT ASSESSMENT 

Accompanying the document 

Proposal for a Regulation of the European Parliament and of the Council 
on 

key information documents for investment products 

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TABLE OF CONTENTS 

1 

2 

2.1 

2.2 

2.3 

2.4 

2.5 

3 

3.1 

3.2 

Introduction .................................................................................................................. 5 

Procedural Issues.......................................................................................................... 6 

Genesis of work............................................................................................................ 6 

Consultation of interested parties................................................................................. 6 

Supporting work........................................................................................................... 7 

Related initiatives......................................................................................................... 7 

Impact Assessment Steering Group ............................................................................. 8 

Problem definition...................................................................................................... 10 

Size of EU retail investment markets, their regulation, and the policy context......... 10 

Problem drivers .......................................................................................................... 13 

3.2.1  Driver 1: Proliferation of product types aimed at same investment needs ................ 13 

3.2.2  Driver 2: Patchwork of regulation.............................................................................. 14 

3.2.3  Driver 3: Failures to effectively mitigate asymmetries of information between retail 

customer and the industry .......................................................................................... 17 

3.3 

3.4 

4 

5 

5.1 

5.2 

6 

6.1 

6.2 

Scale of the problem and consequences..................................................................... 21 

How would the problem evolve without further action? ........................................... 24 

The EU's right to act and justification........................................................................ 25 

Objectives................................................................................................................... 26 

General and specific objectives.................................................................................. 26 

Operational objectives................................................................................................ 26 

Options ....................................................................................................................... 27 

Identification of options ............................................................................................. 27 

Analysis and comparison of options .......................................................................... 32 

6.2.1 

Issue 1 – What scope of products should be covered?............................................... 32 

6.2.2 

Issue 2 – How far and in what ways should disclosures be standardised at EU level?
.................................................................................................................................... 34 

6.2.3 

Issue 3: Responsibility for preparing document......................................................... 38 

6.2.4 

Issue 4: Ensuring effective provision of product disclosure information to retail 
investors ..................................................................................................................... 39 

6.2.5 

Issue 5: Flanking measures: civil liability and sanctions ........................................... 40 

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6.3 

6.4 

6.5 

7 

7.1 

7.2 

7.3 

7.4 

7.5 

7.6 

8 

1. 

2. 

3. 

4. 

5. 

6. 

7. 

8. 

9. 

Summary of retained options and their interaction with the current legal framework
.................................................................................................................................... 42 

Choice of the legal instrument – directive or a regulation ......................................... 45 

Overall impact of retained options............................................................................. 46 

Impacts on other stakeholder groups, employment, SMEs, environment and third 
countries ..................................................................................................................... 50 

SMEs .......................................................................................................................... 50 

Employment and social impacts................................................................................. 50 

Environment and third countries................................................................................ 51 

Administrative burden................................................................................................ 51 

Risks and uncertainties............................................................................................... 51 

Monitoring and evaluation ......................................................................................... 52 

Conclusions ................................................................................................................ 52 

Annex I 

List of Acronyms........................................................................................................ 54 

Related Initiatives....................................................................................................... 55 

What are packaged 'retail investment products'? ....................................................... 57 

How big is the market for packaged retail investment products? .............................. 59 

How are packaged retail investment products distributed?........................................ 59 

European disclosure rules for retail investment products .......................................... 62 

Member State approaches to the regulation of retail investment products ................ 67 

Evidence on issues for retail clients from 2008 Call for Evidence ............................ 68 

Nature of product disclosures and their relationship with the sales process.............. 71 

10. 

The Lamfalussy process............................................................................................. 73 

Annex II 

1 

1.1 

1.2 

1.3 

1.4 

Detailed analysis of options ....................................................................................... 74 

ISSUE 1: What should the scope of any new regime be?.......................................... 74 

ISSUE 2: How far and in what ways should disclosures be standardised at EU level?
.................................................................................................................................... 76 

ISSUE 3: Responsibility for producing document..................................................... 85 

ISSUE 4: Ensuring effective provision of product disclosure information to retail 
investors ..................................................................................................................... 86 

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1.5 

ISSUE 5: Civil liabilities and sanctions ..................................................................... 88 

2 

3 

Estimation of administrative burden .......................................................................... 93 

Possible impacts of horizontal PRIP act on existing sectoral legislation................... 96 

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1. 

INTRODUCTION 

The focus of this impact assessment is product disclosures in the retail investment market.  

This  market  is  dominated  by  so-called  ‘packaged  retail  investment  products'  (PRIPs)  – 
financial  product  manufacturers  intercede  between  retail  investors  and  financial  markets, 
building products normally designed to satisfy specific investment goals, with the intention of 
being  sold  to  retail  investors  either  directly  or  through  intermediaries.  Examples  of  PRIPs 
include investment funds such as UCITS, retail structured products and unit-linked insurance 
contracts.  

To  protect  investors,  measures  have  grown  up  at  the  national  and  EU  level  that  require 
defined  information  to  be  provided  to  retail  investors  (termed  ‘product  disclosures’).  These 
measures are however uncoordinated and patchy – requirements vary  according to the legal 
form  of  products,  not  their  economic  nature  or  risks.  This  has  made  comparisons  between 
products and comprehension of product features harder for investors. The measures have also 
not  achieved  the  outcomes  being  sought  for  retail  investors:  product  disclosures  have  often 
focused  more  on  reducing  legal  risks  for  the  provider  rather  than  providing  effective  and 
balanced communication about products.  

In  its  April  2009  Communication  on  PRIPs,  the  Commission  concluded  that  this  was  an 
important  problem  with  a  European  dimension:  inconsistencies  at  the  European  level 
underpinned regulatory  failings,  which could only be  addressed by legislative change  at  the 
European  level.1  (The  Communication  noted  two  areas  of  further  work:  rules  applying  to 
sales, and rules on product disclosures. This impact assessment focuses on the latter only2). 

Addressing  these  regulatory  failings  also  contributes  to  responses  to  the  financial  crisis. 
Following the crisis retail investors lost money with investments that carried risks that were 
not transparent or understood by those investors, partly due to deficient product disclosures. 
There has, perhaps rightly, been a consequent collapse in investor confidence: a recent survey 
of  consumers  across  the  EU  showed  they  trust  the  financial  services  less  than  all  other 
industry sectors.3  

Addressing weaknesses in product disclosures will help rebuild confidence on a sound basis, 
improving  the  transparency  and  efficiency  of  EU  retail  markets.4  Innovative  steps  have 
already been taken along these lines to improve product disclosures for UCITS (through the 
'key  investor  information'  (KII)  regime).5  The  task  now  is  to  address  options  for  similar 
improvements for other investment products. 

1  

2  

3  

4  
5  

the 

and 

(MiFID) 

http://ec.europa.eu/internal_market/finservices-
retail/docs/investment_products/29042009_communication_en.pdf. 
The  area  of  sales  has  ben  addressed  in  proposals  on  changes  to  the  Markets  in  Financial  Instruments 
Directive 
see 
http://ec.europa.eu/internal_market/securities/isd/mifid_en.htm; for the IMD, [forthcoming]. 
In the fourth Consumer Markets Scoreboard the retail financial services market ranks worst out of fifty 
consumer markets for overall market performance, including worst for ease of comparing products and 
services sold by different suppliers: (SEC2010)1257: The Consumer Markets Scoreboard, 4th Edition, 
October 2010. 
http://www.iosco.org/library/pubdocs/pdf/IOSCOPD343.pdf (IOSCO). 
Commission Regulation (EU) No 583/2010 of 1 July 2010 implementing Directive 2009/65/EC.  

Insurance  Mediation  Directive 

(IMD).  For  MiFID, 

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2. 

PROCEDURAL ISSUES 

2.1. 

Genesis of work 

The genesis of the work on PRIPs is a request from the ECOFIN Council in May 2007 for the 
Commission  to  examine  the  coherence  of  disclosure  and  distribution  regimes  in  EU  law 
applying to different types of retail investment product. A first stage of work culminated in 
the  adoption  of  a  Communication  on  PRIPs  by  the  Commission  in  April  2009.  This  was 
accompanied  by  a  high-level  impact  assessment  (hereafter,  PRIPS  Communication  IA).6 
Following 
the  Commission  has  been  further  consulting  with 
stakeholders.  The  work  has  been  split  into  two  workstreams  –  the  current  workstream, 
focused on product disclosure requirements, and a second workstream focused on sales rules.  

the  Communication, 

2.2. 

Consultation of interested parties 

The  PRIPs  work  has  been  based  throughout  on  extensive  consultation  with  stakeholders, 
including a written call for evidence in October 2007, a Feedback Statement in March 2008, a 
technical  workshop  was  held  with  industry  representatives  in  May  2008,  and  a  high-level 
Open Hearing in July 2008. Following the Communication, a second, more concrete phase of 
work and consultation began. A further technical workshop was held in October 2009, which 
was followed by the publication of an Update on the work in December 2009. The three level 
three  European  committees  of  national  supervisors  prepared  individual  reports  to  the 
Commission in 2009, followed by a joint report in 2010. Finally, the Commission launched a 
public consultation on concrete options in November 2010.  

Records  of  these  phases  of  consultation,  which  respected  the  Commission's  minimum 
standards  on  public  consultation,  are  available  on  the  European  Commission  website.7  In 
general, responses to the November 2010 public consultation showed support from industry, 
consumer and Member State stakeholders for the initiative, though there were differences of 
view  on  the  scope  of  the  work  and  the  extent to  which  the  UCITS  KII  might  be  taken  as  a 
model for other retail investment products. 

Table 1: Preparatory Steps 

Timing 
May 2007 
October 2007 

Major steps / inputs 
ECOFIN request 
Launch of Call for Evidence 
Publication of Feedback Statement on Call for Evidence  March 2008 
Industry Workshop 
Open Hearing 
Communication  
CESR, CEBS, CEIOPS advice  
Technical Workshop  
Update 
Joint CESR, CEBS, CEIOPS advice 
Public Consultation  

May 2008 
July 2008 
April 2009 
October 2009 
October 2009 
December 2009 
September 2010 
November 2010 

These  formal  events  have  been  supplemented  by  a  series  of  discussions  with  consumer 
representatives (FIN-USE, Financial Services Consumer Group, and Financial Services User 
Group), regulators (Financial Services Committee, European Securities Committee, European 

6  

7  

See: http://ec.europa.eu/internal_market/finservices-
retail/docs/investment_products/29042009_impact_assessment_en.pdf. 
See: http://ec.europa.eu/internal_market/finservices-retail/investment_products_en.htm. 

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Insurance  and  Occupational  Pensions  Committee)  and  industry  representatives.  The 
consultation  process  revealed  a  variety  of  stakeholder  views,  which  have  strongly  informed 
the analysis that follows. 

2.3. 

Supporting work 

The following supporting work informs this impact assessment: 

•  A report produced by a joint task force of the level three committees. (3L3 Report).8 

•  A  study  on  the  costs  of  implementation  of  the  KIID  for  UCITS.  This  study  provides  a 
proxy  (subject  to  adjustments)  for  costs  of  other  industry  sectors  for  introducing  similar 
disclosures for their products. (CSES).9 

•  A study testing developing options for the KIID for UCITS on a representative sample of 

EU consumers. (YouGov & IFF).10 

•  A  study  seeking  behavioural  economics  insights  on  the  different  factors  relevant  to 

investor decision making. (Decision Technology).11 

•  A  study  on  the  potential  costs  and  benefits  of  different  options  for  change  in  the  area  of 
sales  rules  for  the  distribution  of  non-MiFID  PRIPs;  this  provides  market  mapping 
evidence  and  also  evidence  on  cost  drivers,  though  its  focus  was  primarily  on  product 
distribution. (Europe Economics).12 

•  A study seeking to assess the quality of advice being offered across the EU; this provides 

some market mapping evidence. (Synovate).13 

2.4. 

Related initiatives and scope of this impact assessment 

There are a number of related initiatives that link to the work on PRIPs product disclosures, or 
can be expected to benefit EU retail investors. 

These  include  the  review  of  the  Markets  in  Financial  Instruments  Directive  (MiFID),  the 
review of the Insurance Mediation Directive (IMD), work on the Prospectus Directive (PD), 
current work in the area of asset management (notably in relation to Alternative Investment 
Funds,  but  also  the  implementation  of  UCITS  IV),  ongoing  work  on  Solvency  II,  the 
Commission Green Paper on pensions, and upcoming work by the Commission on the Single 
Market Act. Other work underway can be expected to impact the retail investment markets, 
notable  work  on  the  protection  schemes  for  investors when those providing investments are 
not  able  to  meet  their  commitments  to  investors  (deposit  guarantee  and  investor  or 
policyholder compensation schemes). 

The baseline for this impact assessment takes into account the likely evolution of measures in 
these other areas. 

8  
9  
10  
11  
12  
13  

See: http://www.cesr.eu/index.php?docid=7278  
See: [to be published – reference to be added when available.] 
http://ec.europa.eu/internal_market/investment/docs/other_docs/research_report_en.pdf 
http://ec.europa.eu/consumers/strategy/consumer_behaviour_en.htm 
http://ec.europa.eu/internal_market/consultations/docs/2010/prips/costs_benefits_study_en.pdf 
http://ec.europa.eu/consumers/rights/docs/investment_advice_study_en.pdf. 

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Scope of the impact assessment and key interactions  

This  impact  assessment  is  focused  solely  on  options  relating  to  improving  information 
given to investors about PRIPs (their risks, costs and features).  

This  impact  assessment  does  not  address  options  related  to  sales  of  PRIPs.  This  area, 
identified in the Communication on PRIPs as a second priority alongside product information, 
relates to investor protection measures for investment advice and sales services. Options for 
improving such rules are being considered and assessed separately in the reviews of MiFID 
and the IMD.   

The identification of options for improving product information and assessment of the impact 
of  these  can  be  undertaken  independently  from  measures  on  sales,  since  the  subject  matter, 
impacted entities and underlying regulatory and market failings are separte and there are no 
necessary dependencies between the two areas.  

Measures on disclosure and distribution can expected nonetheless to be mutually supportive, 
and indeed their contribution to addressing problems in the retail markets can be expected to 
be  greater  in  combination  than  in  isolation.  Given  this,  the  assessment  of  options  and  their 
overall  effectiveness  and  efficiency  in  this  impact  assessment  takes  into  account  relevant 
synergies, and this impact assessment should be read alongside assessments of options for the 
IMD and MiFID.  

Details on linked initiatives can be found in Annex I.2. 

2.5. 

Impact Assessment Steering Group 

An  Inter-service  Impact  Assessment  Steering  Group,  chaired  by  DG  Internal  Market  and 
Services,  was  established 
involving  representatives  from  DG 
Competition,  DG  Taxation  and  Customs  Union,  DG  Justice,  DG  Economic  and  Financial 
Affairs, the Secretariat General, the Legal Service and DG Health and Consumers. The Group 
met on 26th October 2010, 2nd February 2011 and 2nd March 2011.  

in  November  2010, 

The  draft  impact  assessment  report  was  examined  by  the  Impact  Assessment  Board,  and 
revised in line with its positive opinion of 15 April 2011. Amongst other improvements, the 
interaction between the proposal and other measures on investor protection was clarified, the 
scope of the proposal made clearer, the analysis of options improved and the analysis of other 
factors that are relevant for investor decision making deepened.  

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PROBLEM TREE 

Retail packaged 
products offer 
similar economic 
contents but using 
different legal 
forms 

Patchwork of 
regulation 

Divergent EU and 
national approaches 

Unmitigated 
asymmetries of 
information 
between retail 
investors and market 
participants 

Out of scope of this 
strand of work: 

Financial education 

Product regulation 

Distribution / advice 
regulation 

Ineffective Product Disclosures 

Poor 
understanding 
of products  

Poor 
comparability 
between 
products 

Information 
not 
provided 

always 

Unlevel 
field 

playing 

Barriers 
market 

to  single 

Investor detriment 

MIS-SALES 

Breakdown in trust 

Inefficient capital markets 

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3. 

PROBLEM DEFINITION 

This chapter should be read in conjunction with the 'problem tree' on page 9.  

The  analysis  builds  on  the  impact  assessment  completed  for  the  April  2009  PRIPs 
Communication  (hereafter,  PRIPS  Communication  IA).  This  identified  the  broad  market 
context and problem drivers for this initiative. It showed that existing regulatory requirements 
in  the  retail  investment  markets  failed  to  fully  address  'information  asymmetries'  (i.e. 
differences  in  comprehension  of  proposed  investments  between  market  professionals  and 
retail  clients)  and  'principle-agent'  misalignments  (i.e.  those  manufacturing  and  selling 
products have incentives that are not always aligned with those of the retail clients buying the 
products).  The  patchwork  of  European  regulation  had  failed  to  effectively  reduce  consumer 
detriment,  and  acted  as  a  barrier  to  member  states  addressing  such  detriment  themselves, 
while  at  the  same  time  creating  an  un-level  playing  field  between  different  products  and 
distribution channels and erecting additional barriers to a single market in financial services 
and  products.  EU  legislation  was  a  source  of  the  problem,  so  legislative  change  at  the  EU 
level was necessary to effectively and efficiently address these challenges.  

Two  strands  of  work  were  identified:  improving  consistency  and  effectiveness  of  the 
information  about  products  from  product  providers,  and  improving  consistency  and 
effectiveness  of  the  rules  on  distributors.As  noted,  this  current  impact  assessment  only 
addresses  the  first  of  these  two  strands  of  further  work  triggered  by  the  Communication: 
product disclosure.14 

3.1. 

Size of EU retail investment markets, their regulation, and the policy context 

Size 

There is currently no definition of the retail investment markets with the EU. If we understand 
this concept as the market for investment products that can (and typically do) reach the retail 
customer,  a  wide  range  of  products  can  fall  into  this  category.  Examples  include  funds  of 
various  types,  unit-linked  life  insurances  (and  other  investment-based  insurance  products), 
shares  and  a  miscellany  of  other  kinds  of  products  that  might  be  characterised  as  'retail 
structured products'.  

Given  that  the  boundaries  of  this  market  are  not  currently  determined  under  EU  law  its 
magnitude  can  only  be  estimated.  At  the  end  of  2009,  the  European  asset  management 
industry  managed  assets  worth  around  €9  trillion  in  investment  funds.15  Of  this,  EFAMA 
estimate that roughly €3 trillion had been contributed directly by retail customers; a part of the 

14  

15  

For the purposes of this impact assessment, by product disclosure we mean information about the 
product provided to the investor at a pre-contractual phase, i.e. before concluding the contract. This is 
information about the features, risks and costs of the product itself, that can be used to compare it with 
other products. This is distinguished from "other disclosures" that are provided to the investor at a pre- 
post- or contracting phase, e.g. on the firm that sells the product, the regular info on the product's 
performance, etc. Other disclosure requirements may be laid down under legal rules on distribution and 
advice. For the description of a typical sales process, please see box 1 under section 3.1; for more detail 
see Annex 1.9. As set out, the area of sales processes – distribution and advice, including disclosures 
about these – is addressed in separate initiatives and impact analysis work by the Commission, under 
the reviews of MiFID and the IMD. 
Source: EFAMA Investment Fund Industry Fact Sheet, May 2010. This figure is equivalent to over 
50% of EU GDP and around 33% of global fund assets.  

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remaining €6 trillion will also be ‘retail’ due to intermediation (where third parties intercede 
between the fund and its end clients so the fund cannot determine the classification of the end 
client), but it is difficult to assess the scale of this.16 Looking at the insurance sector (which 
offers  a  variety  of  products  that  provide  retail  investment  benefits),  CEA  data  from  2009 
shows insurers holding overall investments in the range of €5 trillion (these investments cover 
savings  and  pensions  but  also  funds  backing  pure  insurance  products,  some  of  these 
investments  will  be  institutional  holdings  of  funds  such  as  UCITS;  around  a  third  can  be 
roughly estimated to be held in as unit-linked life insurance).17 Data providers linked to the 
retail structured product market suggest that structured products taking securities and deposit 
forms amounted to less than €0.5 trillion in 2009. This suggests an overall market of over €9 
trillion in 2009, with a breakdown according to Graph 1. 

Graph 1: Estimate on PRIPs market breakdown, 2009 

PRIPS Market Size and Breakdown 2009

18%

5%

19%

Non-UCITS funds

Retail Structured Products

Unit Linked Insurance

UCITS

58%

Source: EFAMA, CEA, Arete Consulting; these figures do not distinguish between retail or institutional business 

The Decision Technology study  surveyed householders and found roughly a split of around 
36%  cash,  7%  funds,  13%  shares,  4%  fixed  income,  and  37%  insurances.  However  these 
figures  are  self-reported  by  respondents,  and  the  precise  makeup  of  different  categories  is 
difficult to assess, so these figures may not be reliable. 

The market in general appears to be dominated by funds and insurance-based investment or 
savings  products,  with  structured  products  currently  taking  a  relatively  small  slice  of  the 
market.  The  Decision  Technology  survey  suggests  however  that  households  maintain 
significant holdings in the form of cash or deposits (which fall outside of the retail investment 
market in this impact assessment).  

16  
17  

See Annex I.4 for some alternative figures, prepared for the PRIPs Communication IA. 
CEA Statistics N°43: The European Life Insurance Market: Data 2000-2009. 

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Box 1: What are PRIPs? 

In  simplest  terms,  a  PRIP  is  an  investment  product  sold  to  a  retail  customer.  This  captures  the  three  key 
concepts:  first,  the  term  'investment  product'  captures  the  two  key  criteria  that  define  PRIPs.  As  investments, 
they are propositions that expose the investor to risks; the investor provides capital (whether in a lump sum or 
through  regular  savings),  and  the  investment  promises  returns  on  this  capital.  As  products,  they  are 
'manufactured'  by  financial  services  intermediaries,  who  construct  the  propositions  to  provide  cost  effective 
access to investment propositions for retail investors who otherwise would have neither the expertise or access to 
make such investments. Secondly, the prescence of a retail customer. Measures designed to address the needs of 
retail customers may not be relevant for professional customers. 

The  Commission  has  consulted  on  options  for  defining  PRIPs,  including  distinguishing  them  from  ordinary 
savings  products  (that  do  not  carry  investment  risks)    and  sought  input  from  miscelaneous  studies,    so  as  to 
ensure coherent requirements apply to all the products of relevance, irrespective of their legal forms, as set above 
in sections 2.2 and 2.3.  

The results from this consultation have informed the identification of options on scope and assessment of their 
impact in section 6.2 below. 

Regulatory context 

Regulations  on  product  disclosures  address,  in  particular,  the  needs  of  investors  for 
information on the nature, risks, costs, and possible performance of specific products. 

Such regulation sits within a wider context, both nationally and at the level of EU laws, with 
other  rules  covering  areas  such  as  distribution  and  sales,  including  disclosures  about 
distributors  and  their  costs,  prudential  requirements  (capital  and  solvency  rules),  and  other 
sundry areas, such as rules on product providers to ensure they are capable of undertaking the 
business they engage in, and rules on redress and compensation schemes to ensure customers 
can  obtain  redress  in  relation  to  fraud  or  return  of  investments  in  the  case  of  the  failure  of 
firms.  

As  will  be  discussed  in  greater  detail  below,  regulation  of  product  disclosures  is  currently 
patchy and inconsistent, with divergent approaches at the EU level according to the legal form 
a  product  takes  (rather  than  its  level  of  risk  for  the  investor).  Some  Member  States  have 
sought to harmonise requirements cross-sector, in so far as EU legislation allows. In practice 
requirements  placed  on  product  manufacturers  vary  significantly  between  Member  States:  a 
CEIOPS  survey  concluded  “there  are  a  striking  number  of  detailed  additional  measures  [on 
pre-contractual disclosure], which are unique to individual Member States … suggesting that 
Member States have sought to be more prescriptive than the terms of the CLD in order to, for 
example, protect consumers”.18 

The UCITS market – a significant proportion of the PRIPs market, and one with strong cross-
border  dimension  –  is  currently  implementing  Commission  KIID  requirements.  These  are 
strongly  prescriptive  and  standardised,  and  will  introduce  a  common  product  disclosure 
document (with a simplified but objective risk rating) across all EU markets for such funds. 
There  are  no  comparable  requirements  for  other  products  at  the  EU  level  under  existing 
legislation. 

Box 2: Role of product disclosures within a typical retail sales process 

18  

https://eiopa.europa.eu/fileadmin/tx_dam/files/publications/reports/CEIOPS-Report-National-
Measures-Unit-Linked-Life-insurance-products.pdf, p. 24. 

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Most  investments  sold  to  retail  customers  in  the  EU  are  in  practice  sold  through  'advised'  channels  (estimates 
vary,  but Decision  Technology  survey  suggests between 60  and  80%  of  sales  might  be generally  described  as 
'advised').19 Product disclosures have an important role to play in such sales. 

Under  an  advised  sale  the  intermediary  gives  a  personal  recommendation  to  the  client  as  to  possible  suitable 
investments based on the client's needs and situation. The sales process typically will have two logically separate 
aspects.  The  first  aspect  relates  to  the  sales  process  itself,  and  any  services  being  offered  by  the  sales  person, 
notably  the  service  of  providing  advice  to  the  investor.  The  advisor  would  typically  make  disclosures  to  the 
customer about themselves, about the service they are offering, and about any fees associated with the service. 
Following discussions between the advisor and the customer, including gathering of information by the advisor, 
the advisor might typical make a recommendation, providing for instance a short list of products.   

Product disclosures – the focus of this impact assessment – can be defined as the information provided to the 
customer  at  this  point,  information  about  the  individual  products  being  proposed.  The  purpose  of  these 
disclosures is typically to ensure comprehension of products including their specific risks and costs, and, in some 
cases, to enable investors to better compare between products.  

(For a fuller discussion of the practical context of product disclosures, see Annex I.9). 

3.2. 

Problem drivers  

Three  key  'problem  drivers'  underpin  and  structure  the  problems  covered  by  this  impact 
assessment (as already discussed in the PRIPs Communication IA): 

•  Driver  1:  there  is  a  proliferation  in  (often  complex)  investment  products  on  offer  to 
consumers,  that  take  different  legal  forms  and  structures  yet  which  offer  comparable 
risk/reward profiles; yet 

•  Driver 2: these different products are regulated in different ways according to their legal 

form rather than their economic nature; as a consequence 

•  Driver 3: there are powerful asymmetries of information between retail customers and the 

industry which remain unmitigated. 

These drivers are not independent. Drivers 1 and 2 contribute to Driver 3. 

3.2.1.  Driver 1: Proliferation of product types aimed at same investment needs 

The key types of PRIP identified through earlier consultation and impact assessment are: 

•  Funds  (whether  UCITS  or  non-harmonised,  covering  both  open-ended  or  closed-ended 

structures);  

•  Investments  packaged  as  life  insurance  policies  (notably,  unit-linked,  index-linked  and 

certain other 'with-profits' products); and   

•  Retail structured products (typically in the form of structured securities or structured term 
deposits; so-called 'structured' products also in some markets have taken the form of funds 
or life insurance policies).20 

19  
20  

Decision Technology, p.8. 
See Annex I.3, 4 for further data on the evolution of the market, showing in particular the relative 
growth – though this has recently slowed – of the retail structured product market. 

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Earlier market mapping by the Commission, responses to consultation, and discussions with 
stakeholders  have  underlined  that  functionally  similar  investment  products  are  increasingly 
manufactured ('packaged') using a variety of legal forms, with similar investment propositions 
being  offered  across  different  industry  sectors.  This  'packaging'  of  products  can  make  them 
appear very different for investors, even where underlying economic purposes are similar (e.g. 
a fund, a deposit and a unit-linked insurance contract look different, but might be equally used 
to have the same investment exposuire, for instance to a particular stock index). 

There  is  a  potentially  bewildering  variety  of  products;  for  instance,  during  2009  there  were 
over 274000 tranches of retail structured products brought to market and 36000 UCITS funds 
for sale.21 Factors leading to a proliferation in types of product could include differences in 
tax treatment, regulatory arbitrage, and nationally specific market traditions. Yet all of these 
products seek to address a relatively simple need: capital accumulation by  taking on risk so 
as  to  have  the  potential  for  beating  a  risk-free  rate  of  return.  While  these  products  vary  in 
what they offer – some combine the prospect of capital accumulation with a capital guarantee, 
while  others  do  not;  some  combine  an  investment  element  with  another  element  (such  as 
offering life insurance benefits) – they all are offered as investments to retail customers when 
they approach financial intermediaries or directly product manufacturers.   

Responses to the PRIPs consultation, including product providers, supervisors and consumer 
representatives,  support  the  view  that  the  product  types  identified  above  are  broadly 
competing for the same investments of the same retail customers, offering similar investment 
propositions  but  packaged  in  different  ways.  Respondents  have  generally  agreed  that  the 
identified product types above between them make up the vast bulk of the retail investment 
market  as  it  currently  stands,  though  a  number  have  noted  that  other  possible  competing 
products  or  investments  might  emerge.  Some  consumer  representatives  and  national 
supervisory  authorities  have  argued  in  favour  of  widening  the  perspective  on  competing  or 
substitutable  products  to  include  deposits  and  simple  savings  accounts,  which  are  subject 
solely  to  interest  rates.  Also,  some  consumer  representatives  and  national  supervisory 
authorities  took  the  view  that  'unpackaged'  assets  (such  as  ordinary  corporate  equities  or 
bonds)  should  be  subject  to  the  same  disclosure  requirements  as  those  that  are  packaged.  
More  technical  views  have  also  been  raised  over  the  details  of  where  the  'line'  between 
investments and products serving other client needs might sit, particularly for products which 
combine investments with other elements. In addition, there has been debate over the extent to 
which pensions (notably, personal pensions, or ‘pillar three’ pensions) might be considered to 
be  competing  with  other  retail  investment  products,  and  whether  or  not  these  might  be 
included or excluded with the PRIPs initiative. 

'boundary'  issues,  consultations  with 
Nonetheless,  despite  differences  over  technical 
stakeholders have revealed a general acceptance that investment products with different legal 
forms  are  currently  competing  with  one  another,  and  that  these  legally  different  products 
raise, despite their differences in form, similar needs for clearer information on costs and risks 
that is capable of comparison between types of products. 

3.2.2.  Driver 2: Patchwork of regulation 

European  and  national  regulation  on  product  disclosures  already  applies  to  most  products 
(structured deposits excepted).  

However, Community law has developed on a largely sectoral basis, at different speeds and 
with different outcomes in mind. As a result, the rules governing what disclosures need to be 

21  

Source: EFAMA, Arete Consulting. 

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prepared and what these should look like vary materially according to the sector in which the 
product is originated and in which an intermediary operates.  

Notably, most disclosure regimes are relatively high-level and do not set out in detail the form 
and  content  (or  the  'look  and  feel')  of  product  disclosures.  The  UCITS  KIID  regime  is  an 
important  exception:  this  regime  is  very  prescriptive  and  detailed,  and  was  developed  to 
ensure disclosures in a short and investor-friendly manner capable of supporting comparisons 
between funds (including those sold cross-border). 

The  following  table  illustrates  this  'regulatory  patchwork';  see  Annex  I.6  and  I.7  for  further 
details  on  the  contents  of  the  different  existing  regimes,  and  a  summary  of  certain  national 
requirements that also apply to firms in this area. 

Table 2: Disclosure rules and intermediary regulation in Community law for packaged retail 
investment products 

UCITS  

Other Open-
Ended Funds 

Unit-linked 
life insurance 
policies 

Structured 
securities and 
closed-end funds 

Structured 
term deposits 

Rules on 
product 
information 
applying to 
manufacturers
, issuers or 
intermediaries  

Key Investor 
Information (KII) 
of UCITS 
Directive  

MiFID23 

(high-level product 
disclosure 
requirements apply 
to MiFID 
intermediaries 
when selling 
financial 
instruments) 

MiFID  

Solvency II 
(CLD rules) 

Prospectus 
Directive22 

(high-level product 
disclosure 
requirements apply 
to MiFID 
intermediaries 
when selling 
financial 
instruments) 

No rules at EU 
level 

Insurance 
Mediation 
Directive24 for 
some product 
disclosure 
requirements 

MiFID  

(high-level product 
disclosure 
requirements apply 
to MiFID 
intermediaries when 
selling financial 
instruments) 

E-commerce Directive or Distance Marketing of Financial Services Directive 

This patchwork must also be understood in the context of developments at the national level. 
Member States have approached the retail investment market in different ways, to the extent 
that EU legislation affords them discretion (notably for products other than UCITS). The IMD 
and  Consolidated  Life  Directive  (CLD,  now  Solvency  II)  rules  are  not  maximum 
harmonising, permitting national rules that are more strict; however, CEIOPS mapping work 
shows  that  the  national  approaches  to  product  disclosures  for  unit-linked  life  contracts  that 
have emerged on the basis of the IMD and CLD are not comparable with or consistent with 
the KII envisaged by the UCITS Directive, with strong divergences in national approaches.25 

22 

23 

24 

25  

Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 on the 
prospectus to be published when securities are offered to the public or admitted to trading and 
amending Directive 2001/34/EC. 
Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in 
financial instruments amending Council Directives 85/611/EEC and 93/6/EEC and Directive 
2000/12/EC of the European Parliament and of the Council and repealing Council Directive 93/22/EEC. 
Directive 2002/92/EC of the European Parliament and of the Council of 9 December 2002 on insurance 
mediation. 
https://eiopa.europa.eu/fileadmin/tx_dam/files/publications/reports/CEIOPS-Report-National-
Measures-Unit-Linked-Life-insurance-products.pdf. 

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Requirements thereby diverge strongly cross-border for non-UCITS PRIPs (an issue raised by 
some industry stakeholders to the Call for Evidence and PRIPs Consultation). 

While common prospectus rules (under the Prospectus Directive) govern part of the structured 
product market, these rules are not comparable to the KII rules for UCITS (see Annex I.6 for 
more  detail),  while  prospectus  information  may  not  be  used  by  distributors  in  practice  for 
informing  retail  clients  when  buying  such  structured  products  (given  the  complexity  and 
length of such disclosures, and the fact there is no requirement on distributors to provide the 
prospectus). National rules vary in regards information provided by the distributor about such 
products. 

Key problem 1: An unlevel playing field develops between product manufacturers 

A regulatory patchwork can lead to increased administrative costs and regulatory arbitrage.  

Different  levels  of  regulatory  requirements  can  create  an  incentive  for  products  to  be 
structured  and  marketed  to  take  advantage  of  less  onerous  requirements  –  often  within  one 
Member  State,  across  product  groups;  but  potentially  even  across  borders.  Product 
proliferation  has  been  indicated  by  some  stakeholders,  including  consumer  representatives 
and national supervisors, as providing prima facie evidence of regulatory arbitrage.26 Ongoing 
work has begun at the level of the European Supervisory Authorities on financial innovation 
in relation to retail investment products in reaction to these concerns. It is difficult to assess 
the  extent  to  which  differences  in  transparency  requirements  are  a  sufficient  motivation  on 
their own for driving market entry or exit, however they are likely to be one factor. 

In  relation  to  administrative  costs,  a  number  of  consultation  respondents  from  the  industry 
commented  that  duplication,  overlaps  in  requirements  or  differences  in  requirements  both 
sectorally  and  between  Member  States  (where  they  operate  cross-border)  potentially  raise 
administrative costs and reduce competition across markets. They noted that a lack of clarity 
as  to  content  of  regulatory  requirements  and  associated  liabilities  could  also  lead  to  greater 
compliance costs for firms (for instance, through the need to contract for legal advice).  

For  UCITS,  defining  cross-border  business  can  be  tricky  (given  complex  delegation 
arrangements  by  management  companies  related  to  funds);  however,  the  fact  that  41%  of 
assets under management are domiciled in Ireland and Luxembourg indicates the high degree 
of  cross-border  business.27  There  are  no  indications  of  similar  degrees  of  cross-border 
business for other PRIPs; for instance estimates put total cross-border insurance business at 4 
to 5%.28 Even if the cross-border sales of non-UCITS PRIPs are not so significant, the current 
legal patchwork poses a threat in two respects: first, the existing internal market in UCITS is 
subject to direct competition from products that are less strictly regulated in regards product 
disclosures – or not regulated at all. Second, the current differences in disclosure requirements 
are  likely  to  be  perceived  both  by  investors  and  by  industry  as  a  fragmenting  factor  along 
national  borders,  which  do  not  help  any  future  positive  development  towards  market 
integration. 

26  

27  

28  

Broadly in this direction BVI (Bundesverband Investment) contribution to call for evidence "need for a 
coherent approach to product transparency and distribution requirements for substitute retail investment 
products?", p. 2-3. 
Source: EFAMA, “Trends in the European Investment Fund Industry in the Fourth Quarter of 2010 and 
Results for the Full Year 2010”. 
These figures are derived from the White Paper on insurance guarantee schemes (COM(2010)370), p.4. 

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Key problem 2: Increased barriers to the further development of the single market 

As noted, most PRIPs are not currently sold cross-border in great volumes, with the notably 
exception  of  UCITS.  A  regulatory  patchwork  of  product  disclosure  requirements  is  one 
barrier to further cross-border business across different product types. The impact of national 
differences  over  product  disclosures  was  strongly  highlighted  by  UCITS  stakeholders  (prior 
to the development of the KIID), who identified such differences as a key barrier to further 
development of cross-border efficiencies.   

Failures to effectively mitigate asymmetries of information at the EU level have encouraged 
action at the national level to address emergent problems, and the financial crisis has led to 
such action being more likely in the absence of further steps at the EU level. Such action at 
the  national  level  is  necessarily  uncoordinated,  leading  to  increased  differences  in  approach 
across Member States. In addition, current sectoral differences in requirements at the EU level 
encourage Member States to address issues on a purely sectoral basis. 

In addition, given the UCITS KIID, in the absence of further EU action some Member States 
can be expected to seek to improve disclosure requirements for other investment products, but 
in an uncoordinated way. It is difficult to assess the likelihood of this, but it is important to 
stress that the technical details of how one extends UCITS KIID-like rules to other segments 
are  major  drivers  of  compliance  costs,  which  means  that  coordination  on  this  could  be  a 
significant means for preventing the build-up of further regulatory barriers to market access. 

3.2.3.  Driver 3: Failures to effectively mitigate asymmetries of information between retail 

customer and the industry 

The  financial  services  are  difficult  to  understand  even  for  professional  market  participants. 
This is in large part due to their intrinsic complexity (exacerbated by drivers 1 and 2). This 
complexity  can  take  different  forms  with  different  consequences.29  Low  levels  of  financial 
literacy  and  capability  undoubtedly  compound  these  issues  –  these  however  are  out  of  the 
scope of the current analysis and will be / are being addressed elsewhere. 

In addition, for many retail customers there are few opportunities to learn from experience in 
retail  investment  markets:  customers  typically  do  not  engage  repeatedly  in  investment 
activities,  but  do  so  only  in  relation  to  certain  specific  and  widely-spaced  life  events 
(inheriting  money,  or  investing  towards  a  specific  future  liability  or  goal,  such  as  buying  a 
house, retirement or family planning).30  

Existing  regulatory  requirements  (driver  2)  are  designed  to  mitigate  asymmetries  in 
information.31  However,  these  are  ineffective  and  inconsistent,  and  a  proliferation  in  new 
products  and  market  innovation  (driver  1)  have  also  led  to  products  being  offered  in  forms 
that were not envisaged during the development of the existing disclosure requirements.  

This third problem driver can be divided into three specific components (sub-drivers): 

1 -- Mandatory information currently provided is not sufficiently easy to understand 

29  
30  

31  

Complexity does not correlate (necessarily) with 'riskiness'. 
http://www.fsa.gov.uk/pubs/consumer-research/crpr47.pdf; see also 
http://www.fsa.gov.uk/pubs/consumer-research/crpr76.pdf. 
See the World Bank report noted above [ibid.] outlines academic research (p. 1-9): markets in financial 
services and products are not in all respects 'self-correcting'. 

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Existing retail disclosures about investment products have been very strongly criticised by a 
wide  range  of  stakeholders,  including  industry,  consumer  representatives,  trade  bodies,  and 
national supervisors.32 There are a number of elements that contribute to perceived failings. 

•  Retail  customers  find  financial  services  concepts  and  jargon  are  opaque,  difficult  to 
understand and unfamiliar. This is in a context where retail investors struggle to undertake 
even  the  simplest  tasks  (in  the  Decision  Technology  study,  almost  half  of  respondents 
failed to optimally allocated investments in a simple exercise).33 Everyday connotations of 
words complicate the picture: the  concept of 'risk' has strongly negative  connotations for 
retail  customers,  though  the  financial  services  concept  of  risk  is  not  a  wholly  negative 
concept.34 Great care is thereby needed to communicate with retail customers in a clear and 
effective way, yet documents for retail customers often are written in a fashion that is only 
comprehensible  for  professional  counterparts  that  takes  no  pains  to  communicate  clearly 
with the typical or average retail customer. A lack of standardisation and thereby confusion 
between  concepts,  e.g.,  in  language  used  to  describe  investments,  can  undermine  trust, 
comprehension  and  comparability  of  information.35  Responsibilities  for  communicating 
clearly are too often placed on others, with not enough ownership of such responsibilities 
by the senior management of the firms that produce investment products. 

•  Documents  are  very  often  too  long,  or  suffer  from  'information  overload'.36  Text  and 
information  is  presented  in  a  dense  manner,  without  any  effort  to  prioritise  what  is 
important or what is not. Text can appear to be simply a collection of 'caveats' or legal / 
contractual  information;  documents  are  too  often  written  by  lawyers  rather  than  those 
trained in communicating effectively with retail customers. Key information can be hard to 
identify. A respondent to the UCITS KII put this well: '…documents are too long, so we 
just  can't  be  bothered  to  read  them  from  the  beginning  to  the  end'.37  Financial  services 
firms  can  take  the  view  that  making  information  available  –  even  if  this  is  done  in  a 
manner that is not likely to be effective for the average investor – is sufficient to discharge 
their responsibilities for informing those investors.  

•  Presentation  can  often  be  dull,  confusing  or  unengaging,  suggesting  the  information 
provided  is  not  vital  or  important,  or  that  it  is  not  likely  to  be  understandable  for  the 
average reader. There can be a poor use of design techniques (e.g. white space, headings, 
emphasis, layering of information). A desk-based survey of disclosures in the UK showed 
that many of these were not as physically appealing or well presented as other marketing 
information, so as to undermine their importance and relevance for investors.38 

•  Finally,  information  provided  may  be  partial  or  misleading  in  effect  for  the  average 
investor,  even if technically correct details are included in small print. Evidence included 
in  the  PRIPs  Communication  IA  included  the  example  of  mis-selling  of  equity-linked 

32  

33  
34  

35  
36  
37  
38  

See Annex I.8 for a summary of the evidence collected during the development phase of the PRIPs 
initiative; see also http://ec.europa.eu/internal_market/investment/investor_information_en.htm (section 
relating to workshops on simplified prospectus) for further data. See www.fsa.gov.uk/pubs/consumer-
research/crpr18.pdf. 
Decision Technology p.8. 
See Decision Technology p. 8; See 
http://www.abi.org.uk/Publications/ABI_Publications_Helping_Consumers_Understand_Investment_Ri
sk_708.aspx (ABI Risk Research). 
Decision Technology study.  
For a good summary, see National Consumer Council, Too Much Information Can Harm. 
IFF p.147. 
See http://www.fsa.gov.uk/pubs/consumer-research/crpr55.pdf 

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insurance  products  in  the  Netherlands  where  costs  were  insufficiently  disclosed.  This 
problem can either be due to poor compliance standards, or due to more subjective factors 
related to the presentation of information and the positioning of key information in small 
print.  For  instance,  one  respondent  to  the  YouGov  and  IFF  study  noted  the  problem  of 
overly  highlighted  positives:  'they  would  only  present  beneficial  features  of  the 
products…I  should  have  read  the  additional  information  in  the  document  but  because  it 
was  written  with  small  font  I  ignored  it';  another  remarked  (in  relation  to  a  savings 
product) 'it was an account that I thought paid 5% interest a year, when in fact it was 5% 
over 2 years…I was just displeased…it was in the small print so really was my mistake'.39   

Evidence on impact 

The YouGov and IFF study showed that investor understanding of risks was very sensitive to 
details of the language used or presentation.40 Other research has shown poor understanding 
of basic concepts of 'risk reward', and questioned the accessibility of even the basic concept of 
a  percentage  (%).41  As  another  illustration,  the  Decision  Technology  study  explored 
respondents  (who  had  invested  in  the  recent  past)  understanding  of  their  investments,  and 
found  very  strong  evidence  of  very  basic  misunderstandings:  for  instance,  nearly  40% 
wrongly  believed  that  investments  in  equities  they  had  made  benefited  from  capital 
guarantees.42   

This evidence (which is consistent with much other research in this area), and feedback from 
consultation  respondents,  has  confirmed  the  findings  of  work  on  financial  literacy:  that 
average  investors  are  currently  poorly  able  to  understand  many  of  the  investment  products 
offered  to  them.  Of  course,  failings  by  investors  to  understand  investments  are  not  solely  a 
consequnece of poor disclosures. Low levels of financial capability are clearly relevant; also, 
where an investor seeks advice, the advisor takes responsibility for making suitable personal 
recommendations.  Nonetheless,  research  on  consumer  use  of  information  shows  that 
respondents comprehension of information is sensitive to the presentation, comparability and 
clarity of the information..43  

Ultimately, clear and understandable information is necessary (if not sufficient) for informed 
decision making. Improving information would therefore lead to improved decision making. 
In particular, the Decision Technology study shows that standardisation and simplification of 
information can drive such benefits.44  

Key problem 3: Retail investors fail to understand the products they buy 

2 -- Mandatory information currently provided is not comparable 

39  
40  
41  
42  

43  
44  

IFF p.147. 
See ABI Risk Research. 
See http://ec.europa.eu/internal_market/investment/docs/other_docs/research_report_en.pdf.  
Summarised at Decision Technology p. 7. For samples of other research see Appendix 2 to the IOSCO 
report. 
See, again, Appendix 2 to IOSCO report. 
Decision Technology p. 9. 

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The  regulatory  patchwork  in  EU  disclosure  requirements  effectively  prevents  firms  from 
providing  consistent  disclosure  information  to  retail  customers,  which  has  the  immediate 
consequence that it is difficult for those customers to compare different products.45  

•  General information about the nature and features of the product – what it is, how it works, 
how  you  can  redeem  it,  how  you  can  find  out  more  about  how  it  is  doing  –  can  be 
presented  in  very  different  ways,  or  use  different  classifications  of  investments  or  terms, 
making it difficult to compare. 

•  Information  about  risks  is  presented  in  incompatible  or  difficult  to  compare  ways  (this 
covers  both  market  risk  (price  volatility),  but  also  other  dimensions  of  risk,  such  as 
counterparty  risk  or  operational  risk).  When  investors  do  try  to  compare  information 
provided it can be misleading – it may be very hard to see what it truly 'low' or 'high' risk, 
and there is no 'objective' or neutral help available in assessing this. 

•  Different products have different costs and mechanisms by which costs are charged to the 
investor, and these costs can be presented in very different ways or according to different 
calculations.  

Evidence on impact 

Both the Decision Technology study and the YouGov and IFF study showed that presenting 
information  in  competing  or  different  formats  undermines  investor  comprehension  and 
confidence. Both demonstrated startling failures on the part of investors to assess competing 
investment  propositions.  The  YouGov  and  IFF  study  also  showed  that  presenting  risk 
information  in  a  structured  way  capable  of  comparisons  (i.e.  placing  each  fund  on  a  scale 
from 1 to 7) significantly improved the ability of investors to compare between funds, even 
where  complex  caveats  might  need  to  be  taken  into  account.46  Research  by  the  UK  ABI 
supports this finding.47  

Failures to effectively compare products may be linked to the extent to which investors shop 
around  for  investments.  Decision  Technology  found  little  evidence  of  extensive  search 
behaviour in the retail investment markets; in part a lack of 'shopping around' might be related 
to  infrequency  of  investment  decision  making,  or  self-perceptions  of  investors  as  to  their 
confidence in making investment decisions.48 A lack of comparability of information is likely 
to be one factor in limiting confidence, shopping around behaviour, and hence competition in 
the investment product markets. 

While  there  is  much  behavioural  evidence  on  difficulties  investors  have  comparing  costs, 
some important UK evidence supports a specific link between the introduction of regulatory 
steps designed to improve the comparability and transparency of costs and the manufacturer's 
future  pricing  of  the  products.  Introducing  a  price  comparator  into  product  information  (the 
so-called  'RIY'  figure)  where  price  information  was  otherwise  complicated  correlated  with 
pricing  changes  in  the  market  for  life  products  that  might  not  be  explained  through  other 
factors.49 This may indicate increased shopping around behaviour by customers or that firms 

45  

46  
47 
48  
49  

As we will see, the Decision Technology study reached a major conclusion that regulatory interventions 
designed to improve standardisation and comparability of information are effective interventions for 
improving investor decision making (see Decision Technology p. 9). 
See YouGov and IFF p.10-13 for summary. 
ABI risk paper, ibid. 
See, for instance, Decision Technology pp 186-7. 
http://www.fsa.gov.uk/pubs/occpapers/op32.pdf; http://www.fsa.gov.uk/pubs/occpapers/op39.pdf. 

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themselves are choosing to compete on price (possibly in the anticipation that price was going 
to be of increased salience for investors). Other research also showed positive benefits to the 
inclusion of measures to improve price transparency into mandatory disclosures.50  

Note that there are no equivalent measures to those for UCITS KII available for other PRIPs 
so as to facilitate comparisons between them and each other or UCITS.  This may distort the 
market between UCITS and other PRIPs. 

Key problem 4: Retail investors fail to compare products 

3 -- Mandatory information is not made available to investors in a timely fashion 

The best information disclosures would be of no value if they were not in practice read and 
used,  or  they  were  provided  to  investors  too  late  in  their  decision  making  process  to  be  of 
value in that decision making.   

Evidence suggests that these problems – of actual provision or the timing of provision – are 
important.  Notably,  in  the  Synovate  study,  few  participants  recalled  or  recorded  being 
provided with product information.51 While there is an enforcement or compliance component 
to  this  issue  there  are  also  divergences  in  EU  law  in  regards  the  standards  that  apply  as  to 
whether product information prepared by manufacturers must be used by intermediaries.52  

The  provision  of  information  to  investors  is  of  course  only  part  a  wider  picture:  the 
information  has  to  actually  be  used  and  read  by  the  investor  if  it  is  to  impact  on  their 
behaviour. Sub-drivers 1 and 2 contribute to information that is provided being unattractive or 
uninteresting, and consequently less likely to be read, which is why the three issues should be 
looked at and tackled together. 

Key problem 5: Retail investors do not receive information 

3.3. 

Scale of the problem and consequences 

Investor side 

Micro (individual) level 

Investor detriment in the retail investment market can take different forms: 

•  Buying products which have a risk profile that is not suitable – i.e. where the risk/reward 
profile of the product is not understood or anticipated, leading to direct losses (e.g. during 
downswings, or where an investment has higher volatility than expected), or to opportunity 
costs (where an investor wishes to take on a higher risk/reward investment than they in fact 
purchased). 

50  

51  

52  

http://www.fsa.gov.uk/pubs/other/cra_report_benefits.pdf. See in addition a conceptual model for 
considering the interaction between price transparency and consumer welfare: 
http://www.fsa.gov.uk/pubs/occpapers/op26.pdf. 
While this is at heart an enforcement issue relating to rules applying on distributors, it underlines the 
importance of exploring regulatory mechanisms for ensuring delivery of information. 
The UCITS KIID regime tackled these problems through explicit requirements on the provision of 
KIID to investors, on the timing of this provision, and on the overall quality of the KIID compared to 
other information or marketing materials.  

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•  Buying products with features that are not suitable (e.g. products which include a lock-in 
period during which it is impossible to redeem or where redemptions carry penalties).  This 
can  include  paying  for  features  that  are  not  appropriate  or  necessary  given  the  investors' 
needs. 

The  PRIPs  Communication  IA  already  surveyed  examples  of  these  problems  in  practice 
(summarised  in  Annex  I.8).  Looking  across  the  EU  market  as  a  whole  to  assess  a  possible 
scale for mis-selling is complicated by the fact that mis-sales are not necessarily recognised as 
such  at  the  time  (or  indeed  later),  so  that  possible  effects  on  competition,  pricing  and 
opportunity  costs  are  difficult  to  untangle.  Issues  typically  arise  where  market  movements 
expose  a  practice  that  had  hitherto  gone  unnoticed;  such  problems  have  been  distressingly 
common.53  

The  recent  Synovate  study  provides  a  basis  for  assessing  the  EU-wide  scale  of  these  issues 
however. It concluded that around 60% of sales in a mystery shopping exercise across all EU 
markets  might  be  deemed  'unsuitable'.54  In  this  context,  a  number  of  aspects  are  certainly 
linked to non-compliance with existing point of sale rules (for instance, insufficient gathering 
of  personal  information  about  the  client  or  superficial  evaluation  of  suitability)  while  the 
study  also  noticed  a  significant  proportion  of  advice  focusing  on  products  that  are  less 
regulated  at  the  point  of  sale  (for  instance,  certain  savings  products)  which  may  indicate  a 
form  of  regulatory  arbitrage.  However,  the  study  also  identified  problems  with  disclosures 
concerning the products recommended to clients, which is the aspect of particular relevance in 
this  context.  In  addition,  the  provision  of  clear  and  comparable  information  about  products 
and their prices  could  be  expected  to  contribute to greater salience being placed on product 
features  and  prices  at  the  point  of  sale,  impacting  the  scale  practices  related  to  these  other 
factors. 

Given  the  complex  interaction  of  factors  at  the  point  of  sale,  estimating  the  specific 
contribution  of  product  disclosure  failures  to  mis-sales  (especially  where  sales  are 
accompanied  by  advice)  is  in  practice  difficult;  the  only  reliable  techniques  are  ex  poste  in 
nature rather  than ex ante, and such data is not readily available across the whole EU retail 
investment  market.55  Where  a  personal  recommendation  is  made,  the  quality  of  that 
recommendation  will  clearly  be  of  key  importance.  External  factors  too  can  be  important, 
including  the  impact  of  non-professionals  (friends  and  family,  for  instance),  or  'cultural' 
factors (such as brand loyalty).   

Nonetheless,  it  is  clear  that  poor  transparency  and  reduced  comparability  of  information 
contribute  or  enable  mis-selling.  Even  taking  into  account  potential  caveats  on  the  scale  of 
mis-sales and their link to imperfections in product disclosure requirements, given the volume 

53  

54  

55  

Complaints data can be illustrative: for instance, the Financial Ombudsman Service in the UK has 
roughly received between 3000 and 11000 complaints on investments (though excluding certain 
insurance and pensions related investments) each year since 2003. Note complaints that following the 
potential mis-selling of endowments linked to mortgages in the UK, the latter generated almost 70,000 
complaints in 2005 and 2006; as another example, in the Netherlands the Ombudsman dealt with 
significant volumes of cases related to mis-selling of equity-linked insurance and pricing transparency. 
See also http://www.kifid.nl/uploads/2008-03-04-
Recommendation_of_the_Financial_Services_Ombudsman.pdf 
'Mystery shopping' is a technique where researchers adopt the pretence of being an ordinary shopper, in 
order to assess the service offered in practice. This is a powerful tool for assessing compliance with 
regulation.  
Carefully conducted longitudinal studies might be able to resolve this issue, but these would need to be 
set up in advance. 

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of the retail investment market (estimated to be around EUR 9 trillion in 2009), the impact of 
potential  mis-sales  would  represent  a  very  significant  and  material  potential  source  of 
consumer detriment. Even if the Synovate figure of 60% was revised signficantly downwards, 
impacts are very material. This is compounded by the fact that detriment relates not only to 
losses borne – which typically drives perceptions of when a mis-sale has occurred, and only 
comes to the surface when risks crystalise – but also to opportunity costs and impacts through 
reduced competition and reduced market efficiency. 

For these reasons, and given that effective product disclosure is a necessary (if not sufficient) 
condition  for  informed  decision  making,  it  is  difficult  not  to  conclude  that  failures  in  these 
disclosures  are  likely  to  have  a  substantial  impact.  Even  if  only  10%  of  sales  in  the  retail 
investment  market  could  be  considered  as  'unsuitable'  this  still  amounts  to  almost  1  trillion 
EUR  of  potentially  misheld  products;  to  put  this  in  context,  even  if  product  disclosure 
contributed only 1% to this, this would still amount to around 10 billion EUR (4 billion EUR 
for  the  non-UCITS  part  of  the  market).  These  figures  need  to  be  borne  in  mind  when 
considering costs of changes. 

Macro (aggregate) level 

As  noted,  mis-sales  or  poor  comparability  of  information  can  reduce  competition  and 
shopping around. This is clearest when considering poor comparability of products: a lack of 
readily comparable information by definition creates a barrier to comparing products. The UK 
FSA price transparency study noted above showed how improving cost transparency can lead 
to reduced costs overall. Price sensitivity on the part of a proportion of consumers can have 
benefits  for  the  remainder  of  consumers.  In  addition,  firms  anticipate  such  sensitivity  under 
conditions of greater price transparency (and also may independently compete more on price). 
Even small impacts on price can lead to a large overall benefit for consumers given the scale 
of business.  

For instance, a 0.5% reduction of annual management costs might seem small, but in a market 
of EUR 9 trillion this would amount to EUR 45 billion benefits to investors, though of course 
lower costs would also equate to reduced surpluses for investment product manufacturers and 
distributors.This is in a context where research from Lipper demonstrates an EU fund market 
overburdened  by  small,  relatively  costly  funds:  in  general  they  conclude  (amongst  other 
things) that a greater focus by investors on costs could drive important benefits.56  

Industry side 

An  unlevel  playing  field  between  firms  has  the  direct  impact  of  varying  costs  of  business, 
distorting competition. Regulatory arbitrage could encourage the development of products or 
sectors that are subject to the lowest levels of regulation, also undermining the effectiveness 
of  regulation.  While  many  stakeholders  –  including  industry  voices  –  have  raised  concerns 
relating to such effects it is very difficult to establish how far the design, commercialisation 
and  marketing  success  of  products  is  in  practice  determined  by  the  nature  of  regulatory 
disclosure requirements, given the range of other commercial factors that can apply (such as 
tax regimes, culturally specific factors in particular national markets, internal firm strategies, 
and  other  regulatory  requirements,  such  as  authorisation,  conduct  of  business  or  oversight 
requirements).  However,  as  noted  above,  small  steps  on  improving  the  salience  of  cost 
information, for instance, could have a large impact on consumer welfare in aggregate. 

56  

Lipper FMI White Paper: Profiting from Proliferation? June 2009 

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A  number  of  industry  stakeholders  indicated  in  the  recent  consultation  that  a  lack  of 
standardisation  and  consistency  across  different  sectors  can  raise  compliance  and 
administrative  costs,  especially  for  firms  or  groups  operating  across  sectors  or  national 
markets.  

Other more direct impacts of failings in regulation are also important. Mis-sales can also have 
a strong impact on firms, raising levels of compensation claims and complaints and internal 
costs related to managing these, and damaging brand identities. More generally, reduced retail 
trust  of  the  investment  markets  could  reduce  liquidity  and  vital  investment  in  economic 
growth and jobs.  

3.4. 

How would the problem evolve without further action? 

Irrespective  of  the  Commission's  commitment  to  make  proposals  for  legislative  changes  in 
this area, it is possible to assess the counterfactual of no action at the European level. Under 
this  scenario,  problems  would  be  likely  to  persist,  and  inconsistencies  at  the  level  of 
Community law would not be able to be addressed at any other level.  

Some Member States have already indicated that they would take further action in the absence 
of an intervention at the EU level. This may have a beneficial impact with respect to investor 
protection  and  the  level  playing  field  within  the  Member  States  in  question.  However,  it 
would also lead to further divergence of regulatory approaches across Member States, thereby 
potentially  impeding  market  cross-border  business  and  further  complicating  the  legislative 
landscape,  while,  differences  in  regulatory  approach  cannot  be  addressed  effectively  at 
Member State level as they relate to differences in approach in Community law (for instance 
with  highly  standardised  disclosures  for  UCITS,  high  level  requirements  only  for  insurance 
PRIPs,  and  a  mixture  of  these  for  securities  subject  to  the  PD).  Also,  it  is  unlikely  that  all 
Member  States  would  take  unilateral  action,  leaving  some  markets  without  adequate 
regulation. Inconsistencies in approach between Member States would raise adminstrative and 
legal  costs  for  firms  operating  in  different  Member  States,  and  increase  uncertainty  for 
investors buying cross-border.  

Some  self-regulatory  initiatives  on  the  part  of  the  industry  can  also  be  expected  to  emerge 
without  further  stimulus  from  the  EU;  evidence  from  the  Call  for  Evidence  and  the 
Consultation indicates a certain willingness to take such steps, though it is difficult to assess 
the likelihood of such steps coming to fruition. In addition, self-regulatory steps are unlikely – 
as they would tend to continue to be sectorally discrete and vary between different Member 
States  –  to  effectively  achieve  a  consistent  approach  between  sectors  and  across  Member 
States. 

At EU level, in the absence of new initiatives, existing workstreams would also contribute to 
mitigating the problems in certain sectors and for certain products. These include: 

•  Implementation of KII requirements for UCITS following adoption of new standard under 

UCITS IV; 

•  New implementing measures on summary prospectus and key information it must contain 

for the PD; 

•  Work on improving financial education, in conjunction with Member States; and 

•  Reviews of IMD and MiFID.  

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However,  taking  together  these  developments  would  not  be  able  to  address  regulatory 
fragmentation  and  inconsistencies  in  approach  between  different  sectors  and  different 
legislative initiatives, since these different initiatives and measures are designed to address a 
wide  range  of  other  regulatory  challenges,  other  than  the  problems  of  comparability  and 
comprehensibility of pre-contractual information addressed in this impact assessment. For this 
reason  it  is  unlikely  the  comparability  of  different  PRIPs  would  be  improved;  by  definition 
tackling  this  would  require  a  coordinated  approach  across  product  types.  UCITS  KII 
requirements would only apply to part of the PRIPs market, while measures on the summary 
prospectus are not likely to lead to documents that are directly comparable to the UCITS KII. 
Strengthened  rules  on  distributors  and  those  providing  advice  also  would  not  in  themselves 
improve the comparability of information about products, notably on costs or risks. 

In fact, fragmentation and its consequences would likely worsen, following the introduction 
of  prescriptive  rules  aimed  at  a  short  document  for  UCITS  KII  but  no  comparable  rules 
elsewhere. As noted, the reactions of Member States to the introduction of these requirements 
are  also  likely  to  vary,  raising  additional  coordination  challenges.  Even  where  all  Member 
States seek to tackle level playing field issues between UCITS KII and disclosures for other 
products,  it  is  probable  that  different  Member  States  would  develop  their  own  alternative 
solutions to these challenges, thereby more deeply embedding fragmentation across the single 
market. 

4. 

THE EU'S RIGHT TO ACT AND JUSTIFICATION 

Possible measures for addressing the problems identified in this impact assessment would be 
based  on  Article  114  of  the  TFEU.  Given  the  identified  problems,  possible  options  for 
measures  would  necessarily  relate  to  improving  the  conditions  for  the  establishment  and 
functioning  of  the  internal  market:  establishing  uniform  conditions  for  the  way  investors  in 
the  Union  are  informed  about  investment  products  and  how  the  information  is  provided  to 
them,  so  as  to  harmonise  operating  conditions  in  relation  to  the  information  on  investment 
products  for  all  relevant  players  in  the  retail  investment  market,  product  manufacturers, 
persons selling and investors.  

As set out in section 3.4, in the absence of such possible measures there would be a risk that 
obstacles to the functioning of the Single Market would emerge. Member States have already 
taken measures on the national level to address shortcomings in investor protection measures. 
It is likely that this development would continue in the absence of measures at the European 
level. Measures at the European level would counteract the development of divergent national 
approaches  to  investment  information  which  would  constitute  an  obstacle  to  the  Single 
Market.  

While there is increasingly cross border trade in retail investment products, divergent national 
approaches  will  also  lead  to  different  levels  of  investor  protection,  increased  costs  and 
uncertainties  for  product  providers  and  distributors  which  represent  an  impediment  to  the 
further  cross-border development of the retail investment market. Such further development 
would  also  require  easy  comparisons  between  products  of  different  types  across  the  Union. 
Divergent  standards  to  investor  disclosure  make  such  comparisons  very  difficult  and  would 
therefore  also  create  an  obstacle  to  the  further  development  of  the  Single  Market  for  retail 
investment products.  

Possible measures to address these obstacles to the Single Market would, if they were to be 
effective, need to apply for all relevant market players in the retail investment market. They 

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25 

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would  thereby  contribute  to  improving  the  conditions  for  the  establishment  and  the 
functioning of the Single Market in accordance with Article 114 TFEU. 

According to the principle of subsidiarity laid down in Article 5(3) of the TFEU, action on the 
EU  level  should  be  taken  only  when  the  aims envisaged  cannot  be  achieved  sufficiently  by 
Member  States  alone  and  can  therefore,  by  reason  of  the  scale  or  effects  of  the  proposed 
action, be better achieved by the EU.  

The  problems  to  be  addressed  in  this  impact  assessment  relate  to  an  unlevel  playing  field 
across the EU among different product manufacturers and persons selling investment products 
and consequent uneven levels of investor protection.  

While  some  Member  States  have  already  acted on  the  national  level,  there  are  considerable 
differences  in  these  national  responses  including  Member  States  which  have  not  yet 
undertaken any steps to improve retail investor disclosures. Responses are necessarily limited 
in  their  geographical  scope  and  cannot  be  compared  with  or  substitute  a  co-ordinated  or 
systematic response on the EU level. Significant divergences exist and can, in the absence of 
action,  be  expected  to  continue  to  exist.  Inconsistencies  between  Member  States  and  across 
product sectors impede the growth of the single market, raise costs for firms operating across 
the Union, and reduce competition between product sectors and providers, whilst weakening 
the  effectiveness  of  existing  measures  to  aid  investors  in  comparing  between  different 
investment propositions.  

Achieving greater consistency in measures on transparency across Member States and product 
sectors  is  central  to  addressing  the  problems  identified  in  this  impact  assessment.  Yet  such 
consistency  cannot  be  achieved  by  action  taken  solely  on  the  Member  State  level.  Member 
States  cannot  create  a  Union  wide  level  playing  field  for  investment  product  manufacturers 
and persons selling and an even level of investor protection in relation to investor disclosures 
across the EU.  

Therefore, action on the European level is needed. 

In  accordance  with  the  principle  of  proportionality  (Article  5(4)  TEU),  it  is  necessary  and 
appropriate  for  the  achievement  of  the  objectives  of  this  initiative  to  lay  down  principles 
relating  to  the  content  and  form  of  the  disclosure  for  retail  investment  products,  as  well  as 
rules on drawing up and provision of these disclosures to retail investors. Such requirements 
should be further developed on level 2, so that a requisite level of consistency in measures can 
be  achieved  to  facilitate  comparisons  between  investment  products  originated  in  different 
industry sectors.  

5. 

OBJECTIVES 

5.1. 

General and specific objectives  

The initiative seeks to improve the quality of investor decision making and the functioning of 
EU capital markets, tackling a breakdown in confidence and trust in the retail market. More 
concretely, it aims to:  

•  reduce levels of consumer detriment (mis-sales and mis-purchases of investment products); 

and 

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•  create  a  more  level  regulatory  playing  field  between  competing  products  while  tackling 

potential barriers to the single market. 

5.2. 

Operational objectives  

The  operational  objectives  focus  in  on  the  steps  needed  to  improve  the  quality  of  product 
disclosures. These steps can also tackle creating regulatory consistency, so as to achieve level 
playing field benefits and remove potential barriers to the single market.  

•  Improve comprehensibility of disclosures 

•  Improve comparability of products using disclosures 

•  Ensure disclosures are provided at the right time in sales processes 

•  Improve regulatory consistency 

6. 

OPTIONS 

6.1. 

Identification of options 

Before assessing options, it is important to note that it is envisaged that any new measures to 
be proposed would follow a 'Lamfalussy' approach (see Annex I.10 for some further detail on 
this), with level 1 measures determining the objectives, broad approach, and outcomes being 
sought, and level 2 measures determining the detailed application of the level 1 framework to 
specific PRIPs.   

This is consistent with the approach adopted for UCITS for the KII and in other areas of the 
financial  services,  and  reflects  the  need  for  detailed  technical  measures  (founded  on  expert 
technical  advice)  that  may  be  readily  adjusted  in  the  face  of  market  developments.  On  this 
basis, the questions to be addressed in this impact assessment relate not to the detailed content 
of proposed product disclosures (e.g. different options on the presentation of risk information, 
including through a risk rating and the underlying methodology for calculating it), but rather 
to the approach to be adopted in general to the product disclosures (e.g. the extent to which all 
PRIPs product disclosures should contain a risk rating). 

As  the  problem  description  makes  clear,  product  information  impacts  investment  decision 
making in the context of specific sales processes with their attendent dynamics, whether the 
sale  is  an  advised  sale  or  a  non-advised  sale.  It  is  difficult  to  isolate  individual  factors  in 
assessing  such  dynamics.  For  much  of  the  retail  investment  market,  the  actions  of  the  sales 
person  are  crucial,  by  means  of  the  recommendations  they  make,  the  products  they  may 
highlight or not even where a recommendation is not made, and the subtle ways in which they 
interact with the retail investor. Yet this should not be taken as relegating product disclosures 
to  a  purely  ancilary  role.  Product  disclosures  have  a  wide  range  of  both  indirect  and  direct 
impacts on sales outcomes. This includes impacts on the behaviour of sales people (providing 
objective benchmarks that may impede uninhibited pushing of products), on the behaviour of 
product  manufacturers  (supporting  greater  competition  on  product  costs  and  features),  and, 
indeed,  on  the  behaviour  of  retail  investors  (better  assessing  products).    The  problem 
description has already set out the relevance of improving product information as a means for 
addressing mis-sales in the retail market. 

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Given this wider context and the strong synergies between different factors in a typical sales 
process,  it  is  important  to  underline  that  while  this  impact  assessment  relates  solely  to 
addressing the identified issues relating to information about products, other proposals by the 
Commission  with  supporting  impact  assessments,  notably  on  the  reviews  of  MiFID  and  the 
IMD, are underway separately, so as to ensure a coherent overall approach is taken to all the 
factors in sales processes that are amenable to regulatory intervention. The reviews of MiFID 
and  the  IMD  address  in  particular  measures  on  the  provision  of  services  of  advice  and  the 
retail  investor's  understanding  of  these  services  and  the  management  of  conflicts  of  interest 
related to these services, so as to seek to align the interests of those selling products to retail 
investors  with  those  investors.    As  noted,  the  PRIPs  initiative  was  undertaken  to  assess  the 
overall coherence and effectiveness of all measures regulating retail investment markets, and 
identified the key areas of product information and the regulation of sales as priority areas for 
intervenion. This IA delivers on the former of these two areas; the MiFID and IMD revisions 
on the latter. 

The Communication on PRIPs already identified, on the basis of existing legislation and prior 
work, the broad areas that would need to be addressed by options for addressing the problems 
identified above:57  

•  the broad scope and purpose of requirements (i.e.  focus on  informing  investors’  decision 

making, rather than, say, on providing contractual information); 

•  how information might be presented, including length of documents, or the kind or style of 

language to be used; 

•  the  key  areas  of  information  to  be  included  in  documents,  and  the  possibility  of  detailed 

measures (at level 2) for standardising the form and content of such information; 

•  who should prepare information and how to keep it up-to-date; 

•  steps  for  ensuring  provision  of  information  to  the  client  (the  medium  to  be  used  for 

information, and the timing of provision). 

The policy options examined in this impact assessment build on this existing work, and have 
been grouped as follows: 

(1) 

Scope  of  initiative.  The  precise  scope  of  products  that  might  be  covered  is  key  for 
ensuring  all  competing  or  comparable  products  are  included,  vital  for  addressing 
regulatory consistency objectives and comparability of information objectives. 

Description of options 

The  scope  of  the  regime  is  fundamentally  bound  up  with  its  purpose:  in  improving 
comprehensibility and comparability of investment products, it is important to identify 
the products that can practically be compared with one another, otherwise measures to 
improve comparability could be misleading. Linked to this, the scope of the regime is 
central for considering possible regulatory arbitrage and level playing field impacts. 

57  

Common elements and principles recur across existing legislation and in the recommendations of 
international bodies seeking to coordinate disclosure approaches; see earlier footnotes. 

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Previous  work  in  the  PRIPs  initiative  led  to  the  development  of  a  concept  of 
‘packaged’  investment  products:  under  this  issue  we  assess  therefore  whether  this 
concept remains valid. Following consultation, the identified options are: (1) to set the 
scope wider than packaged products; (2) to maintain the focus on packaged products 
(see  Annex  I.3  for  definition  of  these);  (3)  to  combine  (2)  with  a  commitment  to 
review and expand (or contract) the scope if necessary. 

(2) 

Degree  and  nature  of  standardisation  of  product  disclosures.  Standardisation  relates 
both to the degree of prescription imposed on firms in regards the content and format 
of  disclosures  provided  to  retail  customers,  and  to  the  degree  of  consistency  in 
requirements  between  products  and  financial  sectors.  This  area  is  central  for 
determining  the  overall  approach  to  be  developed,  and  is  key  to  driving  costs  and 
benefits. 

Description of options 

The objectives of achieving regulatory consistency, improving comprehensibility and 
improving comparability of documents are linked directly to the extent of consistency 
of approach across different products, and the degree to which this consistency is used 
to  achieve  standardisation  of  the  content  and  format  of  documents.  Increased 
standardisation is (generally speaking) likely to increase benefits for investors but may 
increase costs for industry. (Standardisation may also reduce legal risk reducing some 
costs for industry). 

to 

identified 

the  areas 

The  many  possible  detailed  options  on  content  and  form  can  be  broken  down 
according 
to 
in 
comprehensibility  and  comparability  (language  and  length  of  disclosures  impeding 
comprehensibility,  and  different  presentations  of  product  features,  risks  and  costs 
impeding comparability).  In each area, the specific options explored (outlined in table 
3 below) broadly sit on a spectrum between greater and lesser degrees of prescription 
and standardisation. 

the  problem  definition 

relating 

(3) 

Responsibilities  for  preparation.  Stakeholders  and  consultation  respondents  have 
broadly  underlined  the  importance  of  clarity  over  who  is  responsible  for  preparing 
(and updating) disclosures. 

Description of options 

When assessing responsibilities for preparation, options range according to the degree 
of prescription applied in regards who should prepare the information. The identified 
options are: (1) not specifying who should be responsible, but leaving this to market 
participants  to  decide;  (2)  not  prescribing  responsibilities,  but  requiring  agreements 
between market participants over responsibilities; (3) placing a general responsibility 
on the product manufacturer, but allowing for some targeted exceptions; and (4) [not 
mutually  exclusive  with  other  three  options]  requiring  disclosures  of  responsible 
parties and product manufacturer in document. 

(4) 

Timely  provision.  Ensuring  effective  and  timely  provision  of  product  disclosures  to 
retail investors is vital if disclosures are to be used. 

EN 

29 

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Description of options 

Different  models  for  disclosure  provision  can  be  found  across  existing  product 
disclosure  measures,  broadly  ranging  from  (1)  a  ‘soft’  requirement  whereby  product 
disclosures are prepared by manufacturers and provided to distributors, but distributors 
are  not  required  to  use  these  for  discharging  their  responsibilities,  to  (2)  a  ‘hard’ 
requirement whereby product disclosures prepared by the manufacturers must be given 
by distributors to the investor (as is now the case with UCITS). Given the variety of 
distribution  channels  across  PRIPs,  an  additional  option  (3)  can  be  identified  where 
some  flexibility  is  introduced  as  to  the  what  counts  as  ‘providing,’  to  ensure 
practicality requirements for all channels. 

(5) 

Flanking measures: civil liability and sanctions. How should civil liabilities associated 
to the document be clarified, and are there steps to be taken on further harmonising the 
use of sanctions by competent authorities when supervising the regime? 

Description of options 

The  UCITS  KIID  regime,  as  with  the  PD  disclosure  regime,  contains  specific 
measures  to  clarify  the  liabilities  associated  with  the  KIID,  designed  to  ensure  the 
document  is  practically  treated  as  a  pre-contractual  communication  document  by 
product manufactures – the simplified prospectus had earlier become bloated through 
the inclusion of too much fine print. The UCITS KIID regime and other measures in 
the  area  of  the  Financial  Sercices  also  take  or  are  proposing  to  take  steps  on  better 
coordinating  the  sanctions  that  apply  at  the  national  level  following  breaches  of 
measures. Options  for addressing these  areas for PRIPs include: (0)  remaining  silent 
on  liabilities  /  sanctions  (baseline);  (1)  use  of  non-legislative  techniques  to  ensure 
access to and use of redress; (2) clarifying liability regime attached to PRIPs product 
disclosures;  (3)  approaching  sanctions  in  a  high-level  way;  and  (4)  taking  steps  to 
harmonise aspects of sanctions. 

EN 

30 

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Table 3: Summary of options 
Issue 

1 
Scope (products for which 
disclosure requirements should be 
aligned and improved) 

Objectives 
addressed 
All 

Policy options 

0 –  Take no action 
1 –  Set the widest possible scope 
2 –  Only 'packaged' products  
3 –  Only 'packaged' products, but set firm review 
date 
[Options are mutually exclusive] 

2 Degree of 
standardisation 

a  Plain language, 
engaging 
quality of 
document 

Comprehensibility  0 – Take no action 

1 – Apply high-level principles only 
2 – Prescriptive rules to standardise elements of 
language, ‘look and feel’ of document 
3 – Use of non-legislative tools 
4 – Clarify liability attached to document 
[Options 1 and 2 are mutually exclusive; option 4 
also addressed under issue 5] 

b  Length 

of 

Comprehensibility  0 – Take no action 

document 

c  Accuracy, 
balance 
information 

of 

1 – Set a ‘soft’ limit on length; prescribe contents 
and length where viable at level 2 
2 – Set a ‘hard’ limit on the length of all 
documents (e.g. 2 pages A4) 
3 – Use layering of information / signposting to 
other documents  
[Option 3 is not mutually excusive with 1 and 2] 

Comprehensibility  0 – Take no action 

d  Comparisons 

Comparability 

product 
of 
features,  risks, 
costs 

3 
Responsibility for preparing 
product disclosures 

All 

4 
Requirements on delivery of 
product disclosure 

Ensuring 
provision 

5 
Flanking measures: civil liabilities 
and sanctions 

All 

1 – Set high-level principles only 
2 – Use prescriptive requirements on form and 
contents to ensure balanced presentation 
[Options are mutually exclusive] 
0 – Take no action 
1 – Seek consistent structure, layout to aid 
comparisons 
2– Standardised risk, cost, and performance 
disclosures for all PRIPs 
[Options are not mutually exclusive] 
 0 – Take no action 
1 -- Flexibility over who prepares the document 
2 -- Flexibility over who prepares the document, 
but requiring agreement on responsibility  
3 -- Product manufacturer normally responsible 
for preparing the document  
4 – Require disclosures of responsible parties in 
document 
[Options 1 - 3 are mutually exclusive; 4 is not 
mutually exclusive with 1 - 3] 
0 – Take no action 
1 – ‘Soft’ requirement on provision and its timing 
2 – ‘Hard’ requirement on provision and its 
timing  
3 – Broadly follow 2, but allow for some targeted 
exceptions 
[Options are mutually exclusive] 
0 – Take no action 
1 – Non-legislative steps to ensure access to 
redress 
2 – Clarifying liability attached to document  
3 – Clarify sanctions in high level manner 
4 – Clarify sanctions in more detail 

EN 

31 

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[Option 3 is mutually exclusive with 4] 

6.2. 

Analysis and comparison of options 

For  a  full  discussion  of  each  issue,  the  identified  options,  and  assessment  of  the  costs  and 
benefits of the different options, please see the relevant section in Annex II.  

6.2.1. 

Issue 1 – What scope of products should be covered? 

Defining  which  products  are  'competing'  for  retail  investments  has  been  hotly  debated 
throughout  the  PRIPs  work.  The  Commission  proposed  in  its  Communication  a  focus  on 
'packaged'  investments.  Stakeholders  have  generally  recognised  the  practical  validity  of  the 
concept of packaging, and that packaged investments share features amongst themselves (and 
differ in important ways from non-packaged investments), and likely need stronger consumer 
protection  measures,  including  steps  to  enhance  comparability.  Some  take  the  view  that  the 
scope of the initiative should nonetheless be as broad as possible. 

Box 3: Defining Packaged Products  

The Commission consultation on PRIPs has steadily refined a possible definition of retail investment products of 
the packaged form. At its core, the definition refers to the investor's exposure to uncertainties in outcomes, and 
the intervention of financial engineering in this regard: 

A  PRIPs  is  any  investment  where  the  amount  repayable  to  the  investor  is  exposed  to  fluctuations  in  the 
performance of one or more assets or reference values, and where the investor does not directly purchase or sell 
these assets. 

Products solely linked to interest rates or where outcomes are wholly guaranteed and known beforehand would 
be excluded, as would financial products that are pure insurance products (general insurance products, or pure 
protection insurance products). 

Many  stakeholders  have  views  (positively  or  negatively)  on  the  precise  application  of  the 
concept  of  packaged  products  to  particular  products,  e.g.  as  may  exist  in  particular  national 
markets.    

Option 

Effectiveness 
Comprehension 

Comparison 

0 – Take no action 
1 -- Set the widest 
possible scope 

2 -- Focus on 
'packaged' 
products 

3 -- Focus on 
'packaged' 
products, but set 

0 
+ 
Effective approach 
would still require 
boundary to be drawn 
between 'packaged' and 
'non-packaged' 
products; wider scope 
could allow for overall 
better coherence. 

0 
+ 
Effective approach 
would still require 
boundary to be drawn 
between 'packaged' 
and 'non-packaged' 
products; wider scope 
could allow for overall 
better coherence. 

+ 
Key benefits relate to 
packaged products, so 
only likely to be 
marginally less effective 
than 1. (May be more 
effective in practice due 
to more focused 
approach.) 
++ 
Key benefits relate to 
packaged products, so 

+ 
Key benefits relate to 
packaged products, so 
only likely to be 
marginally less 
effective than 1. (May 
be more effective in 
practice due to more 
focused approach.)  
++ 
Key benefits relate to 
packaged products, so 

Regulatory 
Patchwork 
0 
+ 
Existing unlevel 
playing field is 
practically focused on 
'packaged' products, 
but wider focus  

+ 
Existing unlevel 
playing field is 
practically focused on 
'packaged' products 

++ 
Existing unlevel 
playing field is 

Efficiency 

0 
Depending on approach, costs for 
industry may be comparable to focus 
on packaged regime, but marginally 
greater due to wider impact.  
Benefits for consumers depend on 
extent to which regime still segments 
between packaged and non-packaged 
products; effectively challenge of 
demarcation of products cannot be 
avoided. 
Costs likely to be lower than for 1, as 
impact targeted on those products that 
are most relevant, and option 2.1 
would likely still need to demarcate in 
measures between packaged and non-
packaged investments. 
Core benefits achieved in relation to 
packaged products, so likely to be 
equivalent to option 2.1 
Costs likely to be lower than for 1, as 
impact targeted on those products that 
are most relevant, and option 1 would 

EN 

32 

   EN 

 
 
firm review date 
(e.g. five years 
following coming 
into force) 

only likely to be 
marginally less effective 
than 1. (May be more 
effective in practice due 
to more focused 
approach.) 
Review of scope allows 
possible future arbitrage 
and consumer detriment 
to be addressed 

only likely to be 
marginally less 
effective than 1. (May 
be more effective in 
practice due to more 
focused approach.) 
Review of scope 
allows possible future 
arbitrage and 
consumer detriment to 
be addressed 

practically focused on 
'packaged' products  
Review of scope 
allows possible future 
arbitrage and unlevel 
playing field issues to 
be addressed 

likely still need to demarcate in 
measures between packaged and non-
packaged investments. 
Core benefits achieved in relation to 
packaged products, so likely to be 
equivalent to option 1. 
Review mechanisms allows for 
possible regulatory arbitrage, 
countering possible weakness with 
option 2 

As the table makes clear, all approaches to scope have their merits and their problems. 

Costs are likely to be similar for the bulk of the market across all options, though the precise 
form and cost/benefit impact of the first option is difficult to assess (it could be developed in a 
manner  which  was  extremely  impactful  or  without  major  impact,  depending  on  the  choices 
made for other options below, e.g. the degree of standardisation chosen).  

However  any  distinction  between  packaged  and  non-packaged  investments  is  subject  to 
changes due to innovation. Experience has shown  that wherever the boundary is drawn, the 
risk remains that investment propositions might be developed which are economically similar 
or the same as those captured by the defined scope but which fall nevertheless outside defined 
boundaries or sit at least at the edges of that scope. The determination of a boundary may well 
thereby encourage or facilitate regulatory arbitrage, contributing to further complexity in the 
market. This is of course without prejudice to providing the necessary legal certainty on scope 
(which  can  be  achieved  in  a  variety  of  ways  at  level  one,  supported  as  necessary  through 
detailed implementing measures). 

Nonetheless, the case for maintaining an initial focus on packaged investments is also strong, 
and seems more proportionate than a wider scope, as it focuses action on the products that are 
likely to deliver the main benefits from better disclosure regimes, without overly diluting the 
regulatory  design  process  in  order  to  address  marginal  cases.  These  are  mostly  directly 
comparable products, where a common product disclosure regime can be readily envisaged.  

Given the broad issues that might arise in regards arbitrage, the option of a two step approach 
is  strongest:  to  focus  for  now  on  ‘packaged’  products,  being  as  these  are  financial  products 
that  are  manufactured  for  the  purposes  of  providing  investments  to  retail  customers,  but  to 
reassess  whether  a  wider  scope  might  be  appropriate  at  a  predetermined  point  in  the  near 
future.  The  scope  of  products  that  would  be  caught  by  this  approach  and  a  possible  way  of 
defining them more in detail e.g. with respect to the future legal instrument on disclosure is 
presented in Annex I.3. 

Box 4: Pensions: a special case?  

Given  ongoing  work  following  the  Green  Paper  (see  Annex  I.2)  it  may  be  premature  to  determine  the 
appropriate  EU dimension  of  rules on  disclosure  for  these,  particularly as  regards  Pillar  II pensions,  but  some 
respondents to the consultation strongly argued that products that might be determined as pensions, particularly 
under Pillar III , were directly, in their view, substitutable for other PRIPs in some markets. In addition, it can be 
argued that decision making in relation to pension and retirement planning raise additional consumer protection 
issues  compared  to  other  PRIPs  that  warrant  even  stronger  consumer  protection  measures  tailored  to  national 
pension systems, but at least subject to similar standards of disclosure as other investments. Issues include, for 
instance, achieving clarity on possible restrictions on how pension investments might be used, on the specifics of 
individual  tax  treatments,  and  on  the  typically  long  term  nature  of  the  investment  and  the  need  to  assess  the 
likely income that the pension might deliver in the future, which makes the calculation or assessment of possible 
future benefits, such as retirment income backed by an annuity, more complex and difficult to explain than for 
ordinary  investments,  and  also  raises  additional  specific  factors  such  as  the  impact  of  changes  to  longevity. 

EN 

33 

   EN 

 
Certainly,  therefore,  there  are  additional  information  requirements  that  should  apply  for  investments  used  as 
pensions compared to other investments.  

6.2.2. 

Issue 2 – How far and in what ways should disclosures be standardised at EU level? 

As  it  has  been  mentioned  above,  the  UCITS  KII  regime  is  highly  prescriptive  and  strongly 
standardises the "look and feel" and contents of UCITS KIIDs, so as to promote comparability 
of  information  and  comprehension.  This  approach  also  has  benefits  relating  to  regulatory 
consistency (potentially reducing costs for firms, given the cross-border nature of the UCITS 
market, and the role of the KIID within notification procedures for marketing cross-border).  

Given  that  here  we  address  other  products,  which  are  prepared  and  offered  by  different 
manufacturers and  distributors, we should now examine how far (and in what ways) such a 
standardised approach might be applied more widely.  This issue relates also to specific policy 
options for improving comprehensibility and comparability of product disclosures. 

Comprehensibility 

Improving use of plain language and making information more engaging 

Option 

Effectiveness 

Efficiency 

0 – Take no action 
1 – Apply high-level 
principles only 

2 – Increased 
prescription  

0 
– 
Experience with UCITS simplified prospectus showed that 
high-level requirements were not sufficiently effective in 
ensuring comprehensible information in documents. 
Ensuring firms, supervisors approach standards in 
consistent way would be difficult to achieve, leading to 
inconsistencies in outcomes. 

+ + 
Experience with developing UCITS KII requirements is that 
higher standardisation allows for setting better 'minimum 
standard' for all, so that best practices can be more 
immediately reflected into generalised industry practice. 
Greater consistency in approach across all markets / sectors. 

3 – Use of non-
legislative tools 

++ 
Can support 2, e.g. national regulators, firm trade bodies, 
consumer associations may be best placed to develop 
practical guidelines on better language, common glossaries, 
will better address continued scope for poor language. 

4 – Clarify liability 
attached to 
document 

+ 
UCITS experience was that success (shortness, clarity of 
language) of document requires some comfort for firms that 
they may focus only on 'key' information and not include all 
possibly relevant information. 

0 
Effective engagement by supervisors with firms 
could be costly / inconsistent, given lack of 
guidance in a high-level approach.  
Some lack of legal clarity for firms as to necessary 
standards; inconsistencies cross-border would erect 
barriers to single market. 
Flexibility may be valuable for allowing 
innovation in terms of communication practices. 
Consistency and better clarity could lead to 
reduced costs for firms and supervisors. 
Benefits for investors through wider adoption of 
better practices enshrined in binding EU level 
requirements. 
May be seen as a 'tick-box' approach by firms, or a 
regulatory 'safe harbour' if they follow the letter 
but not the spirit of the rules. 

Costs expected for developing and improve 
industry practices, but benefits for consumers from 
better addressing possible weaknesses  
Allows flexibility for allowing innovation in terms 
of communication practices 
Can overcome tick-box approach possible under 2 
on its own 
Lack of clarity could undermine document, as 
firms' concerns over liability lead to inclusion of 
all possibly relevant information, rather than sole 
focus on key information. 

As our problem definition outlined, typically firms have approached product disclosures in a 
legalistic manner (minimizing legal risk of breach by flood of information), rather than as an 
opportunity  to  communicate  effectively  with  potential  clients  in  a  plain  manner.  For  the 
UCITS KIID therefore measures were adopted to ensure the disclosure was approached as a 
‘communication’  document,  including  a  clarification  of  legal  liability  and  relatively  strong 
prescription  of  the  form  and  content  of  the  document.  However,  some  stakeholders  (both 
industry and consumer representatives) have commented that such an approach needs careful 
support,  e.g.  through  the  development  of  common  glossaries  of  terms,  sharing  of  best 

EN 

34 

   EN 

 
 
 
 
practice,  and  careful  supervision  by  competent  authorities.  This  option  appears  most 
proportionate,  as  it  would  better  guarantee  benefits,  at  relatively  low  additional  costs  for 
developing such support. 

Clearly,  any  intervention  into  the  current  practice  of  disclosures  will  have  a  significant 
adjustment cost impact on industry compared to the baseline. Acting on the language of the 
disclosure  alone,  would  trigger  approximately  the  same  magnitude  of  costs  as  action  on  all 
components of the problem driver together (i.e. language, information overload, accuracy and 
balance, comparability). On the other hand, benefits to consumers would increase with each 
additional field of action. Therefore, in this impact analysis, we decided to carry out the final 
cost benefit analysis of all components together as a package (under section 6.3) and explain - 
mainly qualitatively - marginal costs and benefits under each section. 

As for marginal costs: while high level standards (1) may leave some more scope to current 
disclosure  practices,  and  would  therefore  have  lower  cost  impacts,  it  would  not  address  the 
problems identified as effectively as options 2 and 3.  The  consumer benefits expected from 
more prescriptive and standardised rules will clearly be highest, while some industry benefits 
are  also  expected  from  this  option  in  terms  of  more  level  playing  field  and  less  legal 
fragmentation  to  market  access.  Under  either  approach,  the  magnitude  of  costs  will  still 
greatly depend on the technical implementation at Level 2.  

(Liability is analysed separately under issue 5 below). 

Addressing information overload  

This analysis considers the specific issue of overly complex and long documents. 

Option 

Effectiveness 

Efficiency 

0 –Take no action 
1 – Set a soft limit on 
length: prescribe 
contents and length 
where viable at level 
2 
2 – Set a hard limit on 
the length (and 
content) of all 
documents (e.g. 2 
pages A4) 

3 – Use layering of 
information / 
signposting to other 
documents 

0 
+  
In practice may be similar (due to impact of prescription on 
content) to option 1, but flexibility may allow for better 
tailoring of requirements to specificities of non-harmonised 
products. 
+/- 
For UCITS a hard limit on the document could be readily 
considered because UCITS are harmonised across the EU. 
With other PRIPs which are not harmonised, the product 
features or benefits may not be always covered in 2 pages 
(even for UCITS this is not always possible; structured 
UCITS are provided with a derogation from the 2 page limit). 
Given this, enforcing a 2 page limit could lead to documents 
that do not cover all information clearly or comprehensibly.  
Setting a hard limit may be an effective tool for ensuring 
firms write in a concise manner: evidence suggests longer 
documents may not be read. 
+ 
Layering may be useful for targeting key information and 
more detailed information appropriately. 
Layering might undermine extent to which KIID must is 
capable of being used 'stand alone' (i.e. on its own) to make 
an investment decision – ensuring this does not happen raises 
risks for supervisors 

0 
Varied requirements lead to inconsistencies in 
approach between supervisors and firms. 

Simple requirement straightforward for 
competent authorities to supervise: consistency in 
approach. 

Use of 'layering' or 'signposting' may require 
more careful supervision and assessments of 
compliance raising some costs,, however may 
allow same documents to better target range of 
different investors needs.  

The length of disclosures – as set out in the problem definition – has long been considered a 
major  impediment  to  their  effective  use  by  retail  investors.  On  this  basis,  the  UCITS  KIID 
requirements  set  a  hard  limit  on  document  length  (though  with  a  derogation  for  structured 
funds).  While  theoretically  a  hard  limit  would  deliver  the  greatest  consumer  benefits,  it  is 

EN 

35 

   EN 

 
 
difficult  to  apply  this  approach  to  non-harmonised  products  in  practice.  Therefore  the 
preferred option is a soft limit.  

An additional technique to soft limits that may serve to address length problems is the use of 
‘layering’  or  signposting,  raised  by  both  consumer  and  industry  stakeholders.  Such  a 
technique can allow different investors with different degrees of financial literacy to be served 
by the same document – those requiring further information can be directed effectively to find 
it. It is vital however that cross-references are not used to fragment access to key information, 
which would undermine the effectiveness of the whole regime for investors. In all cases, that 
is, the KIID should be able to function on a standalone basis, as relying on other documents 
for key information would defeat the overall purpose of the KIID).  

In terms of marginal costs, a soft limit with specific requirements tailored for particular PRIPs 
at level 2 might not be significantly different in impact to a hard limit at level 1. 

Ensuring accuracy and balance of information  

This  analysis  focuses  on  the  problem  of  accuracy  and  balance  in  information  in  product 
disclosures. 

Option 

Effectiveness 

0 -- Take no action 

0 

1 – set high-level 
principles only 

2 – use prescriptive 
requirements on 
form and contents to 
ensure balanced 
presentation 

- 
While in general the principle of being 'not misleading' covers such 
issues as a lack of balance in information or inaccuracy in 
information, without more detailed requirements inconsistencies 
between  firms and between Member States would emerge, reducing 
comprehensibility of information for customers 
It is likely, given difficulties in enforcing principles, that 
presentation of information  could be 'gamed' (enabling subtle 
investor biases to be exploited) 
+  
Reduced misunderstandings by investors: YouGov and IFF testing of 
KII proposals for UCITS suggested that precise positioning of 
information (e.g. putting cost information on front page, 
performance on back page) can be material in impacting consumer 
comprehension of relative importance of messages; specifying these 
in prescriptive rules could lead to higher minimum standards across 
all PRIPs 

Efficiency 

Issues identified in problem definition 
would continue, as set out in 3.4. 
Could raise supervisory costs, given 
potential subjectivity of standards 
Inconsistencies in approach between 
supervisors or lack of legal certainty 
might raise compliance costs for some 
firms, and negatively impact consumer 
benefits 

Consistency in approach could reduce 
some supervisory costs 
Legal certainty for firms 

Accuracy  and  balance  are  generally  applicable  high-level  principles  across  the  financial 
services  in  regards  communications  between  firms  and  potential  investors.  However,  subtle 
juxtapositions and hierarchies of information (for instance, placing cost information on a back 
page) can have strong impacts as to how salient information is taken to be for retail investors. 
On  this  basis,  the  UCITS  KII  was  designed  carefully  to  prescribe  a  specific  order  to 
information. Given the risk of subtle biases in information, the use of prescription for other 
PRIPs is the preferred option; some consumer stakeholders have specifically underlined this 
point. In terms of marginal costs, this would likely reduce costs over a more flexible approach 
for both supervisors, and to a degree, firms. 

 Comparability 

This analysis focuses on the central objective of enhancing comparability between products, 
and assesses  the effectiveness  and  efficiency of standardisation / prescription in this  regard, 
along  two  axes:  (A)  the  'layout'  of  the  documents  (order  of  information  and  labelling  of 
information in the document), and (B) the specific area of potentially quantitative or objective 
information that can be used for comparisons (on product risks, costs, and performance). 

EN 

36 

   EN 

 
 
Option 
0 -- Take no action 

  1 – Prescribe 
T
U
O
Y
A
L

consistent document 
structure to aid 
comparisons 

0 -- Take no action 
2 – Standardise risk, 
cost and performance 
disclosures 

A

N
O
I
T
A
M
R
O
F
N
I

B

Effectiveness 
0 
+ 
Consistency in structure will benefit investors in comparing 
between products, potentially improving comprehension and 
confidence in using information. 
Consistency in structure may run the risk of taking a ‘one-size-fits-
all’ approach that reduces effective communication of specific 
features of some products – care must be taken to test approach to 
ensure effectiveness for consumers. 
0 
+ + 
Comparable disclosures crucial to informed decision making: 
improving capacity of investors to compare risks, performance and 
costs is fundamental to this initiative.  
Choice and technical development of information capable of 
guiding comparisons (including calculation of numbers where 
quantitative information is provided) must be very careful 
undertaken. Presentation also needs to be tested with investors. 
Improving comparability of disclosures may impact competition 
between providers, sectors  
NOTE: improving comparability of information may entail public 
policy choices: identification of the elements of investment 
products that are most salient for retail investors and which 
elements should be highlighted likely to have impact on consumer 
behaviour (e.g. question of relative balance between risks, costs, 
benefits).  

Efficiency 
0 
Consistency may reduce some 
aspects of compliance costs 
(through simplicity) and 
supervision costs, though likely to 
be marginal in impact on costs 
Benefits for investors, better 
decision making 

0 
Comparators should lead to better 
decision making, broader market 
efficiency benefits 
Costs may be material for 
providers if new methodologies 
for calculation are unfamiliar or 
require new resources to be 
developed/obtained 
Comparators may aid distributors 
and advisors in making personal 
recommendations or assessing the 
suitability of different products for 
retail investors 

Standardisation  appears  fundamental  to  improving  comparability,  as  identified  by  the 
Decision Technology and YouGov and IFF studies. The policy options in this instance relate 
less to the use of standardisation as such, and more to the clarification of the areas in which 
standardisation  can  be  effectively  applied.  In  practice,  technical  work  at  level  2  (to  identify 
the  methods  (and  possible  limits  to  these)  for  achieving  comparability  in  product  features, 
notably  in  relation  to  risks,  performance  and  costs,  will  determine  the  practical  extent  to 
which  standardisation  can  be  used.  It  is  vital  that  assessments  of  the  specific  application  of 
standardisation at level 2 are built on the basis of robust consumer testing of different options. 

Marginal  costs  related  to  detailed  options  on  standardised  risk  cost  and  performance 
disclosures are likely to vary significantly; analysis of this will be central to the level 2 impact 
assessment. 

Summary 

Putting  all 
these  areas 
standardisation' emerges.  

together,  an  approach  which  might  be 

termed 

'targeted 

Full standardisation (the application of the UCITS model to all other PRIPs unchanged, or the 
application  of  a  similarly  standardised  /  prescriptive  approach)  would  be  difficult  to 
practically  achieve  given  the  heterogeneity  of  PRIPs  other  than  UCITS.  Following  this 
approach  could  lead  to  misleading  information,  undermining  the  objectives  of  improving 
comprehensibility and comparability. Yet standardisation where used in an appropriate way is 
a  strong  effective  and  efficient  tool  for  addressing  comprehensibility  and  comparability 
objectives, whilst it also can be a strong tool for ensuring regulatory consistency. Indeed it is 
difficult to see how comparability objectives can be achieved without at least standardisation 
of (at the least) risk and cost information. 

The impact of this approach for different stakeholders is discussed in detail under section 6.4 
below.  Under  this  option,  standardisation  would  be  applied  as  far  as  is  possible  to  the 
structure  of  product  disclosures,  the  use  of  labels  and  some  warnings,  and  risk,  cost  and 
performance  or  benefits  information.  Precise  application  of  standardisation  would  be 

EN 

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established through level 2 measures, which will be the main determinants of the costs of such 
a regime (as technical details of how the PRIPs regime is designed will impact on the one-off 
/  switching  costs),  as  well  as  a  key  to  reaping  the  highest  potential  benefits  (through  the 
optimal  design  of  what  precisely  disclosures  should  contain  and  look  like).  As  referred  to 
above, the cost impact of intervention is not as accumulative in nature as the benefits are. The 
overall cost-benefit analysis of preferred options is carried out in section 6.4. 

6.2.3. 

Issue 3: Responsibility for preparing document  

In  the  UCITS  framework,  there  is  a  clear  allocation  of  the  responsibility  for  preparing  the 
information  to  the  product  manufacturer  or  provider;  a  similar  allocation  can  be  found  in 
relation to insurance products; for securities PRIPs, however, current practice does not always 
rely  on  the  security  originator  for  the  preparation  of  information  for  retail  customers; 
distributors can take a stronger role.  

Respondents  to  the  PRIPs  Consultation  broadly  supported  an  approach  which  placed 
responsibility  for  preparing  the  product  disclosures  on  the  product  manufacturer.  Consumer 
representative respondents (amongst others) to the PRIPs Consultation noted the importance 
of  clarity  in  a  product  disclosure  document  itself  as  to  who  produced  the  product  and  who 
produced the information.  

Option 

0 -- Take no action 
1 -- Flexibility over 
who prepares the 
document 

Effectiveness 
Comprehension 

0 
- 
For the much of the 
PRIPs market, this 
may reduce clarity  

Comparison 

0 
- 
May lead to 
differences in 
approach to 
information about 
the same product 

- 
As above 

- 
As above  

Regulatory 
Patchwork 
0 
- 
Lack of consistency in 
allocation of 
responsibilities likely 
to lead to different 
supervisory practices 
between Member 
States and sectoral 
supervisors 
- 
As above in regards 
consistency 

2 -- Flexibility over 
who prepares the 
document, but 
agreement on 
responsibility  

3 -- Product 
manufacturer 
normally responsible 
for preparing the 
document 

4 -- Require 
disclosures of 
responsible parties in 
document 

+/- 
Reflects existing 
approach in much of 
PRIPs market. 

+ 
Greater consistency 
depends on care taken 
in regards targeting of 
exceptions 

n/a 

n/a 

+/- 
Reflects existing 
approach in much of 
PRIPs market 
Determination of 
allowed exceptions 
would need to be 
subject to detailed 
implementing work 
and impact analysis in 
this regard to avoid 
impractical solutions 
that lead to 
misalignment between 
responsibilities and 
capabilities 
+ 
Important for 
investors in relation to 
possible complaints, 
also ensuring clarity 
as to who is actually 
producing product 

Efficiency 

0 
Allows for tailoring of requirements 
for market realities / responsiveness to 
changing distribution arrangements 
May exacerbate legal uncertainty over 
responsibilities, undermining 
'ownership' of the KIID and 
undermining its practical development 
in some market segments 

As above, though there would be 
clarity as to individual responsibilities 
in regards specific arrangements.  
Impact could be significant for 
providers and distributors where 
agreements have never been 
established in the past 
Allows for some adjustments for 
practical scenarios where 
responsibilities and capabilities might 
not otherwise be appropriately aligned 
(split responsibilities, handling of 
delegations); this could mitigate 
possible unintended consequences, 
whilst still allowing for broad legal 
certainty for much of the remainder of 
the market. 

Identification of product manufacturer 
may require supporting clarification 
work in some instances (complex 
chains of intermediation and 
'remanufacturing' possible in some 
areas in PRIPs market) 

EN 

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   EN 

 
 
 
 
For  a  relevant  part  of  the  PRIPs  market  a  model  that  places  requirements  strongly  on  the 
provider  both  accords  with  current  requirements  and  has  the  benefit  –  according  to  many 
respondents to the PRIPs consultation including from the industry – of securing legal clarity, 
which supports carrying across this model into a new PRIPs regime. It is not clear how this 
model  might  be  applied  in  some  circumstances  however  in  practice;  in  order  to  reflect  this, 
situations  where  responsibility  for  preparing  the  document  is  not  practically  possibly  or 
should be shared in a different way might be clarified at level 2.  

We  conclude  therefore  that  while  options  2  and  3  might  be  seen  as  equally  capable  of 
achieving  the  same  outcome,  option  3  has  the  benefit  of  establishing  a  broad  principle  that 
product manufacturers should in general have responsibilities for the products they produce, 
while  also  reflecting  the  normal  situation  that  product  manufacturers  can  best  placed  to 
prepare information about their products. 

In terms of marginal costs, options 2 and 3 could be similar, depending on the precise details 
of level 2 measures. 

Note, for clarity, that the preparation of the document would only be necessary where a 
product was to be sold or distributed to retail clients.  

6.2.4. 

Issue  4:  Ensuring  effective  provision  of  product  disclosure  information  to  retail 
investors 

The UCITS framework contains what might be called a 'hard' requirement on provision of KII 
to investors. Effectively, whoever is selling must provide the KII in good time before a sale is 
transacted.  (In  line  with  MiFID  and  the  IMD,  a  'durable  medium'  must  be  used  for  this 
purpose, but this can include the use of a website so long as certain conditions are followed.) 
This  contrasts  with  other  possible  models  –  for  instance,  where  information  is  'offered'  or 
'made  available'  by  product  manufacturers,  but  where  intermediaries  are  not  required  to  use 
this information to inform retail investors about the products.  

Some industry respondents to the PRIPs consultation noted that requirements on provision of 
KII for PRIPs would need careful assessment against the practicalities of different distribution 
channels, e.g. taking into account electronic, telephonic and postal sales processes.  

Option 
0 -- Take no action 
1 – Information made 
available, but not  
required to be actively 
provided, e.g. by 
intermediaries 

2 – ‘Hard’ 
requirement on 
provision and its 
timing – following 
UCITS model 

Effectiveness 
0 
-- 
This could potentially weaken requirements, e.g. compared 
with the standard now in UCITS; this is incompatible with 
ensuring disclosures are made to improve investment 
decision making 
Possibilities of mis-selling likely would lead to ad hoc 
arrangements for provision between distributors and firms, 
and variations between member states would emerge 
+/- 
In the context of advised sales, actual provision of KII 
relating to proposed investment is key to effectiveness of 
these documents – a strong requirement on this would make 
clear responsibilities on this, able to act as a better basis for 
effective supervision, compliance and redress in this area 

3 – Broadly follow 2, 
but allow for some 

+  
Allowing additional flexibility over and against option 1 

Efficiency 
0 
Would appear low cost for firms and distributors, 
but mis-buying could raise costs more widely. 

Hard provision may clarify legal responsibilities 
between providers and distributors over what 
information can be used to discharge 
responsibilities of the distributor. 
Hard provision may reduce flexibility over how 
to provide information for some distributors.  
Hard provision could however improve the 
control of providers over the information given to 
investors about their products. 
Additional element of flexibility could mitigate 
potential consequences of applying hard 

EN 

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targeted exceptions 

would allow certain execution only and other specific 
distribution scenarios to be better addressed (e.g. where 
timing is critical). 

requirement across all distribution channels. 

Under  this  analysis,  the  operational  objective  of  ensuring  provision  of  information  would 
seem  to  militate  for  a  hard  requirement  on  provision;  however,  the  application  of  such  a 
requirement to different sales circumstances (such as on-line purchases, or purchases without 
advice) might require some residual flexibility on timing of provision to ensure measures can 
be  practical.  (The  Distance  Marketing  in  Financial  Services  Directive  and  MiFID  already 
provides for certain targeted exemptions along these lines). 

6.2.5. 

Issue 5: Flanking measures: civil liability and sanctions 

In terms of legislative  design, two  issues remain, both of which have been addressed in the 
UCITS KIID regime that need to be considered in relation to other PRIPs: the clarification of 
the  civil  liability  attached  to  PRIPs  product  disclosures,  and  the  sanctions  regime  applying 
through the relevant competent authorities. 

Civil liability 

On  this  issue,  three  main  options  emerge,  (0)  taking  no  action  (that  is,  remaining  silent  on 
liabilities);  (1)  supporting  non-legislative  measures  to  build  capacity  for  consumers  to  seek 
and obtain redress; and (2) clarifying civil liability rules. (1 and 2 are not mutually exclusive) 

Box 4: The UCITS KIID experience 

In regards civil liability, the UCITS KIID approach on this was developed in response to failings in regards the 
simplified prospectus, where uncertainty as to the liability for the 'simplification' of information (that is, whether 
the  simplified  prospectus  must  contain  all  elements  in  the  prospectus  that  might  be  taken  as  material  for  an 
investment decision) had led to firms including too much information in the notionally simplified prospectus so 
as to avoid liability. There were cases of simplified prospectuses that were longer than the full prospectus that 
they were supposed to simplify.  

For this reason, a delimitation of liability, modelled on that in the PD in relation to the summary prospectus, was 
included in UCITS IV – civil liability attached to the KIID only in relation to consistency with the prospectus. 
The aim was to ensure that the KIID was approached as a communication document by firms, not as a legal or 
contractual document.  

Take no action: It would be possible to take no comparable steps on civil liability for other 
PRIPs,  remaining  silent  in  this  regard,  leaving  liability  to  existing  sectoral  and  national 
requirements.  However,  while  prescription  of  the  form  and  content  of  PRIPs  product 
disclosures  reduces  the  risk  that  the  document  be  used  by  firms  primarily  as  a  contractual 
rather than communication document, respondents to the PRIPs consultation raised concerns 
that  if  liability  were  not  clarified  in  some  form  –  in  particular,  so  as  to  support  the 
requirements to use plain language and to only include key information – the PRIPs regime 
could be undermined in just the same way as the simplified prospectus. 

Clarifying  civil  liability  rules  and  facilitating  redress:  Two  possible  further  options  can  be 
identified,  which  are  not  mutually  exclusive.  The  first  option  would  be  to  support  the 
development of (non-legislative) measures to build the capacity of retail investors to seek and 
obtain  redress  in  relation  to  failures  linked  to  the  PRIPs  product  disclosures.  (This  might 
include work on access to alternative dispute resultion mechanisms, facilitating national steps 
to  inform  consumers  of  their  rights,  etc.)  The  second  option  would  draw  on  the  UCITS 

EN 

40 

   EN 

 
 
approach,  to  establish  explicit  (legislative)  requirements  on  civil  liability  (since  other 
contractually relevant information might be contained in a variety of documents rather than a 
single prospectus, a simple copy of the UCITS approach is not possible). Under this option, 
civil liability would be attached to firms where PRIPs disclosures are not provided, or are not 
clear  or  sufficiently  plainly  worded  (which  would  cover  where  the  document  includes 
extraneous information that obscures  the  key information), contain  misleading or inaccurate 
information,  or  omit  information  that  would  be  necessary  for  the  average  retail  investor  to 
make  an  informed  investment  decision.  On  this  basis,  the  focus  would  be  on  establishing 
clearly that the PRIPs product disclosure is a communication document designed to address 
the provision of summary information pre-contractually, which does not presuppose the form 
of other documents that contain fuller information as may be necessary. 

 Option 

Effectiveness 

0 -- Take no action 

0  

Efficiency 

0 

1 – Supporting non-legislative measures (to build 
capacity for consumers to seek and obtain redress, 
collective redress work, etc.) 

+  builds practical capacity directed at 
retail investors themselves and their 
behaviour . 

Targeted and proportionate. 

2 – Clarify civil liability (but adjusted as necessary; 
to establish clearly that the PRIPs product 
disclosures on its own is a communication 
document and is designed to address pre-contractual 
rather than contractual issues) 

+ could reduce uncertainty, encourage 
clear commitments in relation to 
production of product disclosure. 

Likely to lead to greater confidence in 
industry, and ensure benefits of changes 
more likely to be realised. 

Could reduce costs related to cross border 
activity. 

Given  the  need  for  legal  clarity  but  also  for  flexibility,  options  1  and  2  are  both  preferred 
options.  

Clarifying  civil  liability  would also  contribute  to  better  achievement  of  an  effective  remedy 
for  consumers,  as  enshrined  in  the  Charter  of  Fundamental  Rights,  article  47.  As  such  this 
would help achieve the aims under article 38, which seek a high level of consumer protection. 

Sanctions 

UCITS  contains  a  high-level  requirement  on  sanctions,  which  provides  for  only  limited 
convergence in this area amongst competent authorities. Other Community legislation (such 
as the Distant Marketing in Financial Services Directive and the e-commerce Directive) also 
contain regimes on sanctions, though both of these directives focus on different issues to this 
current initiative and exist in parallel to it (as they do already with the UCITS KII regime). 
Given  experience  in  other  areas,  this  means  there  could  be  significant  differences  in  the 
sanctioning measures that Competent Authorities in those Member States are able to apply. In 
addition, with regard to consistency, other work is underway at the Commission on sanctions 
(as set out in Annex I.2), that has identified efficient and sufficiently convergent sanctioning 
regimes as a necessary corollary to the new supervisory system, calling for steps to this end to 
be taken across all sectoral financial services legislation.58  

58  

See the impact assessment prepared to accompany the November 2010 Communication on sanctions, a 
summary can be found at: 
http://ec.europa.eu/internal_market/consultations/docs/2010/sanctions/resume_impact_assesment_en.pd
f 

EN 

41 

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No action: If no action was taken for non-UCITS PRIPs on sanctioning regimes, leaving these 
to  sectoral  and  national  legislation,  then  this  could  lead  to  material  inconsistencies  across 
sectors  and  Member  States  in  approaches  for  PRIPs  (including  between  approaches  for 
UCITS  and  non-UCITS  PRIPs  in  so  far  as  harmonisation  of  sanctions  for  UCITS  product 
disclosures  remains).  Experience  from  the  UCITS  sector  is  that  increased  convergence  as 
regards  the  contents  and  the  form  of  disclosure  requirements  alone  would  not  create  more 
convergent  outcomes  without  consistently  effective  and  deterrent  enforcement.  Divergences 
between the powers of Member States to sanction non-compliance with the new requirements 
could diminish their effectiveness.  

Clarifying  sanctions:  Two  possible  options  arise  –  following  the  high-level  approach  in 
UCITS, or specifying the form and content of possible sanctions in more detail so as to allow 
for  greater  consistency  in  these  across  the  EU.  In  practice  it  would  appear  that  product 
disclosures  are  seldom  a  direct  target  for  sanctions  in  themselves,  so  overly  prescriptive 
alignments  of  supervisory  activities  here  would  seem  disproportionate.    Under  this  option, 
consistent  powers  for  Member  States  to  impose  sanctions  (according  to  their  view  on  the 
gravity of the breach and the necessity of action) can be perceived in a two broad areas: 

•  where a sale has occurred without a PRIPs disclosure being provided; 
•  where  a  PRIPs  disclosure  is  provided  but  is  incomplete,  unclear,  inaccurate,  or 

misleading.. 

Assessment  of  existing  powers  suggest  that  where  such  breaches  occur,  sanctions  typically 
could include – as necessary in light of the gravity of the breach -- banning further product 
sales,  requiring  restitution  to  investors  for  sales  that  have  been  made,  requiring  or  making 
public statements, for instance in relation to deffective information, or requiring information 
disclosures to be made again to existing investors. 

Option 

Effectiveness 

0 – Take no action 

3 – Take high level approach on 
sanctions 

0 

+/- 

4 – Clarify sanctions (as regards the 
areas and breaches against which 
sanctions might need to be used and the 
broad kinds of sanctions that might 
thereby apply in these areas) 

A high-level approach to sanctions might leave 
material differences in use of sanctions across 
Member States that reduce consumer protection 
standards overall and could contribute to 
continued barriers to the single market 

+ allows consistency with commitments in 
Sanctions communication 

Allows tailoring of liability regime to specifics of 
different PRIPs 

Level playing field between different areas of 
financial services business 

Efficiency 

0 

Largely neutral for industry compared to 
current requirements, but may reduce 
effectiveness of new regime, thereby 
limiting scale of possible benefits (e.g. in 
regards those involved in cross-border 
business or active in more than one national 
market). 

Likely to lead to greater confidence in 
industry, and ensure benefits of changes 
more likely to be realised. 

Could reduce costs related to cross border 
activity. 

Given the importance of proportionate sanctions to underlining the importance of the PRIPs 
product  disclosure  regime,  and  given  the  PRIPs  regime  would  create  consistent  duties  on 
firms across all Member States, option 4 appears most effective and efficient. 

EN 

42 

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6.3. 

Summary  of  retained  options  and  their  interaction  with  the  current  legal 
framework 

The retained options outline the establishment of a new PRIPs disclosure regime modelled on 
that  recently  developed  for  UCITS,  though  with  additional  flexibility  and  tailoring  of 
requirements at level 2 to address the variety of non-UCITS PRIPs. 

The  proposal  is  to  use  a  new  regime  (delivered  through  a  separate  legal  instrument)  to 
introduce  a  new  PRIPs  product  disclosure  with  a  common  'look  and  feel',  and  to  establish 
comparability between PRIPs through the development of detailed prescriptive implementing 
measures at level 2 on the layout, content and presentation of the new document, tailored as 
necessary  for  different  types  of  PRIP.  The  prescriptive  measures  at  level  2  on  the  new 
documents  would  be  set  (in  the  light of testing of options on consumers) so as to allow for 
objective and balanced comparisons of the investment features of different PRIPs, notably in 
regards  areas  open  to  the  use  of  objective  indicators  or  'metrics'  (risks,  costs  and  potential 
benefits). 

In line with this IA, the new regime should clearly set out at level 1 that the responsibility (in 
the main) for preparing the information should sit on the manufacturer of the product, and the 
responsibility  for  providing  the  information  to  retail  customers  should  sit  on  the  sellers  (be 
these the manufacturers themselves or intermediaries), subject to only minor exceptions, e.g. 
to the timing of the provision. It would of necessity including supporting measures setting out 
liabilities for the clarity, accuracy and completeness of the information and its provision, and 
the range of sanctions that should be available to competent authorities (as  a  minimum) for 
breaches of the requirements. 

The detailed form and content of KIIDs would necessarily be determined by technical level 2 
measures,  as  was  the  case  with  the  KIID  for  UCITS.  In  developing  such  measures,  further 
steps will also be necessary to identify how to apply it in a proportionate manner to certain 
specific  scenarios  that  have  been  raised  by  stakeholders,  such  as  the  relationship  between 
'wrappers' and underlying 'funds', where a product takes the form of an account which enables 
access in turn to underlying investment products, the information that might be needed where 
investments are intended for specific uses such as retirement planning, and the application of 
requirements to PRIPs distributed on-line and within secondary markets.   

As set out in this IA, the supported option is for a form of targeted standardisation: to seek, 
through detailed level 2 measures, the greatest possible degree of comparability, but to allow 
also  some  flexibility  so  as  to  reflect  the  wide  range  of  products  available.  The  degree  of 
standardisation  of  information  through  level  2  measures  will  necessarily  need  to  vary 
according  to  the  kind  of  information  involved.  Information  and  its  presentation  on  product 
risks, costs, guarantees, and performance can be invisaged in a strongly standardised format 
(following experience with the UCITS KIID) so as to best aid comparisons, while information 
on  the  nature  and  goals  of  a  product  or  ancilary  benefits  it  might  provide  cannot  be 
standardised to the same degree. Nonetheless, even for areas where full standardisation is not 
possible, a common presentational template is envisaged in line with findings from consumer 
research that shows the positive impact of standardisations of layout.  

It is intended that level 2 measures would be developed strongly under the guidance of such 
research,  and  that  impact  assessments  related  to  level  2  measures  would  clearly  justify  the 
areas  in  which  standardisation  is  or  is  not  achieved,  and  the  extent  and  nature  of  that 
standardisation,  under  the  broad  principle  set  at  level  1  that  the  greatest  degree  of 

EN 

43 

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standardisation  should  be  sought,  so  long  as  it  is  consistent  with  avoiding  providing 
misleading information to retail investors about specific products.  

Interactions with existing disclosure requirements 

This  new  PRIPS  KIID  is  conceived  as  a  ‘communication’  document,  focused  on  providing 
investors with the key information needed to make investment decisions in a form they can 
actually use: it is not intended to form a contractual document (as such), though of course the 
information  contained  in  the  document  may  form  part  of  a  contractual  arrangement.  This 
focus implies a separation of some form between the KIID and other more legal or contractual 
documents. The intention is not to address or alter requirements that might apply at European 
or national level or under contract law in regards these other documents or disclosures but to 
ensure  the  effective  targeting  of  requirements  relating  to  investment  decision  making,  to 
ensure  a  summary  disclosure  capable  of  being  used  to  compare  different  investments  (the 
same for all products) is always available.  

This naturally raises the question as to the interaction of new KIID proposals for PRIPS with 
existing  requirements,  for  instance  in  regards  the  PD  and  Solvency  II.  Such  existing 
requirements  by  definition  do  not  seek  to  address  comparability  of  information  between 
different types of product. 

In  so  far  as  the  requirements  in  the  PRIPs  initiative  are  the  same  or  can  serve  the  same 
function  as  requirements  under  the  PD  (e.g.  in  regards  key  investor  information  to  be 
contained  in  the  summary  prospectus)  or  Solvency  II  (e.g.  in  regards  information  about  the 
contract, its costs, and its risks, as addressed in the requirements consolidated into Solvency II 
from  earlier  life  directives),  then  in  order  to  avoid  duplication,  where  a  firm  satisfies  the 
requirements placed on it in the PRIPs initiative, then  fulfilling the PRIPs requirements could 
be  taken  as  also  satisfying  matching  obligations  under  the  other  instruments.  The  legal 
instrument on disclosure will clarify the extent of such interactions in order to provide legal 
clarity to market participants.  

than 

the  PRIPs 

intended  under 

Currently the PD and Solvency II include measures that cover a wider range of information 
areas 
focuses  on  comparability, 
comprehensibility and tackling 'too much information' challenges for retail investors. For this 
reason, it is not effective to simply replace requirements in the PD or Solvency II frameworks; 
it  is  likely  more  proportionate  therefore  to  permit  product  manufacturers  to  rely  on  certain 
elements  of  the  information  prepared  for  the  PRIPs  KIID  when  preparing  these  other 
disclosures, but to keep the relevant frameworks separate.  

regime,  which 

In  practical  terms,  PRIPs  requirements  will  exist  in  parallel  to  the  existing  law,  and  the 
satisfaction of the PRIPs KIID requirements will in specific cases be capable of "discharging" 
matching  obligations  under  other  instruments;  it  will  be  for  Member  States  to  assess  the 
interaction in accordance with their transposition of other instruments.59 The intention  is to 
achieve a clear separation between the pre-contractual product disclosure information in the 
KIID – to 'ring fence' this disclosure document – from more formal contractual information/ 
This is in the interests of ensuring key information is more likely to be read and understood 
by  keeping  it  separate  and  identifiable.  Multiple  disclosures,  marketing  documents  and 
contractual documents are currently the norm for most investment products, with their relative 

59  

Article 34 of Directive 2006/73/EC on MiFID provides an example for such link between two different 
acts: In case of UCITS, the distributor is allowed to fulfil the MiFID obligations on product disclosure 
by providing the Simplified Prospectus (now UCITS KIID) to the client 

EN 

44 

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importance or role difficult to ascertain for the retail investor; the policy goal is that the PRIPs 
KIID  stands  out  from  other  documents  and  is  clearly  identifiable  as  a  simple  summary 
information sheet for retail investors.  

Mandatory  provision  of  the  KIID  under  issue  4  option  3  (with  other  documents  offered  or 
available  on  request)  is  a  key  tool  for  achieving  this  standout  quality.Under  this  option,  it 
would be ensured that MiFID and the IMD intermediaries are required to use and provide the 
KIID disclosures (current requirements under MiFID are not so explicit except in regards the 
KIID for UCITS). This will ensure consumers are better and more consistently  protected, and 
will ensure a level playing field and reduce regulatory arbitrage across product types.  

Table 4: Proposed new rules 

UCITS  

Other Open-
Ended Funds 

Unit-linked life 
insurance 
policies 

Structured 
securities and 
closed-end 
funds 

Structured 
deposits 

Standardised 
Product 
Disclosures  

New PRIPs KIID product disclosure regime 

(UCITS KII regime coexists for a transitional period) 

Other rules 
(sectoral) on 
information 
about the 
product or 
product 
manufacturer 

UCITS 

(Prospectus, 
annual reports, 
etc.) 

MiFID 

(information 
requirements 
apply to MiFID 
intermediaries 
when selling 
financial 
instruments; 
provision of KIID 
part of this) 

MiFID  

(information 
requirements 
apply to MiFID 
intermediaries 
when selling 
financial 
instruments; 
provision of KIID 
part of this) 

Solvency II (CLD 
rules) 

Prospectus 
Directive 

Apply in respect 
to disclosures not 
related to PRIPs 
KIID  

Apply in respect 
to disclosures not 
related to PRIPs 
KIID  

IMD  

MiFID  

(information 
requirements 
apply to IMD 
intermediaries 
when selling 
insurance 
products; 
provision of KIID 
part of this) 

(information 
requirements 
apply to MiFID 
intermediaries 
when selling 
financial 
instruments; 
provision of KIID 
part of this) 

MiFID  

(information 
requirements 
apply to MiFID 
intermediaries 
when selling 
financial 
instruments; 
provision of 
KIID part of this) 

E-commerce Directive or Distance Marketing of Financial Services Directive 

Note that given timing issues related to UCITS KII implementation, UCITS shall be subject 
to  a  transitional  arrangement.  UCITS  will  fall  under  the  same  KIID  product  disclosure 
framework  as  other  PRIPs  once  the  level  2  measures  for  the  new  framework  have  been 
completed.60 Experiences from the implementation of KIID for UCITS (which is ongoing as 

60  

See section 2.4 above. The level 2 impact assessment for UCITS IV foresaw a formal study to assess 
the effectiveness of the KII risk indicator (in particular). Any steps to consider alignment of KII with 
other PRIPs should be taken in line with this work. 

EN 

45 

   EN 

 
 
 
 
 
                                                 
of the writing of this IA) should be taken into account whilst preparing the level 2 measures 
for   

6.4. 

Choice of the legal instrument – directive or a regulation 

As  the  option  of  a  non-legislative  instrument  has  been  discarded,  this  leaves  the  options  of 
pursuing the objectives of this initiative through either a directive or a regulation.  

Traditionally,  the  EU  financial  services  legislation  has  largely  taken  the  form  of  directives. 
This was because the legislative proposals mainly sought to approximate national rules on the 
taking  up  of  business  and  the  provision  of  services  in  a  gradual  manner.  The  choice  of  a 
directive enables Member States to integrate rules into their different legal systems. However, 
the  recent  development  in  the  regulatory  framework  prompted  by  the  need  to  lay  down 
detailed rules of technical nature which should be applied in the same manner in all Member 
States is marked by the increasing use of regulations, not only at level 2.61 

The  objectives  of  this  initiative  relate  directly  to  the  standardisation  of  the  detailed  content 
and form of disclosures, such that a harmonisation of requirements to this effect (for instance 
on  disclosures  of  risks  and  costs),  rather  than  simply  a  harmonisation  of  objectives  is 
necessary.  If  the  choice  of  the  precise  measures  for  raising  and  standardising  the  level  of 
investor protection with respect to investor disclosure was left to a harmonisation of national 
legislation  of  Member  States,  this  would  incur  the  risk  that  the  content  and  the  form  of 
disclosures would continue to diverge from a Member State to a Member State and between 
industry  sectors,  which  would  not  address  the  existing  un-level  playing  field  for  market 
participants and uneven levels of investor protection and thus undermine the objectives of this 
initiative.  

On  the  other  hand,  it  needs  to  be  taken  into  account  that  any  initiative  in  this  area  would 
interact, to some degree at least, with existing investor protection measures that take the form 
of directives, including measures related to civil liabilities. 

Given the core objectives of this initiative are to achieve a new level of standardisation and 
comparability  in  product  disclosures  across  the  EU  and  across  different  product  types,  it 
would  appear  that  a  regulation  might  be  the  most  appropriate  legal  form  for  the  new 
measures,  however  given  the  interactions  noted  in  the  preceding  paragraph,  this  must  be 
subject to some further legal analysis. 

6.5. 

Overall impact of retained options 

Costs 

Product manufacturers 

In principle the new regime would require new disclosure documents to be introduced by all 
PRIP providers across the whole EU.   

61  

Examples include Regulation 1060/2009 of the European Parliament and of the Council on credit rating 
agencies, Regulation 1095/2010 of the European Parliament and of the Council establishing a European 
Supervisory Authority or Commission Proposal for a Regulation of the European Parliament and of the 
Council on Short Selling and certain aspects of Credit Default Swaps. 

EN 

46 

   EN 

 
                                                 
Given that the KII for UCITS is currently being implemented, and these costs were assessed 
separately  in  relation  to  UCITS  IV,  these  costs  are  disregarded  in  relation  to  the  estimates 
here. Any subsequent adjustments to requirements for UCITS KII in the light of the work on 
KII  for  other  PRIPs  will  be  subject  to  separate  impact  assessment,  specifically  in  relation 
detailed level 2 measures. 

The CSES study on the costs of implementation of the UCITS KII offers a good benchmark 
for  the  impact  of  introducing  a  new  disclosure  regime  of  this  type.  Overall,  the  study 
estimated that the changes necessary for bringing in the KII – systems changes, training costs, 
printing costs, drafting costs, etc. – were expected to lead to an increase in ongoing costs of 
product disclosures on average of around 7.5%. The study estimated that a maximum for the 
overall one-off costs for introducing the KII for UCITS could as a maximum be in the region 
of  0.016%  of  assets  under  management,  or  EUR  730  million,  but  the  report  estimated  that 
after adjusting for certain factors (such as the proportion of closed funds to open funds in the 
UCITS market, and the impact of transitional arrangements), the cost figure could instead be 
as low as EUR 290 million.  

As discussed in Annex II.2, these figures can be adjusted for the PRIPs market as a whole (on 
the  basis  of  business  volumes  rather  than  product  counts),  giving  a  one-off  costs  figure  of 
EUR 171 million for non-UCITS PRIPs, and on going costs of around EUR 14 million per 
year.  As  noted  in  the  Annex,  the  dependency  of  final  costs  on  options  selected  at  level  2 
necessarily limit the accuracy of any assessment possible at this stage. 

Since the CSES study focused on costs for the UCITS, some peculiarities of that industry may 
pattern these costs:  

•  There may be a distinction between costs of change for products on continuous offer (such 
as  funds,  where  a  new  regime  requires  new  disclosures  for  existing  funds),  and  products 
that are not open to continued new business in this way.  

•  The  UCITS  industry  is  characterised  by  a  large  number  of  funds,  including  many  sub-
funds. Costs for other sectors will depend on the number of discrete products on offer, and 
could be lower  than  for  UCITS  (the detail on this however depends on the final form of 
level 2 measures). 

One-off  costs are strongly dependent on  the  flexibility  of  transitional  arrangements,  and  the 
extent to which the new regime can be introduced through pre-existing product cycles. Some 
larger individual industry respondents to our consultation and to the CSES study even noted 
that  in  their  view  that  flexibility  in  this  regard  could  allow  changeover  costs  for  the  new 
regime to be more or less absorbed into normal disclosure review cycles. (Existing disclosures 
for  continuous  offer  products  would  naturally  be  updated  each  year,  for  instance  for  annual 
cost  or  performance  information).  However,  the  new  regime  would  clearly  replace  existing 
requirements,  certainly  triggering  significant  one-off  costs  in  terms  of  drafting,  IT  systems, 
channel training, and so forth. 

Distributors 

Pure  distributors  (that  is  distributors  who  do not  act  as  product  manufacturers)  are  likely  to 
face  training  costs  related  to  the  new  regime,  and  they  would  likely  bear  systems  costs  in 
addition  (in  preparing  to  handle  and  disseminate  new  disclosures).  The  YouGov  and  IFF 
study surveyed intermediaries in relation to the development of the KII for UCITS, and these 

EN 

47 

   EN 

 
respondents  noted  possible  benefits  from  greater  standardisation,  though  views  were  varied 
and the discussions were qualitative. 

Supervisors 

The  new  regime  is  likely  to  require  greater  supervisory  resources,  in  particular  during  the 
transitional  period.  However,  the  extent  that  this  reflects  a  marginal  change  in  costs  for 
supervisors depends strongly on pre-existing national regimes, which may already have put in 
place resources for targeting the quality of disclosures in the retail market.  

Retail investors 

Costs borne by the industry would likely be passed on to investors, at least in part. However 
they would also lead to higher transparency and comparability on product features and costs, 
with potential increase in competition. It is difficult to weigh up the impact of increased costs, 
on  the  one  hand,  with  possible  increased  competition  effects,  on  the  other  (evidence  on  the 
latter is discussed below). But it should be noted that it is more difficult to pass on costs to 
consumers in a more competitive market. 

Benefits 

Retail investors 

The  benefits  of  standardisation  and  comparability  have  been  underlined  by  the  Decision 
Technology  study,  which  concluded  that  using  these  techniques  in  relation  to  investment 
decision-making is likely to lead in practice to changes in investor behaviour that contribute 
to better decision making.  

Given mis-selling on the potential scale of 60% in a market worth around EUR 9 trillion, such 
an impact, even if relatively small (e.g. even a 1% reduction in mis-purchases), would be of 
great significance in terms of consumer welfare: this alone could contribute to mitigate EUR 
10 billion in possible mis-held products (or EUR 4 billion if UCITS is not included). While 
such  figures  are  highly  approximate,  they  simply  illustrate  that  incremental  impacts  in  the 
retail  market  can  be  very  significant  when  examined  from  an  aggregate  viewpoint,  and  to 
underline the scale of potential mis-purchases in this market. In addition, if findings related to 
price impacts of transparency are borne out more widely, additional benefits could impact all 
retail investors (not just those who mis-buy).  

Of course, as set out in the problem definition section and already noted above in section 6.1, 
there  are  many  factors  that  impact  mis-selling,  and  failings  in  product  information  are  only 
one.  However,  the  availability  of  product  information  the  average  investor  can  actually 
understand and use is a fundamental basis of empowered consumers in the retail investment 
market, without prejudice to the role and responsibilities of intermediaries at the point of sale. 
Ultimately, if products cannot be explained clearly in terms investors are able to understand, 
then the question arises as to whether such products could be suitable for retail investors. The 
explanation of products to retail investors is a responsibility of the person selling the product, 
however this is clearly facilitated by the effectiveness of product information. For this reason, 
demonstrably clear disclosures are one of the necessary foundations of the retail investment 
market; even though on their own they cannot guarantee the soundness of the market, in their 
absence a sound market is not possible. 

Product manufacturers 

EN 

48 

   EN 

 
It is difficult to assess the scale of benefits for manufacturers.   

One factor mentioned by some respondents to our consultation was that greater consistency 
(between  sectors  and  between  Member  States)  ultimately  benefits  firms  that  operate  across 
sectors  and  cross-border,  ensuring  they  can  put  in  place  consistent  approaches  themselves, 
with  some  possible  economies  of  scale  or  removal  of  duplication  (e.g.  where  very  different 
documents are needed for different markets).  

Without  EU  intervention,  a  proliferation  in  different  standards  across  Member  States  and 
sectors  would  tend  to  fragment  the  market,  impacting  competition  between  sectors  and 
erecting fresh barriers to the growth of the single market. In the context of the UCITS market 
(an  avowedly  cross-border  market),  differences  in  national  approaches  to  retail  disclosures 
(the simplified prospectus) were identified by stakeholders during the development of UCITS 
IV as a major factor serving to fragmenting that market and raise costs.  This experience can 
be  expected  to  be  replicated  across  other  markets  as  they  develop  deeper  cross-border 
elements. 

Consistency  in  requirements  that  allows  for  better  comparisons  between  products  would 
likely have an impact on competition in the market (as outlined above in regards pricing, for 
instance). This may lead to changes in sectoral competitiveness, to the benefit of one sector 
over  another,  by  reducing  current  inconsistencies  in  treatment  at  the  European  level.  Other 
factors – notably, the impact of specific tax regimes, and peculiarities of national distribution 
networks  –  can  determine  the  prevalence  of  different  product  types  and  their  predominance 
across different distribution channels.  

Contributions  of  improved  disclosures  to  reduced  mis-buying  would  directly  reduce  cost 
impacts  for  firms,  e.g.  in  terms  of  complaints,  reputational  damage,  costs  of  redress  and  so 
forth. 

Linked to this, a more general area of potential benefits is clear however. This relates to the 
low levels of 'trust' in the retail market so clearly evidenced in the latest Consumer Markets 
Scoreboard  results.  Tackling  this  –  by  facilitating  more  direct,  clear  and  straightforward 
communications between product manufacturers and their clients – could benefit providers by 
encouraging retail clients to invest, driving a transfer of savings into the capital markets. This 
could grow the retail investment market (for all providers) whilst also providing much needed 
capital liquidity for investment. Whether this would in fact happen is difficult to assess. 

Distributors 

Some  respondents  to  the  consultation  indicated  that  the  new  regime  should  simplify  the 
situation faced by distributors, so that their compliance with disclosure requirements would be 
easier (given new consistency in information provided to them across all PRIPs). This could 
also  impact  the  provision  of  services,  allowing  advisors  themselves  to  comply  better  with 
their obligations to understand the products they deal with and to make clearer comparisons 
between products on offer.  

Supervisors 

Supervising  disclosures  on  the  basis  of  consistent  requirements  across  the  entire  market  is 
likely in practice to be less costly than doing so on the basis of less consistent requirements.  

EN 

49 

   EN 

 
In  addition,  improved  comparability  of  products  will  likely  contribute  to  better  supervisory 
monitoring  of  market  developments  and  product  suitability.  Given  mis-sales  scandals  in  the 
past, and the impact these have had for supervisors (requiring extensive after-the-event work), 
preventative measures are likely to be strongly beneficial in so far as they work in practice. 
(Assessing the counterfactual is however rather difficult). 

The following table summarises the expected net effect of the preferred proposals on various 
stakeholders:  consumers,  industry  (originators  and  distributors  of  products),  and  national 
regulators. 

Table 5: Impacts on Stakeholders 

Stakeholder 

Issue 

Pre-contractual 
disclosure 

Consumers 
(retail 
investors) 

+ 
(↑ investor 
protection, ↑ 
confidence in 
market) 

Originators 

Distributors 

National 
regulators 

+ 
(↑ investor 
protection , ↑ 
market activity, ↑ 
certainty and 
consistency 
offsetting ↑ costs) 

+ 
(↑ investor 
protection, ↑ 
market activity, 
possibly ↓costs 
through better 
availability of 
quality, consistent 
product 
documentation) 

+ / - 
(↑ market conduct 
and relation with 
investors, may be 
≈ where effective 
pre-existing 
requirements 
already in place, 
may be ↑ 
supervisory costs) 

Legend:  +  overall  positive  effect,  -  overall  negative  effect,  +/-  overall  mixed  effect,  ≈  effect  not  significant,  ↓ 
decrease, ↑increase 

7. 

IMPACTS ON OTHER STAKEHOLDER GROUPS, EMPLOYMENT, SMES, ENVIRONMENT 
AND THIRD COUNTRIES 

7.1. 

SMEs 

In general it is not clear that these proposals would impact SMEs that are distributors directly 
in  any  significant  regard.  The  proposals  introduce  changes  /  greater  standardisation  in 
information, but these costs are largely borne by product manufacturers as the parties mostly 
responsible  for  preparing  and  disseminating  the  disclosures.  The  research  on  costs  for  asset 
management companies of UCITS already to a degree reflected differential potential costs for 
SMEs,  as  that  survey  was  carefully  designed  to  take  account  of  the  size  of  the  asset 
management firm.  

Consistency and better availability of information suitable for the use of retail investors could 
well  reduce  costs  for  SME  distributors,  who  would  no  longer  need  to  search  for  such 
information or prepare their own information in some cases. 

In general for product manufacturers that are SMEs (though these may to a degree cluster in 
the  asset  management  sector  and  already  be  covered  by  UCITS  changes)  costs  can  be 
expected  to  be  proportionately  higher  than  for  larger  entities  (though  of  course  in  absolute 
terms  smaller);  though  the  CSES  study  did  not  show  a  simple  pattern  in  this  regard  in  the 
UCITS market, data from other sectors and in respect of other requirements suggests such a 
relationship. 

EN 

50 

   EN 

 
The true nature of these costs will only be capable of being analysed once detailed measures 
are  finalised  at  level  2,  since  the  selection  of  options  at  that  level  could  have  an  important 
impact  on  costs  for  SMEs.  The  impact  on  SMEs  will  therefore  be  a  vital  criterion  for 
assessing options at that stage. 

7.2. 

Employment and social impacts 

Impact  for  employment  will,  as  for  SMEs,  likely  be  low,  given  that  the  initiative  is  more 
focused  on  changes  to  content  and  form  than  introduction  of  wholly  new  requirements  that 
might  have  general  impact.  In  general  terms,  new  requirements  may  have  some  marginal 
impacts  (training  needed,  some  higher  costs  and  thereby  possible  manpower  consequences, 
particular  in  the  niche  case  of  the  new  requirements  for  structured  deposits),  but  it  is  not 
expected that direct impacts could be material. 

Indirectly,  as  with  SMEs,  more  efficient  capital  markets  and  greater  levels  of  investor 
confidence should contribute to growth in EU financial services more generally.  

In regards social impacts, these are expected to strongly positive to the extent this initiative 
better  protects  consumers,  by  reducing  the  extent  of  mis-buying  of  investment  products.  As 
such this measure contributes to Article 38 of the Charter of Fundamental Rights, which calls 
for a high level of consumer protection.  

7.3. 

Environment and third countries 

Environmental  impact  is  likely  to  be  minimal.  (Simpler,  more  focused  information  could  in 
practice reduce 'paper weight' of financial services). 

In  regards  third  countries,  the  application  of  requirements  relating  to  who  may  or  may  not 
produce disclosures is of particular significance, given that in some cases a product that would 
be a PRIP in the EU, but produced in a third country, is sold in the EU. The proposed option 
relating  to  the  preparation  of  information  seeks  to  address  this  circumstance;  distributors  in 
these cases might prepare the KIID. 

7.4. 

Administrative burden 

Annex II.2 contains a detailed analysis of the possible administrative burdens associated with 
the preferred options identified for this initiative. In general terms, since this initiative would 
by  definition  seek  to  require  a  new  product  disclosure  to  be  prepared,  disseminated  and 
provided to retail customers for all PRIPs, this would impose one-off costs for this change on 
all PRIPs manufacturers (and to a lesser degree distributors). Ongoing costs are also likely to 
be impacted. The Annex outlines how the CSES study on the costs of introducing the KII for 
UCITS can be used to estimate the administrative burden for the remainder of the industry, 
but notes that an estimation of impacts at level 1 for an initiative such as this is necessarily 
going  to  be  rather  rough;  more  accurate  estimations  will  only  be  possible  once  analysis  of 
possible level 2 measures has been undertaken. The estimate on the basis of the CSES figures 
is a one-off cost of EUR 171 million, and incremental on-going costs (per year) of EUR 14 
million.  

7.5. 

Risks and uncertainties 

Proposals for improving product disclosures face certain important limitations in regards their 
direct capacity to improve investor decision making. The timely provision of information in a 
comprehensive and comparable format does not guarantee that that information will be in fact 

EN 

51 

   EN 

 
used by retail investors, while other factors might be also vital in determining the behaviour 
and choices of retail investors. 

In practice consumer protection measures in the retail investment markets must be understood 
in  a  holistic  manner:  a  variety  of  tools  (product  regulation,  product  controls  by  supervisors 
(banning, 'naming and shaming', conduct of business and conflicts of interest requirements on 
product  manufacturers,  conduct  of  business  and  conflicts  of  interest  requirements  on 
intermediaries  (distributors  and  advisors),  and  improvements  in  financial  education  and 
capability amongst retail customers) are important and support one another.  

However, it is clear that effective product transparency is a vital foundation stone for many of 
these  other  regulatory  tools.  Without  effective  product  information  in  a  form  that  retail 
investors  can  use  to  understand  and  compare  products,  it  is  unlikely  that  the  certain  other 
steps will be effective. Also, there are synergies: improvements in financial education and in 
the  quality  of  sales  processes  would  likely  support  greater  and  more  effective  use  of  and 
reliance on product disclosures. The converse also may hold. 

The  effectiveness  of  requirements  on  product  disclosure  depends  on  commitments  by 
supervisors and firms across the retail investment markets to commit resources and develops 
skills.  While  this  impact  assessment  has  underlined  a  case  for  greater  prescription  and 
standardisation, this does not make the production of effective disclosures for retail customers 
a simple exercise. No amount of prescription can absolve firms of taking the commitment to 
find  new  and  effective  ways  of  communicating  with  retail  customers  about  the  nature  and 
features  of  their  products.  The  detail  –  on  what  products  are  and  how  they  work  –  that  is 
crucial  for  investors  cannot  be  codified  into  a  simple  'tick-box'  recipe  for  firms  (or 
supervisors)  to  follow.  Using  plain  language  –  finding  simple  ways  to  explain  complex 
products  –  is  a  skill  that  takes  commitment  of  resources  to  develop.  Further  tools  and 
supporting work by supervisors at the EU and national level as well as engagements with all 
relevant stakeholders needs to be explored to ensure effective implementation (cf. also Annex 
II) 

This dimension of the outcome being sought by this initiative remains uncertain: it is not clear 
whether the steps outlined in this work including possible supporting work on the European 
and national level as mentioned will be sufficient to address this challenge. 

7.6.  Monitoring and evaluation 

Table 6: Monitoring and ex poste evaluation 

Issue 

Indicators 

Sources 

Comprehensibility 

Levels of complaints 

Stakeholder feedback 

Mis-selling scandals 

Supervisory / ESA monitoring 

Controlled assessments of quality 

Follow up survey  

Comparability 

Market impacts of new 'comparators' 

Baseline survey and follow up survey 
to monitor market evolution (linked to 
that on monitoring market evolution) 

Technical evaluation of efficacy of 
underlying calculation methodologies 

EN 

52 

   EN 

 
Ensuring provision 

Is document used in practice 

Regulatory coherence 

Regulatory arbitrage 

Mystery shopping to assess compliance 
/ timing of provision 

Baseline survey and follow up survey 
(5 years) to monitor market evolution 
around boundaries of scope 

8. 

CONCLUSIONS 

Clear  and  comparable  information  about  products  is  a  necessary  foundation  for  informed 
decision making, and key to empowering retail investors. Effective product information will 
also aid distributors in serving their retail clients.  

The  EU  retail  investment  market  remains  beset  by  market,  and,  importantly,  attendant 
regulatory  failings.  The  emergence  of  increasingly  complex  products  across  a  range  of 
different sectors has undermined the effectiveness of existing product disclosure frameworks, 
which have not been designed with cross-sectoral comparability in mind. Currently EU law 
imposes a patchwork of regulation which Member States are unable to sufficiently address at 
their own level.  

New  requirements,  developed  on  the  basis  of  testing  with  consumers  themselves,  and 
designed  to  improve  comprehension  and  comparability  of  information,  have  already  been 
introduced  for  UCITS;  these  requirements  apply  across  the  whole  EU,  and  are  highly 
prescriptive.  

In  assessing  options  for  the  remainder  of  the  PRIPs  market  in  the  EU,  the  preferred  policy 
options  that  emerge  clearly  build  on  the  approach  developed  for  UCITS  –  following  that 
model in introducing much greater standardisation and prescription in requirements at the EU 
level – but do not entirely follow the UCITS model.  

The heterogeneity of non-harmonised products entails a need for some wider flexibility in the 
requirements  for  other  products.  This  is  termed  'targeted  standardisation'  in  this  impact 
assessment.  The  analysis  concludes  that  such  an  approach  offers  the  best  chance  to  achieve 
clearer  and  more  comparable  product  disclosures  whilst  reflecting  the  practical  realities  of 
complex and varied products. 

If  clear  and  comparable  information  is  not  made  available,  informed  decisions  cannot  be 
taken.  The  wider  significance  for  the  regulation  of  retail  markets  of  any  continued 
failure to enable better, more informed decision making should not be understated. For 
this  reason,  the  effort  and  care  needed  to  develop  effective  disclosure  requirements  and  the 
costs and effort needed to implement them in practice are small prices to pay for putting retail 
investment markets onto a surer footing.  

EN 

53 

   EN 

 
ANNEX I 

1. 

LIST OF ACRONYMS 

3L3 
AFM 
AIMA 
AILO 
BIPAR  
CEBS 
CEA 
CEIOPS 

CESR 
CLD 
EBA 
EEA 
EFAMA 
EIOPA 
EVCA 
ESMA 
FECIF 

FSUG 

FSA  
FSAP 
IFA 
IMD  
IOSCO 
MiFID  
PD 
PFSA 
SME 
UCITS  

Insurance  and  Occupational 

Lamfalussy Level 3 Committees 
Dutch Financial Markets Authority 
Alternative Investment Management Association 
Association of International Life Offices 
European Federation of Insurance Intermediaries 
Committee of European Banking Supervisors (now EBA) 
European Insurance and Reinsurance Federation 
Committee  of  European 
Pension Supervisors (now EIOPA) 
Committee of European Securities Regulators (now ESMA) 
Consolidated Life Directive 
European Banking Authority 
European Economic Area 
European Fund and Asset Management Association 
European Insurance and Occupational Pensions Authority 
European Venture Capital Association 
European Securities Markets Authority 
European  Federation  of  Financial  Advisers  and  Financial 
Intermediaries 
Independent  expert  forum,  comprising  consumer  protection 
and  small  business  experts,  academics  and  consumer 
organisation representatives 
Financial Services Authority (UK) 
Financial Services Action Plan  
Independent Financial Adviser 
Insurance Mediation Directive 
International Organization of Securities Commissions  
Markets in Financial Instruments Directive 
Prospectus Directive 
Polish Financial Supervision Authority  
Small- and Medium-Sized Enterprise 
Undertakings  for  Collective  Investment  in  Transferable 
Securities 

EN 

54 

   EN 

 
 
 
2. 

RELATED INITIATIVES 

•  Review of MiFID 

The MiFID framework is currently subject to review on a number of issues including investor 
protection  rules.  Proposals  were  adopted  by  the  Commission  in  Autumn  2011,  and  are 
currently subject to negotiation by the European Parliament and the Council. Given that the 
MiFID  framework  has  been  identified  as  a  key  element  and  benchmark  of  the  horizontal 
approach being sought for the regulation of all sales of PRIPs, consistency between the review 
of  MiFID  and  the  PRIPs  initiative  was  of  key  importance  in  the  development  of  the 
Commission  proposals.  The  review  of  MiFID  is  thereby  being  used  to  deliver  certain 
elements of the PRIPs initiative as regards selling practices. 

•  Review of  IMD 

The  Insurance  Mediation  Directive  (IMD)  is  also  under  review.  The  IMD  currently 
determines  the  regime  for  sales  for  a  significant  element  of  the  retail  investment  market  – 
investments packaged as life insurance products. For this reason, the development of policy 
on  sales  rules  for  insurance  products  more  widely  through  the  review  of  the  IMD  will  be 
relevant to the development of policy for PRIPs. Moreover, it is envisaged to use the IMD to 
deliver the part of the PRIPs work on sales rules for insurance based PRIPs. 

•  Sanctions 

The Commission launched further work on sanctions by means of the Communication of 8th 
December  2010.62  The  Communication  highlights  that  sanctions  provided  for  by  Member 
States  diverge  as  regards  the  types  of  sanctions  and  the  level  of  fines.  It  has  therefore  been 
concluded  it  is  necessary  to  strengthen  the  sanctioning  regime  by  further  convergence  of 
rules.  The  measures  foreseen  for  the  effective  implementation  and  enforcement  of  the  new 
provisions  as  regards product  disclosure should therefore be coordinated  with such sanction 
work.  

•  Prospectus Directive  

Due to the recent amendments63 to the Prospectus Directive 2003/71/EC the concept of key 
information within the summary prospectus review was introduced so as to ensure effective 
standards  of  investor  protection.  This  concept  needs  further  development  on  the  level  of 
delegated acts. Given that some securities subject to the Prospectus regime are also going to 
fall  into  the  scope  of  the  PRIPs  work,  it  is  important  to  coordinate  the  work  in  these  two 
initiatives, so as to ensure a coherent overall approach from the perspective of investors and 
so as to avoid unnecessary duplication.   

•  UCITS IV implementation 

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63  

http://ec.europa.eu/internal_market/consultations/docs/2010/sanctions/COM_2010_0716_en.pdf. 
Directive 2010/73 the European Parliament and of the Council of 24 November 2010 amending 
Directives 2003/71/EC on the prospectus to be published when securities are offered to the public or 
admitted to trading and 2004/109/EC on the harmonisation of transparency requirements in relation to 
information about issuers whose securities are admitted to trading on a regulated market. 

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UCITS IV is currently being transposed by Member States,64 and the key investor information 
document defined within the KII regulation is currently being implemented by firms (it comes 
into force on 1 July 2011, though there is a 12 month transitional applying in some cases, so 
in practice the new document will only be used throughout the EU from 1 July 2012. UCITS 
funds  fall  within  the  scope  of the  PRIPs  initiative.  Given  the  current  implementation  of  the 
KII  by  firms,  and  given  that  the  UCITS  KII  functions  as  the  'benchmark'  for  product 
disclosures for other PRIPs, it is crucial to underline that the PRIPs initiative would not apply 
immediately  to  UCITS  (the  timing  of  the  PRIPs  inititiave  could  provide  a  sufficient 
transitional period, to minimise incremental changes and disruption). During the development 
of the KII for other  PRIPs,  any  necessary consequential adjustments  to  requirements on the 
KII for UCITS will be made, bringing UCITS KII under the same harmonised requirements 
as all other PRIPs. In addition, it will be important to reflect on practical experiences with the 
implementation of the KII for UCITS during the development of detailed requirements on KII 
for other PRIPs. 

•  Pensions Green Paper 

The  Commission  consulted  in  2010  on  a  Green  Paper  on  next  steps  in  the  EU  pensions 
landscape.65  The  consultation  period  ended  in  mid-November  2010,  and  the  Commission  is 
considering  the  responses  and  its  future  direction  in  this  area.  This  consultation  addresses, 
amongst  other  things,  transparency  and  disclosure  questions  relating  to  different  kinds  of 
defined contribution pensions (including personal or individual pensions under Pillar III). The 
same  disclosure  approach  as  developed  for  other  PRIPs  might  be  applied  to  many  pensions 
(though  additional  disclosures  may  also  be  necessary  in  relation  to  the  sale  of  pensions 
compared to non-pension investments). A pensions White Paper has now been published. 

•  Solvency II 

Solvency II66 which is a recast of life and non-life directives consolidates among others high 
level measures on disclosures to be made to  clients. While work is ongoing on level 2, this 
work  does  not  relate  to  these  measures.  The  work  under  PRIPs  could  overlap  with 
requirements  for  disclosures  under  Solvency  II;  as  with  the  work  under  the  Prospectus 
Directive, it will be important therefore to ensure no unnecessary duplication of requirements 
on firms. 

•  Single Market Act 

Under  the  Commission  work  to  improve  the  functioning  of  the  single  market  and  its 
effectiveness  for  citizens,  steps  have  been  identified  to  specifically  improve  the  EU 
framework  relating  to  social  business,  including  possible  ways  in  which  the  investment 
industry (including its retail wing) might contribute.  

64  

65  
66  

Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the 
coordination of laws, regulations and administrative provisions relating to undertakings for collective 
investment in transferable securities (UCITS) (recast).  
http://ec.europa.eu/social/main.jsp?langId=en&catId=89&newsId=839&furtherNews=yes 
Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the 
taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II). 

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3. 

WHAT ARE PACKAGED 'RETAIL INVESTMENT PRODUCTS'? 

There is currently no definition of a 'packaged retail investment product' in Community law, 
nor  is  there  a  common  definition  in  Member  State  legislation.  We  define  the  concept  here 
with reference to the characteristics of the products on offer and the set of investors to whom 
they are sold. The core characteristics are as follows: 

•  They  are  'packaged'  products  which  combine  investments  in  (usually)  multiple  financial 

instruments; 

•  They are typically held for a medium to long term period; 

•  Their core economic function is capital accumulation; and 

•  They are normally designed for and sold to retail investors. 

This  set  of  products  should  not  be  confused  with  retail  financial  products  or  services  in 
general, which may include credit products (mortgages, loans), insurance products, payment 
services etc. PRIPs are however a sub-set of retail financial products. 

Determining a definition of PRIPs has formed a strong part of the Commission's consultation 
with  stakeholders.  From  this  work  a  broad  approach  has  emerged  which  uses  an  'economic' 
definition (to be supported as appropriate by targeted exceptions): 

The  Commission  services  consulted  on  the  following  definition  (as  a  refinement  of  earlier 
work and drawing on input from the 3L3 joint task force on PRIPs):  

A PRIP is a product where the amount payable to the investor is exposed to fluctuations 
in the market value of assets or payouts from assets, through a combination or wrapping 
of those assets, or other mechanisms than a direct holding. 

Such a definition of PRIPs would include products with capital guarantees, and those where, 
in addition to capital, a proportion of the return is also guaranteed. However, products where 
the precise rate of return is set in advance for the entire life of the product would be out of 
scope,  since  here  the  amount  payable  is  not  subject  to  fluctuations  in  the  values  of  other 
assets. 

It  would  rule  into  scope  all  investment  funds,  whether  closed-ended  or  open-ended,  and  all 
structured  products,  whatever  their  form  (e.g.,  packaged  as  insurance  policies,  funds, 
securities or deposits). Derivative instruments would also be in scope.  The definition would 
appear  to  rule  out  –  as  required  –  many  'vanilla'  shares  and  bonds,  insofar  as  these  do  not 
contain 'a mechanism other than a direct holding of the relevant assets'.  It would also rule out 
deposits which are not structured deposits (explicit clarification of the definition however may 
be needed in this regard). 

Pure  protection  products  would  not  be  covered  since  they  do  not  have  a  surrender  value.  
Other  insurance  products  would  not  be  covered  where  any  surrender  value  offered  is  not 
wholly or partially exposed, directly or indirectly, to market fluctuations. On the other hand, 
the  range  of  insurance  products  caught  would  include  those  whose  surrender  values  are 
determined  indirectly  by  returns  on  the  insurance  companies  own  investments  or  even  the 
profitability of the insurance company itself.  

The mechanisms by which pay outs are made would not be relevant for determining scope: 
products  that  yield  an  income,  or  provide  a  single  pay  out  at  maturity,  or  that  adopt  some 
other arrangement, would all be in scope in so far as they satisfy the general definition. 

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The definition does not include any reference to a product being intended for retail use. This 
is due to the fact that the retail element is relevant at the point of sale in particular, when the 
distributor sells a certain investment product to a retail customer, or provides advice on it. A 
KIID would only be required however where a retail sale is underway. 

Note  that  while  all  of  the  product  families  covered  by  such  a  definition  offer  comparable 
economic  functionality,  there  is  still  considerable  variation  in  product  characteristics  both 
within and between product families. The key differences include: 

•  The  products  are  structured  differently.  For  instance,  investment  in  a  fund  entails  the 
delegation of fiduciary responsibility to a fund manager, and with actively managed funds 
the  return  is  affected  by  the  decisions  taken  by  that  manager  over  the  lifetime  of  the 
investment. By contrast, the calculation of the return on a structured security at maturity is 
determined in advance by a fixed algorithm. 

•  The  legal  relationship  between  the  investor  and  originator  varies.  The  client  remains  the 
beneficial owner of the assets in a fund investment, whereas this is not the case when an 
investment is made through an insurance wrapper: the underlying assets are legally owned 
by the insurance company. The company promises to provide a return to the policy holder 
based on the investment performance of the assets. 

•  The (non-investment) risks associated with the products differ. For example, an investor in 
a structured security bears a counterparty risk against the issuer of the security. An investor 
who entrusts his/her assets to a fund manager accepts the risk that the manager will not act 
in  his/her  best  interests.  There  can  also  be  differences  in  the  exposure  to  liquidity  risks 
between different types of product. 

•  The characteristics of the products may differ, for example in terms of the types of market 
exposure they offer and the existence and nature of a capital guarantee. The liquidity and 
accessibility  of  the  products  may  also  vary  significantly,  with  some  having  lock-ins  or 
penalties if the investor needs quick access to their capital. 

•  Average  holding  periods  may  vary;  anecdotal  evidence  suggests  that  insurance-based 
products in particular are typically held for longer than the average maturity of a structured 
security.  

•  They  are  subject  to  differential  tax  treatment,  according  to  the  policy  preferences  of 

national authorities. 

•  Some  products  may  offer  additional  functionality,  such  as  biometric  risk  coverage  in  a 

unit-linked life insurance policy. 

It is important that product disclosures are suitable tailored or flexible to allow for all of these 
differences to be clarified.  

However,  it  is  clear  that,  from  the  perspective  of  the  retail  investor,  all  of  these  products 
perform comparable economic functions. Work conducted on these issues in other public fora 
(e.g. Joint Forum, IOSCO, 3L3 and at national level) has variously referred to the same set of 
products  as  'competing'  or  'substitute'  products.  While  these  descriptions  may  apply  to  a 
subset of the products in question, we do not consider these terms to be generally applicable. 
For the reasons given above, we do not consider all of the products under consideration to be 
perfect  substitutes.  Moreover,  while  they  do  compete  for  retail  savings,  it  is  not  always 

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accurate  to  treat  them  as  being  in  direct  competition.  For  example,  unit-linked  life  policies 
often  serve  simply  as  a  'wrapper'  for  an  investment  in  an  underlying  fund.  In  this  case  the 
'competing product' is more accurately described as an alternative channel for the distribution 
of the investment fund. 

4. 

HOW BIG IS THE MARKET FOR PACKAGED RETAIL INVESTMENT PRODUCTS? 

It is not straightforward to arrive at an accurate estimate of the size of  the  market  for  retail 
investment  products.  The  available  data  on  unit-linked  insurance  investments  do  not 
distinguish between those products offering significant biometric risk cover and those that do 
not. Data on term deposits do not distinguish between those that are structured and those that 
are not. There is also a problem of double-counting, to the extent that investments in units of 
investment  funds  through  unit-linked  life  wrappers  are  included  in  both  product  categories. 
Nevertheless, an estimate of total market size of €8-11 trillion is not unreasonable. As noted 
in section 3 of the main text, 2009 estimates sat at around €9 trillion.  

(Note  that  this  estimate  does  not  distinguish  between  retail  and  non-retail  investments,  as 
reliable  data  is  not  available  across  the  whole  market  in  this  regard.  However,  EFAMA 
estimates that around 33% of fund investments are direct retail; the remainder however is also 
contain intermediated retail investments, so this figure itself will understate the retail market). 

Capital outstanding (EURO trillion)67 

Investment Funds (Assets under Management)

Unit-linked life investments

Capital in retail structured securities

Deposits held by households

9

8

7

6

5

4

3

2

1

0

end 2002

end 2003

end 2004

end 2005

end 2006

end 2007

Source EFAMA, CEA, retailstructuredproducts.com and ECB 

5. 

HOW ARE PACKAGED RETAIL INVESTMENT PRODUCTS DISTRIBUTED? 

On  the  supply  side,  it  is  necessary  to  distinguish  between  the  manufacturers  of  retail 
investment  products  and  their  distributors.  Manufacturers  include  fund  managers,  securities 
issuers, banks and insurance companies. These entities may distribute their products directly 

67 

Investment funds: includes UCITS and non-UCITS but not hedge funds or private equity. Unit-linked 
life investments: includes life insurance policies with biometric risk component. Term deposits held by 
households: with Monetary and Financial Institutions: includes deposits without embedded optionality 

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to retail investors – in which case the manufacturer and distributor are the same – or through 
an intermediary. 

Funds  and  structured  securities  are  distributed  predominantly  by  banks  in  many  Member 
States, although independent financial advisers are prevalent in the UK. Financial institutions 
also  distribute  the  majority  of  unit-linked  life  insurance  policies,  along  with  insurance 
company employees, agents and, in some countries, insurance brokers. Greater detail is given 
in the sections that follow. 

Traditionally,  financial  institutions  distributed  products  developed  'in  house'  by  fund 
managers and financial 'engineers'. In recent times, however, funds and securities distributors 
have  moved  towards  more  open  models  of  distribution,  with  third-party  products  offered 
alongside  own-brand  products  ('open  architecture').  It  is  also  common  for  different  types  of 
investment product to be made available from the same distribution channel. For example, a 
prospective investor seeking to purchase an investment from branch of a bancassurer or from 
an independent  financial  advisor may be offered products from any of  the product families. 
There are also signs of developments whereby intermediaries offer services which blur some 
of  the  distinctions  between  intermediation  and  product  manufacturing,  such  as  distributor 
managed funds and wrap platforms. 

Investment funds 

Industry  estimates  suggest  that,  in  continental  Europe,  commercial  banks  and  insurance 
companies  remain  the  largest  distributors  of  investment  funds  but  that their  market  share  in 
fund  distribution  fell  from  97%  to  75%  between  1990  and  2005.  In  the  UK,  independent 
financial advisors (IFAs) are the main distribution channel.  

Distribution channels by country, 2007 

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

France

Germany

Italy

Spain

UK

Retail bank

IFA

Private bank

Supermarket

Funds of funds

Corporate/institution

Pension or insurance w rapper

Direct

Other

Source: Lipper FERI, European Fund Market Data Digest 2007 

Structured securities 

In  2006,  banks  were  the  primary  distributors  of  retail  structured  securities,  with  a  market 
share close to 86%. IFAs and brokers, which can either sell structured products from multiple 
issuers or from a single issuer, accounted for 12% of structured product retail sales in 2006. 

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Distribution channels, EU, 2009 

EU Sales Channels for Retail Structured Products 2009

21%

3%

Direct
Financial Advisor
Salesforce

76%

Source: www.structuredretailproducts.com 

Unit-linked life insurance 

The  available  data  do  not  distinguish  between  distribution  channels  for  unit-linked  life 
insurance policies, and life insurance more generally. Financial institutions remain the main 
distribution channels, with the exception of the UK and the Netherlands, where brokers and 
agents  predominate.  Life  insurance  products  are  also  distributed  through  networks  of 
insurance company employees. 

Life insurance (new individual contracts) distribution channels, EU, 2009 

European life distribution channels - New individual business (2009)

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

PT

IT

MT

ES

FR

BE

EE

PL

RO

SI

UK

NL

SK 

Employees

Distance selling

Agents

Brokers

Other intermediaries

Bancassurance

Other

Source: CEA 

Structured deposits 

No  data  are  available  on  distribution  channels  for  structured  deposits.  However,  it  can  be 
reasonably assumed that, by their nature, structured deposits are distributed by deposit-taking 
institutions,  i.e.  commercial  banks.  In  some  Member  States,  financial  advisers  might  well 
propose these as part of their range of products. 

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6. 

EUROPEAN DISCLOSURE RULES FOR RETAIL INVESTMENT PRODUCTS 

Requirements for different types PRIPs 

Investment funds 

For funds covered by the UCITS Directive a Key investor information document (KIID) must 
be provided to the investor before the conclusion of the contract (s. Annex …). On request, a 
full  prospectus,  an  annual  report  and  a  half-yearly  report  have  to  be  provided.  Concerning 
nationally  regulated  retail  funds,  many  national  laws  follow  the  structure  of  the  UCITS 
Directive by requiring a full prospectus and a shorter document (simplified prospectus/KIID) 
whereas others require additional disclosure documents.  Details of the KII regime are set out 
below. 

Structured securities  

Structured securities which are to be offered to the public on a pan-EU basis are subject to the 
Prospectus Directive 2003/71/EC and hence to the publication of a prospectus. Article 5 states 
that the prospectus "shall contain all information which, according to the particular nature of 
the  issuer  and  of  the  securities  offered  to  the  public  or  admitted  to  trading  on  a  regulated 
market,  is  necessary  to  enable  investors  to  make  an  informed  assessment  of  the  assets  and 
liabilities,  financial  position,  profit  and  losses,  and  prospects  of  the  issuer  and  of  any 
guarantor, and of the rights attaching to such securities. This information shall be presented 
in  an  easily  analysable  and  comprehensible  form".  The  prospectus  shall  also  include  a 
summary,  which  following  the  amendments  of  Directive  2010/73/EC  shall  "in  a  concise 
manner and in non-technical language, provide key information in the language in which the 
prospectus was originally drawn up. The format and content of the summary shall provide in 
conjunction with the prospectus appropriate information about the essential elements of the 
securities  in  order  to  aid  investors  when  considering  whether  to  invest  in  such  securities." 
The  summary  shall  be  drawn  up  in  a  common  format  in  order  to  facilitate  comparison 
between  different  summaries  and  its  content  shall  contain  key  information  on  the  security. 
Key information here means essential and appropriately structured information which is to be 
provided to the investor and which comprises a short a description of the risks associated with 
the issuer, of the risks associated with the investment into the security, the general terms of 
the  offer  and  details  of  the  admission  to  trading.  The  prospectus  has  to  contain  all  the 
information  required  by  the  annexes  of  the  Prospectus  Regulation  (Commission  Regulation 
N°  809/2004),  depending  on  the  issuer  and  the  securities  offered.  The  prospectus  has  to  be 
approved by the relevant competent authority.  

Unit-linked life insurance 

Directive 2009/138/EC (Solvency II), indicates in a list the information to be provided to the 
policyholder  prior  to  the  conclusion  of  the  contract.  The  information  will    relates  to  the 
insurance  undertaking  and  to  the  commitment  itself.  Article  185  of  Directive  2009/138/EC 
requires that before the  life insurance contract is concluded, at least the information set out in 
paragraphs 2 to 4 shall be communicated to the policy holder. As regards unit-linked policies, 
such information includes the definition of the units to which the benefits are linked as well as 
an indication of the nature of the underlying assets.  

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The Article further requires that 

•  The policy-holder shall be kept informed throughout the term of the contract of any change 
concerning certain elements of information mentioned in Article 185 including information 
on the underlying assets in case of unit linked life insurance . 

•  The  Member  State  of  the  commitment  may  require  assurance  undertakings  to  furnish 
information  in  addition  to  that  listed  in    Article  185  only  if  it  is  necessary  for  a  proper 
understanding by the policy holder of the essential elements of the commitment". 

The required elements of pre- and post-contractual disclosures "must be provided in a clear 
and  accurate  manner,  in  writing,  in  an  official  language  of  the  Member  State  of  the 
commitment".   

Structured deposits 

There are no European pre-contractual disclosure rules applicable to structured term deposits. 

Details on KII regime for UCITS 

Purpose of the KII 

•  Replacement of the simplified prospectus  

The  requirement  to  produce  a  simplified  prospectus  in  addition  to  the  existing  full 
prospectus  was  introduced  into  the  UCITS  Directive  in  2001  (Directive  2001/107/EC). 
The  simplified  prospectus  was  to  be  designed  as  an  investor-friendly  tool,  a  source  of 
valuable  information  for  average  investors,  giving  key  information  about  UCITS  in  a 
clear, concise and easily understandable way and offered to them before the conclusion of 
the contract. It soon appeared that the simplified prospectus did not fulfil the role it was 
designed  for:  it  has  become  as  ineffective  and  unengaging  for  investors  as  the  full 
prospectus due to its length, structure, and the common use of jargon. In fact, it has been 
difficult to distinguish between those two documents.  

Learning from this experience, the Commission embarked on a  extensive testing exercise 
with  consumers  themselves  in  order  to  develop  those  elements  of  the  disclosure  which 
could  improve  the  quality  and  effectiveness  of  information  to  be  provided  to  retail 
investors. The outcome of the testing exercise was a main point of reference for the CESR 
advice on which the new regulatory framework of UCITS IV (Directive 2009/65/EC) and 
its implementing measure (Commission Regulation (EU) no 583/2010)  are based.  

KII has therefore become one of the documents (others being a prospectus and periodical 
reports) which are obligatory for a management company or an investment company. (this 
sentence seems not entirely clear to me, language wise, not contents ) 

The  main  purpose  of  the  KII  is  to  provide  investors  with  appropriate  information 
about  the  essential  characteristics  of  the  UCITS  concerned,  so  that  investors  are 
reasonably  able  to  understand  the  nature  and  the  risks  of  the  investment  product 
that  is  being  offered  to  them,  and,  consequently,  to  take  informed  investment 
decisions (art. 78(2) of Directive 2009/65/EC).     

•  Specific contexts 

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Apart from its main role as a pre-contractual disclosure instrument,  the KII has also an 
important role with respect to the UCITS product passport  (maybe we skip merger, it is 
abit  too  technical,  maybe  just  one  sentence,  important  role  with  respect  to  cross  border 
fund mergers.)  

UCITS  passport  -  in  order  to  ensure  that  investors  in  all  MS  where  a  given  UCITS  is 
marketedreceive the same information, the Directive provides  that the KII, translated as 
required, forms part of the notification file and is provided to investors in a Member State 
where the UCITS is marketed; 

Fund mergers – KII of the receiving UCITS (if established in a different Member State) 
should  be  provided,  among  other  documents,  by  a  merging  UCITS  to  its  competent 
authorities in order to obtain authorisation of the merger. Once a merger is authorised, KII 
of the receiving UCITS should be provided to unit-holders of the merging and receiving 
UCITS. It should help unit-holders to take the decision whether to stay invested in a fund 
or redeem the units of a UCITS. 

Main requirements laid down in the level 1 directive 

•  Addressees of the requirements:  

The  fund  manager  should  draw  up  for  each  fund  it  managers;  the  entity  selling  should 
provide the KII to the client or potential client. 

•  Aim of KII:  

Pre-contractual  obligatory  disclosure  –  it  should  contain  information  about  the  essential 
characteristics of the UCITS concerned so that investors are reasonably able to understand 
the nature and the risks of the investment and take investment decisions on an informed 
basis. 

•  Main characteristics of KII:  

It should be fair, clear and not misleading, consistent with relevant parts of the prospectus. 

•  Main requirements with regard to the form of a KII document and its language 

- short document, 

-  common  format,  information  should  be  presented in  a specified sequence allowing  for 
comparison between different UCITS, 

- information presented in a way that is likely to be understood by retail investors, 

- non-technical language should be used, 

- specific, self-standing document: its essential elements should be comprehensible to the 
investors without any reference to other documents.  

•  List of essential elements KII should contain in respect of the UCITS concerned: 

- identification of the UCITS, 

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- a short description of its investment objectives and investment policy, 

- past-performance presentation, or, where relevant, performance scenarios, 

- costs and associated charges, 

- risk/reward profile of the investment including guidance and warnings in relation to the 
risks associated with an investment in a given UCITS. 

•  Civil liability  

Was constructed in a way which supports the restrictive character of the KII underlying 
the  fact  that  it  should  not  repeat  the  information  included  in  the  prospectus.  The  civil 
liability  was  therefore  limited  to  situations  where  KII  is  misleading,  inaccurate  or 
inconsistent with the relevant parts of prospectus. 

•  Provision of KII and its availability: 

To  investors  (in  good  time  before  they  subscribe  units  of  UCITS;  free  of  charge,  in  a 
durable medium or by means of a website; in a paper copy on investor's request (also free 
of charge)). 

To competent authorities of UCITS home Member State. 

KII  should  also  be  made  available  on  the  website  of  the  investment  or  management 
company. 

•  Revision of KII 

The essential elements of KII should be kept up to date. 

•  Translation of KII  

The  requirements  relating  to  the  translation  of  KII  apply  in  a  passport  situation,  which 
means  where  a  UCITS  authorised  in  one  Member  State  is  marketed  in  another  Member 
State.  

•  Verification of KII by competent authorities 

Directive  2009/65/EC  does  not  require  UCITS  competent  authorities  to  ex-ante  approve 
the  KII.  However,  Member  States  have  a  general  obligation  (laid  down  in  art.  99  of 
Directive  2009/65/EC)  to  ensure  the  enforcement  of  national  rules  adopted  pursuant  to 
this Directive. Furthermore, the Directive requires Member States to lay down effective, 
proportionate and dissuasive measures and penalties concerning the duty to present KII in 
a way that is likely to be understood by retail investors.    

The  obligation  requiring  management  companies  or  investment  companies  to  send  KII 
and all amendments thereto to UCITS competent authorities is to facilitate the verification 
of  KII  by  these  authorities  either  ex-ante  or  ex-post,  depending  on  their  national  law  or 
administrative practice.  

Level 2 requirements supported by level 3 guidelines  

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Directive 2009/65/EC foresees the adoption of  implementing measures related to the detailed 
and exhaustive content of the KII as well as specific conditions to be met when providing KII 
in a durable medium other than paper.  

In order to achieve consistent application of the provisions on KII in all Member States being 
a  precondition  for  satisfactory  level  of  comparability  of  funds,  and  due  to  the  technical 
character  of  the  rules,  those  measures  have  been  adopted  in  a  form  of  a  regulation 
(Commission Regulation (EU) no 583/2010). During the preparation of the legislative act it 
became  clear  that  there  was  a  need  and  expectations  from  stakeholders  for  more  precision 
which  would  not  compromise  the  flexibility,  possibility  to  adjust  rules  to  changing  market 
conditions.  CESR  responded  to  these  needs  by  adopting  several  guidelines.  This  is  a  bit 
unclear.  Some  of  them  contain  detailed  elements  for  the  underlying  methodologies  so  that 
information in KII document can be truly comparable across the whole fund universe.  

The table below reflects main elements covered by the regulation and supporting guidelines 

Level 1 principles 

Level 2 rules 

CESR guidelines 

Requirements  relating  to 
the  form  and  language  of 
KII document 

-  content exhaustive; 

CESR's guide to clear language and 
layout for the KII document. 

-  specification  of  the    the    title  of  the 
document, 
the  order  of  contents  and 
sections' headings; 

CESR's 
document. 

template 

for 

the  KII 

-  requirements in relation to: 

• 

• 

• 

language that should be used (e.g. 
avoidance  of  jargon  or  technical 
terms), 

 use of colours and branding,   

document size: no more than two 
pages of A-4 sized paper. 

- details on the use of  cross-references to 
other sources of information . 

Essential elements of KII 

 Specification  of  all  elements  of  KII  listed 
in level 1 directive.  

In particular:  

risk  and  reward  profile  of  the  fund  should 
contain  a  synthetic  indicator  supplemented 
by  narrative  descriptions  of  the  indicators 
and  those  categories  of  risks  which  are 
material  for  a  given  UCITS  but  not 
adequately captured by an indicator. 

charges  should  be  presented  in  a  certain 
form  (a  table  annexed  to  the  Regulation) 
and  what  sort  of  information  it  should 
contain.   

on 

guidelines 

CESR 
the 
methodology  for  the  calculation  of 
reward 
the  synthetic 
indicator in the KII document. 

risk  and 

on 

guidelines 

CESR 
the 
methodology  for  calculation  of  the 
ongoing  charges  figure  in  the  KII 
document. 

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Revision of KII 

clarification  on  the  review  of  the  KII  and  
the situations  which trigger the publication 
of the revised version of KII Document. 

Exceptions  to  main  rules 
– specific situations 

 specific requirements (complimentary to or 
different than those laid down for UCITS in 
general) for specific UCITS structures: - an 
investment compartment of UCITS; 

CESR  guidelines  on  selection  and 
performance 
of 
presentation 
scenarios  in  the  KII  document  for 
structured UCITS. 

-  one class of units or shares; 

- a fund of funds 

- a feeder UCITS 

- structured UCITS 

Provision of KII 

conditions  which  should  apply  when  KII 
Document is provided in a durable medium 
other than paper or by means of a website. 

To aid visualisation of this regime in practice, CESR prepared a 'template KIID'. This can be 
found at http://www.cesr.eu/index.php?docid=7336.   

7. 

MEMBER  STATE  APPROACHES  TO  THE  REGULATION  OF  RETAIL  INVESTMENT 
PRODUCTS 

Many  Member  States  have  supplemented  the  provisions  of  European  directives  with 
additional provisions within their own jurisdictions. This section provides examples from four 
Member States, which are included for illustrative purposes only. 

United  Kingdom:  At  the  time  of  the  implementation  of  MiFID,  the  UK  introduced  a  new 
Conduct  of  Business  sourcebook68under  which  many  MiFID  provisions,  particularly  on 
conduct of business and conflicts of interest were applied to non-scope business, e.g. certain 
life  insurance  products.  In  this  context  also  the  need  to  prepare  a  Key  Features  Document 
(KFD) and a Key Features Illustration (KFI) for "packaged products" was introduced. A Key 
features document has to include information which enables retail clients to make an informed 
decision  about  their  investment.  Firms  which  sell  such  products  to  retail  clients  have  to 
provide these documents to their clients in good time before conclusion of the contract.  

In  Italy,  the  amended  Consolidated  Law  on  Financial  Intermediation69  adopted  a 
homogeneous  approach  for  both  product  disclosure  and  rules  on  conduct  of  business.  Any 
public  offering  of  securities,  investment  funds  (both  UCITS  and  non-UCITS)  or  "financial 
products issued by banks or insurance undertakings" is subject to the same rules concerning 
the  prospectus  as  well  as  to  the  supervision  of  the  CONSOB.  Moreover,  Italy  introduced 
transparency requirements for supplementary pension schemes, providing investors with pre-
contractual and contractual information similar to that required for retail investment funds.  

68 
69 

New Conduct of Business Sourcebook (COBS) applying to firms with effect from 1 November 2007 
Legislative Decree n° 58 of 24 February 1998 - Consolidated Law on Financial Intermediation - (as 
subsequently amended) 

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67 

   EN 

 
 
 
                                                 
In Portugal, the Decree-Law No. 357-A/2007 of 31 October 2007 (as subsequently amended) 
which  transposes  MiFID  into  national  law  transferred  the  powers  of  supervision  and 
rulemaking on assurances linked to investment funds and the individual subscription contract 
to  open-end  pension  funds,  from  the  Portuguese  Insurance  Institute  (ISP)  to  the  Portuguese 
Securities Commission (CMVM) with regard to the conduct of business rules for distribution. 
In this context, the CMVM supplemented the existing requirements for unit-linked insurance 
contracts  and  open-ended  pension  funds  with  some  relevant  MiFID  provisions.  In  addition, 
the  CMVM  Regulation  nº  8/200770  supplemented  the  existing  requirements  for  these  two 
types  of  products  with  disclosure  requirements  following  the  UCITS  model.  More  recently 
and  alongside  these  requirements,  CMVM  Regulation  No.  1/200971  introduced  an 
information document on complex financial products. Such document needs to be presented 
in a language which is clear, concise and easily understandable language for the investor. 

In Germany, it is foreseen to introduce a product information sheet for all financial products 
under  MiFID  which  is  to  be  provided  to  the  investor  by  the  distributor  in  case  of  advised 
sales. Such changes shall enter into force by summer 2011. 72 The document shall be short and 
understandable for retail investors. Its model has been inspired by the information sheet which 
accompanies medicines distributed by pharmacies ("Beipackzettel"). 

8. 

EVIDENCE ON ISSUES FOR RETAIL CLIENTS FROM 2008 CALL FOR EVIDENCE 

Unit-linked life insurance policies 

Many  responses  to  the  Call  for  Evidence  on  unit-linked  life  insurance  policies  highlighted 
deficiencies  with  regard  to  the  disclosure  of  likely  performance  and  of  the  costs  associated 
with this type of investment. 

The response from the insurance supervisors in CEIOPS highlighted the disclosure of 'chain costs' as a particular 
problem (the use of insurance 'wrappers' entails the addition of costs both at the level of the insurance company 
and the originator of the underlying investment). 

More  broadly,  the  Dutch  AFM  and  other  regulators  have  reported  that  differences  in  regulation  between  life 
insurance  products  and  mutual  funds  have  caused  significant  problems.  They  argue  that  transparency  of  costs 
and inducements is not achieved in the insurance sector solely on the basis of EU requirements, so to the extent 
that the EU requirements set the standard of disclosures, prospective investors are unable to weigh these factors 
up against other features that might be highlighted, such as the tax advantages of the product. This is considered 
to  have  resulted  in  the  sale  of  insurance  products  even  where  mutual  fund  investments  offering  similar  asset 
exposures with lower charges might have offered better risk-adjusted performance. 

A  recent  example  of  such  a  potential  distortion  in  sales  is  the  alleged  misselling  of  equity-linked  insurance 
products  in  the  Netherlands,  which  resulted  in  a  class  action  lawsuit.  The  complaint  was  that  there  was 
insufficient  disclosure  of  the  costs  associated  with  those  policies,  leading  to  investment  returns  that  were 
significantly  lower  than  investors  had  been  led  to  expect  and  penalties  on  early  withdrawal  that  were  not 

70 

71  

72  

CMVM Regulation n.º 8/2007 "Selling open-ended pension funds with individual adhesion and 
insurance contracts related to investment funds" 
CMVM Regulation n.º 1/2009 "Information and advertising on complex financial products under 
supervision of the CMVM" 
Gesetzentwurf zur Stärkung des Anlegerschutzes und Verbesserung der Funktionsfähigkeit des    
Kapitalmarkts, BT-Drucks.17/7410, p. 14 

EN 

68 

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expected.  Following  intervention  by  the  Dutch  Insurance  Ombudsman  and  its  replacement,  the  Financial 
Services Ombudsman, out of court settlements were reached with certain distributors of such products.73 

There are other examples. For instance, a Belgian consumer association has warned that rules for advertising on 
unit-linked life insurance in Belgium do not specify how information on past returns should be presented so as to 
avoid misleading prospective investors.74 The association encountered an insurance company advertising a unit-
linked life contract by referring to the return achieved in 2006, without mentioning the return earned in 2007, 
which was considerably weaker. The same association is currently suing an insurance company for misleading 
advertising. In particular, the company is considered to have given undue prominence in its marketing material 
to the return on only one of the funds underlying the insurance policy (the best performing fund), rather than the 
basket of funds in which client's assets were invested. 

Investment funds 

Consultation on possible amendments to the UCITS Directive revealed that most respondents 
felt that the Simplified Prospectus (a shorter summary document required for all UCITS since 
2005)  had  failed  to  provide  key  information  in  a  form  that  was  easily  understood  by  the 
average  retail  investor.75  (This  finding  triggered  the  work  on  developing  Key  Investor 
Information.)  Respondents  to  the  Call  for  Evidence  reported  similar  problems  for  non-
harmonised funds and closed-ended funds. 

In France, the Final Court of Appeal recently sanctioned a commercial bank over failure of compliance with the 
combination of rules on product disclosure and marketing communications. The Court found that the firm did 
not mention in its advertisement the downside risk that a formula (structured) fund presented.76 Problems with 
formula funds were also noted elsewhere in the French market.  

In Belgium, a consumer association recently criticised an advertising campaign for a structured fund distributed 
by a Belgian commercial bank.77 It is claimed that adverts placed undue emphasis on a guaranteed rate of return, 
without a clear indication that this return would only be achieved on half of the capital invested. 

The Dutch AFM have reported that the mandatory information provided in the prospectus for closed-ended real 
estate  funds  is  not well-tailored  to  this  type  of  investment,  which  is growing  in popularity  in  the  Netherlands. 
The result is that investors cannot understand the expected return, the costs and most importantly the level and 
nature of the risks involved in these investments. 

In  Germany,  a  number  of  legal  proceedings  have  highlighted  problems  of  mis-selling,  unfair  marketing,  and 
misleading or inaccurate product information with respect to closed-ended funds. 

In the United Kingdom, the FSA have recently published an assessment of the standards of disclosure documents 
across  the  whole  range  of  retail  investment  products,  which  found  many  to  be  inadequate  and  unlikely  to  be 
understandable for their target audience.78 

Retail structured securities 

Many stakeholders have argued that structured product disclosures do not adequately describe 
the  costs  associated  with  the  product  or  the  likely  range  of  performance  outcomes. 
Prospectuses produced in accordance with the Prospectus Directive – including the summary 

73 

74 
75  

76 
77 
78 

See http://www.kifid.nl/uploads/2008-03-04-
Recommendation_of_the_Financial_Services_Ombudsman.pdf 
See http://www.test-achats.be/map/src/522123.htm. 
See http://ec.europa.eu/internal_market/investment/investor_information_en.htm, section on workshops 
on Simplified Prospectus. 
See Arrêt n° 740 du 24 juin 2008 06-21.798 Cour de cassation - Chambre commerciale. 
See http://www.test-achats.be/map/src/522123.htm. 
See http://www.fsa.gov.uk/pubs/other/key_features.pdf. 

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69 

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prospectus  -  were  not  considered  to  be  effective  disclosures  for  structured  securities,  since 
they focus on the issuer rather than the product and are both lengthy and technical. (Separate 
work is now underway to further develop requirements on the summary prospectus). 

The European Securities Markets Expert Group, in their review of the functioning of the Prospectus Directive, 
found  that  '"[...]  from  the  point  of  view  of  the  investors,  the  Prospectus  Directive  has  failed  to  produce  an 
effective means of communication. For example, the average length of prospectuses has increased dramatically 
due to the requirement for additional information. The length and complexity of prospectuses make them more a 
sort of 'liability shield' for the persons involved in the preparation (issuers, intermediaries, auditors, law firms 
and competent authorities), effective ex post in minimizing the risk of potential litigation, rather than a document 
to  be  used  ex  ante  by  an  investor  when  making  investment  decisions."  They  added  that  "many  investors  have 
difficulties  in  understanding  the  technical  language  and  the  complex  structure  of  information  as  well  as 
analyzing the importance of various types of information. As a consequence, most retail investors rely only on 
the marketing material prepared in connection with a public offering. The summary is often a simple “cut and 
paste”  exercise  of  various  parts  of  the  prospectus  without  any  attempt  to  simplify  the  language  of  such  parts 
(often very technical) as required by the Prospectus Directive."79 

Obligations  in  the  Prospectus  Directive  are  supplemented  by  additional  disclosure 
requirements on intermediaries in MiFID, which relate primarily to the services provided by 
the  intermediary  but  also  to  the  financial  instruments  they  may  be  selling.  However,  many 
stakeholders  argued  that  these  provisions  are  subject  to  inconsistent  implementation  in 
Member  States  and  do  not  go  far  enough  in  ensuring  that  the  relevant  items  are  clearly 
disclosed. 

In a cross-country survey, Deloitte found that 'material differences exist between investment funds and structured 
notes  in  the  nature  and  level  of  detail  of  information  disclosed  to  the  investors  …  this  is  clearly  the  case  for 
characteristics, risks and costs. These differences make it difficult or even impossible for investors to compare in 
detail all characteristics of the products. The differences also result in a different quality of information given to 
investors.' 

The  Dutch  AFM  published  an  analysis  of  developments  on  the  market  for  structured  products  in  May  2007, 
arguing that many are difficult for retail investors to understand. These developments constituted grounds for an 
'exploratory analysis of structured products',80 which concluded that …' the information provided to investors is 
not as it should be. Prospectuses do not focus sufficiently on the information that consumers need to make well-
considered  investment  decisions.  In  addition,  the  legal  entity  chosen  for  the  products  means  that  financial 
information leaflets are not obligatory … The AFM feels investors may select an unsuitable product, which will 
jeopardise the proper operation of the market and, if investors are disappointed in their choices, the confidence 
in the market'. 

In another example of the issues being raised, the Czech National Bank has expressed concerns in relation to an 
index-linked bond, the yield of which is based on a specific underlying asset (for example the performance of an 
index or an exchange rate). The product was sold as a 'guaranteed bond', while it in fact presented a significantly 
higher risk than standard guaranteed bonds. 

In  the  United  Kingdom,  the  FSA  has  fined  or  some  cases  banned  a  number  of  product  manufacturers  and 
intermediaries  in  relation  to  sales  and  marketing  of  certain  kinds of  complex  'high  income  products',  typically 
known as precipice bonds.81 The FSA had previously issued a series of warnings in relation to the products, such 
as an alert in December 1999 which urged consumers to consider carefully the level of risk they were willing to 

79 
80 
81 

See http://ec.europa.eu/internal_market/securities/docs/esme/05092007_report_en.pdf. 
http://www.afm.nl/corporate/default.ashx?DocumentId=9246. 
These so-called "precipice bonds" were linked to derivatives such as the performance of an index or 
indices or baskets of stocks. They were often structured as offshore investment companies or offshore 
insurance companies and so are not regulated by the FSA. They were structured to deliver a high 
income without protection against loss of the initial capital invested; return of the original capital was 
linked to the performance of an index/indices or a basket of stocks. The risk of capital loss (particularly 
high given the income being taken) was often not clearly explained.  

EN 

70 

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accept  before  investing  in  so-called  high  income  products;  the  FSA  reiterated  in  later  communications  that 
consumers should be cautious when investing in bonds that promise income but carry a high risk that investors 
may  not  receive  back  all,  or  any,  of  their  original  investment,  and  required  regulated  firms  to  improve  the 
information they provided to consumers..82  

Structured deposits 

Many responses to the Call for Evidence noted that there were no European rules that applied 
to structured term deposits as a class of product. (In this area, no specific targeted examples of 
investor detriment were provided.) The Joint Forum reiterated the point, and noted that there 
are  retail  investment  products  (such  as  structured  term  deposits)  that  are  not  subject  to 
disclosure  regulation  at  EU  level.  Noting  that  similar  lacunae  existed  in  other  jurisdictions, 
they suggested that 'this is [an issue] that governments should consider'.83 

There is evidence that some of same issues as are raised for other classes of PRIP apply. For instance, in Poland 
in  the  first  half  of  2008,  the  Polish  Financial  Supervision  Authority  (PFSA)  ordered  some  banks  to  withdraw 
advertisements  of  structured  term  deposits  due  to  the  violation  of  professional  standards  and  ethical  codes  in 
operation.  The  PFSA  was  concerned  that  these  placed  excessive  emphasis  on  a  product’s  benefits  for  the 
customer and deliberately omitted other important product characteristics, e.g. penalties for early withdrawal of 
funds. 

9. 

NATURE  OF  PRODUCT  DISCLOSURES  AND  THEIR  RELATIONSHIP  WITH  THE  SALES 
PROCESS 

This impact assessment is focused on assessing regulatory failings related to the effectiveness 
of product disclosures in aiding retail investment decision-making. It may be useful however 
to better clarify what product disclosures cover and how product disclosures might relate to 
other regulatory disclosures aimed at retail customers. 

Perhaps  the  best  way  of  tackling  this  is  to  examine  the  broad  process  by  which  an  investor 
makes  a  purchase  of  an  investment  product,  so  that  the  different  kinds  of  information  (and 
sources of that information) involved can be clearly identified.  

Many  sales  of  investment  products  are  accompanied  by  advice.  A  retail  customer  enters  a 
branch of a high street bank, for example, and makes an appointment to see and advisor. At 
that  appointment  or  prior  to  it,  the  advisor  will  typically  provide  the  customer  with 
information about the service of advice that is being proposed: about who the advisor is, and 
such matters as what the scope of the advice will be, who the advisor works for, and possibly 
how the advisor is remunerated for the advice or whether there are any fees that the customer 
will have to pay to get the advice. These might be described as 'sales disclosures'.  They will 
include, where necessary, information about inducements. 

Once  the  customer  agrees  to  engage  in  this  advised  sales  process,  the  advisor  will  typically 
gather information from the customer about the customer – for instance about their financial 
situation  and  knowledge  and  experience  of  financial  matters,  about  their  investment  needs, 
and about their attitude to risk and capacity to take on risk. As part of this process the advisor 

82 

83 

See for example FSA/PN/122/2002 of 15/12/2002 'Precipice bond' investors may not get their money 
back, FSA warns". See also http://www.fsa.gov.uk/pubs/guidance/guidance7.pdf.  
Joint Forum, Customer Suitability in the retail sale of financial products and services, April 2008. 

EN 

71 

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may well provide the customer with general information about investments, types of product, 
different kinds of assets and the risks associated with them.  

(It  may  very  often  be  the  case  that  the  retail  customer  enters  a  branch  of  his  bank,  with  he 
already  has  a  contract  for  the  provision  of  services.  In  this  case,  the  advisor  will  build  on 
existing information concerning the client that has resulted from the client's  earlier  dealings 
with the bank, and/or advisor.) 

Under these two different scenarios, the advisor would typically make a recommendation or 
(more  normally  recommendations)  to  the  customer  as  to  possible  suitable  investment 
products. At this point the customer will (perhaps after a period of reflection) be required to 
make or agree on a choice as to where to put their money.  

Following their choice, further information will typically be provided to the customer, such as 
a contract note or contractual document relating to investment, information about the actual 
price  paid  for  the  investment.  Specific  information  may  also  be  provided  at  this  point 
confirming the scale of payments the advisor may receive from the product manufacturer in 
relation to the transaction. 

In broad terms these stages of a purchase can be outlined as in the following diagram. 

Informati
on  about 
products   

Pre-contractual 

General 
information 
about products 

Information 
about specific 
products 

Informati
on  about 
advice 

Information 
about the 
advice service 

Information about 
investing  

Post- 
contractual 

contract 
confirmation/ 
notice 

On going 
requirements 

Specific 
transactional 
information: 
final product 
features, 
price, costs of 
transaction 

The policy options to be addressed in this impact assessment do not relate to all of the kinds 
of disclosure covered in this diagram: the focus is information about specific products, and 
the  role  this  can  have  in  improving  investors'  decision-making  (i.e.  information  provided 
before a decision has been taken).  

Given sales persons are obliged to know and understand the products they sell to clients, and 
to  explain  the  key  features  of  these  to  clients,  such  information  may  serve  two  purposes. 
Firstly, since products are often produced by different entities to the distributor who is selling 
them, the distributor may find it most effective to rely on the information prepared by product 
manufacturers  to  explain  the  features  of  the  products.  (Typically,  the  person  producing  the 
product will be best suited to explaining the product – so it makes sense to require that person 
(the product manufacturer) to prepare information for others about the product). Secondly, the 

EN 

72 

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information  serves  the  purpose  of  providing  the  retail  investor  themselves  with  key  facts 
about products in a form they can use, e.g. to compare between products.  

10. 

THE LAMFALUSSY PROCESS 

The regulatory structure of the so-called Lamfalussy process was initiated by the Stockholm 
European  Council  Resolution  of  23  March  2001  on  “more  effective  securities  market 
regulation”.  The  Lamfalussy  process  is  based  around  the  four-level  regulatory  approach 
recommended  by  the  Committee  of  Wise  Men  on  the  Regulation  of  European  Securities 
Markets, chaired by Baron Alexandre Lamfalussy.84 

The Lamfalussy process was designed to make Community legislation on securities markets 
more flexible, so that it can be agreed and adapted more quickly in response to innovation and 
technological  change  in  financial  markets;  to  allow  the  Institutions  to  benefit  from  the 
technical  and  regulatory  expertise  of  European  securities  regulators  and  from  better 
involvement  of  external  stakeholders;  and  to  focus  more  on  even  implementation  and 
enforcement of Community law in the Member States. 

One of the key innovations of the Lamfalussy process was the creation of two Committees to 
advise  the  Commission  on  Level  2  implementing  measures  –  the  European  Securities 
Committee (ESC) representing the Member States and functioning as a so-called ‘regulatory 
committee’  under  the  Comitology  arrangements85  –  and  the  Committee  of  European 
Securities  Regulators  (CESR).  The  two  Committees  were  set  up  by  Decisions  of  the 
Commission on 6 June 2001.86 Till 1 March 2011 the ESC acted in its capacity as a regulatory 
committee, assisting the Commission in the exercise of its delegated executive powers, within 
the terms defined in the Directives adopted at Level 1. After this date, on the basis of the new 
'comitology'  rules  the  ESC  will  act  as  an  Advisory  procedure  committee  or  Examination 
procedure committee if an examined draft act will be of general scope.87 

Transparency  is  another  important  feature  of  the  process.  The  Lamfalussy  process  has 
established  a  rigorous  mechanism  whereby  the  Commission  seeks,  ex-ante,  the  views  of 
market  participants  and  end-users  (companies,  investors  and  consumers)  by  way  of  early, 
broad  and  systematic  consultation,  with  particular  regard  to  Level  1  proposals,  but  also  at 
Level 2.  

The  Lamfalussy  regulatory  approach  has  been  impacted  recently  by  the  new  European 
supervisory  architecture  in  financial  services;  this  has  notably  replaced  the  Committee  of 
European  Securities  Regulators  (CESR)  with  a  new  authority  (the  European  Securities  and 
Markets  Authority,  ESMA).  The  other  two  sectoral  authorities  are  also  for  relevance  for 

84 

85 

86 

87  

The Lamfalussy report, published on 15 February 2001, can be found on the Commission’s website: 
http://europa.eu.int/comm/internal_market/securities/lamfalussy/index_en.htm 
See Council Decision 1999/468/EC of 28 June 1999 laying down the procedures for the exercise of 
implementing powers conferred on the Commission, OJ L 184, 17.7.1999, p. 23. 
See Commission Decision of 6 June 2001 establishing the Committee of European Securities 
Regulators (2001/527/EC), amended by Commission Decision of 5 November 2003 (2004/7/EC), and 
Commission Decision of 6 June 2001 establishing the European Securities Committee (2001/528/EC), 
amended by Commission Decision of 5 November 2003 (2004/8/EC). 
Regulation of the European Parliament and of the Council laying down the rules and general principles 
concerning mechanisms for control by Member States of the Commission’s exercise of implementing 
powers, adopted by the Education, Youth, Culture and Sport Council on 14 February 2011. 

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PRIPs,  given  the  cross-sectoral  nature  of  the  initiative  --  the  European  Banking  Authority 
(EBA) and the European Insurance and Occupational Pensions Authority (EIOPA).   

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ANNEX II 

1. 

DETAILED ANALYSIS OF OPTIONS 

1.1. 

ISSUE 1: What should the scope of any new regime be? 

Scope relates directly to all operational objectives. Targeting a reduced regulatory patchwork 
and  improved  comparability  and  comprehensibility  depends  on  drawing  into  scope  all  the 
products  that  compete  with  one  another  as  investments  and  might  readily  have  the  same 
standardised approach applied to them.  

Scope  directly  interacts  with  the  identified  problems  of  an  unlevel  playing  field,  and  to  a 
degree  single  market  barriers.  These  issues  also  relate  to  the  possibility  of  'regulatory 
arbitrage'.  If  the  scope  of  the  new  regime  is  set  too  narrow,  then  products  on  the  ‘inside’ 
might be put at a disadvantage to products on the ‘outside’ (in so far as they are substitutable). 
Products in the 'outside' might be able to present themselves as more attractive or competitive 
than  those  on  the  'inside',  since  information  on  the  products  on  the  'outside'  could  be  less 
comparable or comprehensible. This could lead to market distortions, and regulatory arbitrage 
on the part of product originators and distributors.  

This  issue  was  highlighted  already  in  the  Communication  on  PRIPs,  and  the  impact 
assessment that accompanied it. Failing to adequately address this issue could undermine the 
whole initiative.   

The key question to face in addressing scope is whether to seek to demarcate the scope of the 
work to focus on so-called 'packaged' products (options 2 and 3), or whether to wide the work 
to cover all kinds of possible investments (option  1).  (The  definition  of  'packaged  products' 
was  developed  initially  in  the  Communication,  and  refined  subsequently  following 
consultation; see Annex I.3 for detail on this definition, which would be used as a basis for 
options 2 and 3.) 

Options for scope of regime 

1 

2  

3 

Set the widest possible scope 

Focus on 'packaged' products 

Focus on 'packaged' products; set firm date for reviewing scope 

Analysis of options 

Setting the scope of the regime as wide as under option 1 could have practical consequences 
related to steps on improving comparability and comprehensibility and improving consistency 
of  regulation,  since  it  would  mean  including  in  the  scope  of  the  regime  potential  types  of 
investments that would be difficult to incorporate into a single approach on disclosure (such 
as 'plain vanilla' equities, bonds, and deposits). In terms of consistency of regulation, a very 
wide  regime  would  interact  with  a  wider  range  of  other  existing  legislation,  and  would 

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duplicate  requirements;  MiFID  already,  for  instance,  places  general  disclosure  requirements 
in regards financial instruments as such on all entities caught by MiFID.   

This is in a context where, as the problem definition outlines, key issues for investors appear 
to  have  emerged  mostly  in  relation  to  more  complex  'packaged'  retail  investment  products 
rather  than  investments  in  general,  and  where  existing  regulatory  interventions  (which  have 
generated the problem of a regulatory patchwork) have concentrated more on these 'packaged' 
products  than  investments  in  general.  Packaging  can  be  understood  generally  as  the 
introduction  of  an  indirectness  or  mediation  in  the  investment,  whereby  a  product  is 
manufactured  or  engineered  in  some  manner;  financial  services  professionals  'mediate' 
between  the  investor  and  the  ultimate  assets  the  investment  is  exposed  to.  The  PRIPs 
Communication  and  subsequent  3L3  report  on  PRIPs  both  came  to  broadly  the  same 
conclusion  that  a  focus  on  'packaged'  products  rather  than  investments  in  general  was 
sensible.  

Indeed,  from  the  retail  investor's  standpoint  the  financial  engineering  that  characterises 
packaged products raises specific challenges for comprehension and comparison which justify 
the  development  of  targeted  product  disclosure  measures.  For  instance,  packaging  typically 
introduces  complexity  in  terms  of  how  investments  function,  and  may  entail  more  complex 
risk and cost profiles which are harder to understand and compare between products.   

Consultation responses 

In  general  terms  respondents  to  the  PRIPs  consultation  supported  a  focus  on  'packaged' 
investments,  as  offered  under  option  2,  though  there  were  a  number  of  divergences  over 
technical  questions  relating  to  how  best  to  define  in  technical  terms  the  boundary  between 
packaged  and  non-packaged  investments.  A  number  of  respondents,  including  consumer 
representatives,  considered  that  a  wider  scope  might  be  advisable,  e.g.  to  include  deposits, 
bonds and shares in individual companies, but nonetheless recognised that the complexity of 
structure of packaged products warranted specific regulatory attention.   

Regardless  of  this  general  support  for  focusing  in  on  'packaged'  investments,  a  number  of 
respondents  expressed  concerns  over  how  best  to  define  the  concept  of  'packaged' 
investments.  

Assessment of costs and benefits of options 

It is not clear that option 1 could effectively avoid issues related to regulatory arbitrage, since 
standardised and detailed requirements on product information (e.g. relating to costs, risks and 
product features) are likely only to be relevant for packaged products, so that the application 
of  requirements  to  these  packaged  products  would  still  entail  drawing  distinctions  between 
types of investment product, with a potential for arbitrage around these distinctions.  

If  an  approach  was  adopted  that  did  not  develop  standardised  and  detailed  requirements  on 
disclosure, but was higher level in form to account for the wide range of possible investments 
in scope, this would reduce the extent to which the new regime could address comparability 
and  comprehensibility  objectives  or  level  playing  field  objectives  in  regards  different 
products, undermining the ability to deliver benefits. On this basis it is not clear that option 1 
would better address regulatory arbitrage challenges, while it could either lead to a dilution of 
the  effectiveness  of  changes  or  additional  uncertainty  or  duplication  in  requirements,  and 
associated costs for industry. 

It  needs  to  be  recognised  that  however  the  boundary  is  determined  between  'packaged'  and 
'non-packaged' investments, there is always the risk that it will be diluted in practice.  It will 

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always be possible to develop an investment proposition which is economically similar or the 
same as the one captured by the defined scope but which falls nevertheless outside the defined 
boundaries or sits at least at the edges of that scope.  This is also due to financial innovation: 
market  developments  could  well  lead  to  new  types  of  product  not  foreseen  by  the  original 
definition.  Such  developments  could  distort  competition,  undermining  firms  that  operate 
'within' the packaged definition compared to those 'outside.  In view of these difficulties but 
taking into account that there is broad support for a specific focus on 'packaged investments', 
and  also  given  the  concern  that  regulatory  arbitrage  may  in  the  future  lead  to  market 
distortions  where  the  scope  is  not  determined  appropriately,  a  two  phase  approach  seems 
advisable (option 3).  

Under this approach, the scope of products falling within the disclosure regime would initially 
be  focused  on  'packaged'  investments  which  will  be  clearly  defined  in  the  legal  act  on 
disclosure.88 However, a commitment would be made to gather baseline and market evolution 
data so that the impact of the new regime might be assessed, and in particular so that possible 
evolutions in the market towards non-PRIPs could be identified. This data would be used at a 
set  future  review  date  (say,  after  the  regime  had  been  in  place  sufficiently  long  for  market 
reactions to become clear, at most 5 years) to consider whether the scope of the regime might 
be widened.  The data gathered in this way might also be used to identify further the extent to 
which certain savings and investment products. 

Given  the  potential  for  developments  in  the  retail  investment  markets,  commitments  to 
monitor and review the boundaries of the regime would be prudent. This monitoring should 
clearly  address,  in  the  light  of  market  evolution  data,  whether  widening  the  scope  of  the 
regime would be appropriate.  

All  options  would  need  to  be  supported  by  strong  supervisory  coordination,  to  ensure 
consistency in application across Member States. 

On  the  grounds  that  it  combines  a  practical  focus  on  the  key  products  where 
comparability of disclosures makes most sense, with a commitment to consider widening 
this scope in the future, option 3 is retained. 

Option 

Effectiveness 

Comprehension 

Comparison 

Regulatory Patchwork 

0 – Take no action 

1 -- Set the widest 
possible scope 

0 

+ 

0 

+ 

0 

+ 

Effective approach 
would still require 
boundary to be 
drawn between 
'packaged' and 'non-
packaged' products; 
wider scope could 
allow for overall 
better coherence. 

Effective approach 
would still require 
boundary to be 
drawn between 
'packaged' and 'non-
packaged' products; 
wider scope could 
allow for overall 
better coherence. 

Existing unlevel playing 
field is practically 
focused on 'packaged' 
products, but wider focus  

2 -- Focus on 

+ 

+ 

+ 

Efficiency 

0 

Depending on approach, costs for 
industry may be comparable to focus 
on packaged regime, but marginally 
greater due to wider impact.  

Benefits for consumers depend on 
extent to which regime still segments 
between packaged and non-packaged 
products; effectively challenge of 
demarcation of products cannot be 
avoided. 

Costs likely to be lower than for 1, as 
impact targeted on those products that 

88  

Annex  I  3  contains  a  definition  on  which  we  consulted  and  which  might  be  used  as  a  basis  for  such 
definition in order to achieve necessary certainty. 

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'packaged' products 

Key benefits relate 
to packaged 
products, so only 
likely to be 
marginally less 
effective than 1. 
(May be more 
effective in practice 
due to more 
focused approach.) 

Key benefits relate 
to packaged 
products, so only 
likely to be 
marginally less 
effective than 1. 
(May be more 
effective in practice 
due to more 
focused approach.)  

Existing unlevel playing 
field is practically 
focused on 'packaged' 
products 

are most relevant, and option 1 would 
likely still need to demarcate in 
measures between packaged and non-
packaged investments. 

Core benefits achieved in relation to 
packaged products, so likely to be 
equivalent to option 1 

3 – Focus on 
packaged products, 
but set firm review 
date (e.g. within 5 
years of coming into 
force) 

++ 

++ 

++ 

Key benefits relate 
to packaged 
products, so only 
likely to be 
marginally less 
effective than 1. 
(May be more 
effective in practice 
due to more 
focused approach.) 

Key benefits relate 
to packaged 
products, so only 
likely to be 
marginally less 
effective than 1. 
(May be more 
effective in practice 
due to more 
focused approach.) 

Existing unlevel playing 
field is practically 
focused on 'packaged' 
products  

Review of scope allows 
possible future arbitrage 
and unlevel playing field 
issues to be addressed 

Review of scope 
allows possible 
future arbitrage and 
consumer detriment 
to be addressed 

Review of scope 
allows possible 
future arbitrage and 
consumer detriment 
to be addressed 

Costs likely to be lower than for 1, as 
impact targeted on those products that 
are most relevant, and option 1 would 
likely still need to demarcate in 
measures between packaged and non-
packaged investments. 

Core benefits achieved in relation to 
packaged products, so likely to be 
equivalent to option 1. 

Review mechanisms allows for 
possible regulatory arbitrage, 
countering possible weakness with 
option 2 

1.2. 

ISSUE 2: How far and in what ways should disclosures be standardised at EU 
level? 

The PRIPs Communication IA made the case for steps at the EU level to address regulatory 
inconsistencies  and  raise  levels  of  consumer  protection.  It  did  not  however  address  detailed 
options for the content and form of legislative changes, though it identified the UCITS KIID 
as a clear benchmark for future work. 

In  considering  the  content  and  form  of  legislative  changes,  the  overarching  question  that 
needs to be addressed is the extent to which the UCITS KIID model might be applied to other 
PRIPs.  

At  heart  this  is  a  question  of  standardisation:  the  UCITS  KIID  is  strongly  standardised, 
through  highly  prescriptive  rules.  Every  document  should  look  (relatively)  similar  for  all 
UCITS,  and  across  all  Member  States,  with  variations  only  due  to  translations  and  some 
residual flexibility over form and content. UCITS cannot add information to the document not 
allowed  for  in  the  UCITS  KII  regulation.  Neither  can  Member  States  require  additional 
information to be included.   

However,  the  UCITS  are  'harmonised'  products  –  a  European  framework  exists  that  defines 
how  UCITS  operate,  the  risks  they  can  expose  investors  to  and  how  to  manage  these  risks, 
how they be valued and how often, and so forth. Other PRIPs are not harmonised in this way: 
PRIPs can vary significantly in their legal form  and  particular  features, though they share a 
common  focus  on  serving  investment.  A  standardised  approach  that  follows  the  level  of 
standardisation developed for UCITS is therefore impossible for other PRIPs. 

(Note  that  a  distinction  might  be  drawn  between  prescriptiveness  (the  use  of  requirements 
which  set  out  in  great  detail  the  content  and  form  of  disclosures,  e.g.  including  specific 
phrases, warnings or titles, the order of information, the visual presentation) and consistency 
(the extent to which requirements are the same across different product types, sales channels 

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or Member States).89  These are two linked dimensions of 'standardisation': to achieve certain 
kinds of consistency in approach prescription is likely necessary.) 

The broad issue of standardisation will be addressed by exploring detailed options for tackling 
the  operational  objectives  of  improving  the  comprehensibility  of  information  and  the 
comparability of information, as derived from the problem analysis for problem driver 3, to 
see to what extent standardisation or prescription is appropriate across these different areas.  

We  will  then  draw  together  the  analysis,  to  consider  consultation  responses  and  costs  and 
benefits  overall,  and  the  effectiveness  of  the  proposed  approach  in  addressing  our  other 
operational objectives. 

Options on degree of standardisation  

Plain language, engaging quality of document 

[Options 1 and 2 are mutually exclusive] 

1 

2  

3 

4 

Apply high-level principles only 

Prescriptive rules to standardise elements of language, ‘look and feel’ of document 

Use of non-legislative tools 

Clarify liability attached to document 

Length of document 

[Option 3 is not mutually excusive with 1 and 2] 

1 

2  

3 

Set a ‘hard’ limit on the length of all documents (e.g. 2 pages A4) 

Set a ‘soft’ limit on length; prescribe contents and length where viable at level 2  

Use layering of information / signposting to other documents  

Accuracy, balance of information   

[Options are mutually exclusive] 

1 

2  

Set high-level principles only 

Use prescriptive requirements on form and contents to ensure balanced presentation 

Comparisons of product features, risks, costs 

[Options are not mutually exclusive] 

1 

2  

Seek consistent structure, layout to aid comparisons 

Standardised risk, cost, and performance disclosures for all PRIPs 

Improving comprehension  

In our problem definition we identified a number of specific problem areas relating in general 
to the 'comprehensibility' of product disclosures: financial services concepts and jargon used 
in  documents  are  opaque,  difficult  for  average  investors  to  understand  and  unfamiliar; 
documents are very often too long, or suffer from 'information overload'; presentation of the 

89  

Note, that while consistency is sometimes considered solely from the perspective of the content of rules, 
our focus in this impact assessment is on likely consistency in outcomes. 

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documents  can  often  be  dull,  confusing  or  unengaging;  and,  finally,  information  provided 
may be partial or misleading.   

To address these areas, policy options can be broken down under three headings:  

•  improving use of plain language and making information more engaging;  

•  addressing information overload; and,  

•  ensuring accuracy and balance of information.  

Improving use of plain language and encouraging more engaging documents 

Financial services legislation typically requires communications with clients to be undertaken 
in  a  clear,  understandable  and  comprehensible  manner.    However,  prepared  communication 
documents,  including  those  related  to  product  information,  often  fail  to  be  clear, 
understandable or comprehensible.  

Four  options  emerge:  apply  high-level  principles  only;  to  use  more  prescription  to  set  out 
common  standards  in  more  detail;  to  use  non-legislative  tools  (improved  supervision,  self-
regulation  by  industry  to  improve  consistency  in  use  of  'plain  language');  and  finally,  to 
clarify liability attached to documents (so as to reduce firms' focus on including fine print so 
as to reduce exposure to liability). 

Option 

Effectiveness 

0 – Take no action 

1 – Apply high-level 
principles only 

0 

- 

Experience with UCITS simplified prospectus 
showed that high-level requirements were not 
sufficiently effective in ensuring comprehensible 
information in documents. Ensuring firms, 
supervisors approach standards in consistent way 
would be difficult to achieve, leading to 
inconsistencies in outcomes. 

2 – Increased 
prescription  

+ + 

Experience with developing UCITS KII 
requirements is that higher standardisation allows 
for setting better 'minimum standard' for all, so that 
best practices can be more immediately reflected 
into generalised industry practice. 

Greater consistency in approach across all markets / 
sectors. 

Efficiency 

0 

Effective engagement by supervisors with firms could be 
costly / inconsistent, given lack of guidance in a high-level 
approach.  

Some lack of legal clarity for firms as to necessary 
standards; inconsistencies cross-border would erect 
barriers to single market. 

Flexibility may be valuable for allowing innovation in 
terms of communication practices. 

Consistency and better clarity could lead to reduced costs 
for firms and supervisors. 

Benefits for investors through wider adoption of better 
practices enshrined in binding EU level requirements. 

May be seen as a 'tick-box' approach by firms, or a 
regulatory 'safe harbour' if they follow the letter but not the 
spirit of the rules. 

3 – Use of non-
legislative tools 

++ 

Can support 2, e.g. national regulators, firm trade 
bodies, consumer associations may be best placed to 
develop practical guidelines on better language, 
common glossaries, will better address continued 
scope for poor language. 

Costs expected for developing and improve industry 
practices, but benefits for consumers from better 
addressing possible weaknesses  

Allows flexibility for allowing innovation in terms of 
communication practices 

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4 – Clarify liability 
attached to 
document 

+ 

UCITS experience was that success (shortness, 
clarity of language) of document requires some 
comfort for firms that they may focus only on 'key' 
information and not include all possibly relevant 
information. 

Can overcome tick-box approach possible under 2 on its 
own 

Lack of clarity could undermine document, as firms' 
concerns over liability lead to inclusion of all possibly 
relevant information, rather than sole focus on key 
information. 

The experience under UCITS with regards the failure of the simplified prospectus was that a 
combination of prescription and standardisation (to set out in more detail expectations as to a 
minimum  standard  of  language,  common  labels  and  warnings  to  use),  with  the  use  of  non-
legislative  tools  (self-regulation  by  industry,  work  with  supervisors),  is  most  likely  to 
effectively  address  the  challenge  of  raising  the  quality  of  'plain  language'  in  product 
disclosures.  Certainly,  full  prescription  is  not  possible  (particularly  for  non-harmonised 
products), so option 3 is an important element of the preferred approach.  

In relation to liability, please see the discussion under issue 5 below. For UCITS it was clear 
that a focus on only 'key' information was vital if the failure of the simplified prospectus was 
to be avoided. This issue is also linked to options below related to information overload. 

 Addressing information overload  

One of the issues most often raised by consumer representative stakeholders is the problem of 
'too much information' in financial services documentation. To address this issue, the UCITS 
KII  is  limited  in  most  instances  to  only  two  sides  of  A4  paper.  The  document  was  also 
developed to focus only on key information. (The requirements on the content of the KII are 
also  extremely  prescriptive,  so  that  firms  do  not  have  the  flexibility  to  include  any  other 
information they might wish to include). 

Option 

Effectiveness 

0 – Take no action 

0 

Efficiency 

0 

Simple requirement straightforward for 
competent authorities to supervise: consistency in 
approach. 

1 – Set a hard limit on 
the length (and 
content) of all 
documents (e.g. 2 
pages A4) 

+/- 

For UCITS a hard limit on the document could be readily 
considered because UCITS are harmonised across the EU. 
With other PRIPs which are not harmonised, the product 
features or benefits may not be always covered in 2 pages 
(even for UCITS this is not always possible; structured 
UCITS are provided with a derogation from the 2 page limit). 
Given this, enforcing a 2 page limit could lead to documents 
that do not cover all information clearly or comprehensibly.  

Setting a hard limit may be an effective tool for ensuring 
firms write in a concise manner: evidence suggests longer 
documents may not be read. 

2 – Set a soft limit on 
length: prescribe 
contents and length 
where viable at level 
2 

+  

Varied requirements lead to inconsistencies in 
approach between supervisors and firms. 

In practice may be similar (due to impact of prescription on 
content) to option 1, but flexibility may allow for better 
tailoring of requirements to specificities of non-harmonised 
products. 

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3 – Use layering of 
information / 
signposting to other 
documents 

+ 

Layering may be useful for targeting key information and 
more detailed information appropriately. 

Layering might undermine extent to which KIID must is 
capable of being used 'stand alone' (i.e. on its own) to make 
an investment decision – ensuring this does not happen raises 
risks for supervisors 

Use of 'layering' or 'signposting' may require 
more careful supervision and assessments of 
compliance raising some costs,, however may 
allow same documents to better target range of 
different investors needs.  

Under this analysis, prescriptive requirements on content and strong requirements on length, 
appear  most  effective  in  addressing  'too  much  information,'  in  that  these  approaches  clearly 
control the amount and nature of information that can be included. However, an overall hard 
prescription  on  length  would  appear  impractical  for  non-harmonised  products  (too  little 
flexibility could lead to documents that are paradoxically too dense and difficult to use). This 
approach  can  be  supported  by  permitting  the  use  of  signposting  (cross-references  to  other 
documents)  or  layering  of  information,  so  long  as  the  KIID  itself  remains  functional  as  a 
'stand alone' document. 

 Ensuring accuracy and balance of information  

The UCITS KIID requirements strongly determine how certain information – e.g. on costs or 
on performance – is presented, in order to minimise possible ways in which information can 
be  subtly  presented  in  an  unbalanced  way.  For  instance,  the  relative  positioning  of 
information  in  a  document  can  influence  perceptions  of  its  salience  by  retail  investors. 
(Putting  charges  information  at  the  end  of  a  document  implies,  for  instance,  that  this 
information is of lower importance.)   

Option 

Effectiveness 

0 – Take no action 

1 – set high-level 
principles only 

0 

- 

While in general the principle of being 'not misleading' covers such 
issues as a lack of balance in information or inaccuracy in 
information, without more detailed requirements inconsistencies 
between  firms and between Member States would emerge, reducing 
comprehensibility of information for customers 

It is likely, given difficulties in enforcing principles, that 
presentation of information  could be 'gamed' (enabling subtle 
investor biases to be exploited) 

+  

Reduced misunderstandings by investors: YouGov and IFF testing of 
KII proposals for UCITS suggested that precise positioning of 
information (e.g. putting cost information on front page, 
performance on back page) can be material in impacting consumer 
comprehension of relative importance of messages; specifying these 
in prescriptive rules could lead to higher minimum standards across 
all PRIPs 

2 – use prescriptive 
requirements on 
form and contents to 
ensure balanced 
presentation 

Efficiency 

0 

Could raise supervisory costs, given 
potential subjectivity of standards 

Inconsistencies in approach between 
supervisors or lack of legal certainty 
might raise compliance costs for some 
firms, and negatively impact consumer 
benefits 

Consistency in approach could reduce 
some supervisory costs 

Legal certainty for firms 

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Under this broad analysis, steps on responsibilities and liabilities might be supported also by 
the use of detailed prescription to ensure a strong minimum standard of balance in documents. 
In addition, details on keeping documents up to date. 

Comparability 

Comparability of information has two elements:  

•  the  general  layout  of  information  in  a  document  facilitates  effective  comparisons: 

documents laid out in similar ways are easier to compare; 

•  comparisons  of  particular  features  of  products  require  consistent  approaches  both  to  the 
layout and presentation of information about those features, but also to the calculation of 
information, such as quantitative data.  

The notable examples of areas where such comparisons are or may be possible are the risks of 
the  product,  the  costs  of  the  product,  its  performance  (whether  in  the  past,  or  possible 
performance as projected into the future), and on guarantees or capital protection.  

The  UCITS  KII  was  designed  specifically  to  improve  comparability  between  funds  on  risk 
information, cost information and performance information; the YouGov and IFF study goes 
into  detail  as  to  the  various  options  and  approaches  that  were  tested;  in  general  terms  that 
research  concluded  in  favour  of  a  structured  approach  to  the  presentation  of  information  in 
these  areas.  (The  focus  of  the  research  was  on  the  presentation  of  information;  CESR 
members  worked  separately  to  develop  detailed  methodologies  to  ensure  consistency  in 
underlying data so that comparisons between UCITS on the basis of risk and cost data in the 
KII could be made without being misleading). 

At this stage (i.e. in relation to level 1 measures) the key question to address in this area is not 
so much the detailed  application  of  methodologies  for comparisons,  but the principle  of the 
techniques to be followed for pursuing comparability. 

(Note that we do not analyse other options than standardisation in relation to comparability, as 
from the wider context it is not clear what viable options might emerge: it might be possible 
to  address  comparability  using  different  tools,  such  as  websites  designed  to  allow 
comparisons  of  costs  or  risks,  but  such  options  are  not  within  the  scope  of  this  impact 
assessment).  

Option 

Effectiveness 

0 – Take no action 

1 – Prescribe 
consistent document 
structure to aid 
comparisons 

0 

+ 

Consistency in structure will benefit investors in comparing 
between products, potentially improving comprehension and 
confidence in using information. 

Consistency in structure may run the risk of taking a ‘one-
size-fits-all’ approach that reduces effective communication 
of specific features of some products – care must be taken to 
test approach to ensure effectiveness for consumers. 

Efficiency 

0 

Consistency may reduce some aspects of 
compliance costs (through simplicity) and 
supervision costs, though likely to be marginal in 
impact on costs 

Benefits for investors, better decision making 

2 – Standardise risk, 
cost and 
performance 
disclosures 

+ + 

Comparators should lead to better decision 
making, broader market efficiency benefits 

Comparable disclosures crucial to informed decision making: 
improving capacity of investors to compare risks, 

Costs may be material for providers if new 

EN 

83 

   EN 

 
  
performance and costs is fundamental to this initiative.  

methodologies for calculation are unfamiliar or 
require new resources to be developed/obtained 

Choice and technical development of information capable of 
guiding comparisons (including calculation of numbers 
where quantitative information is provided) must be very 
careful undertaken. Presentation also needs to be tested with 
investors. 

Comparators may aid distributors and advisors in 
making personal recommendations or assessing 
the suitability of different products for retail 
investors 

Improving comparability of disclosures may impact 
competition between providers, sectors  

NOTE: improving comparability of information may entail 
public policy choices: identification of the elements of 
investment products that are most salient for retail investors 
and which elements should be highlighted likely to have 
impact on consumer behaviour (e.g. question of relative 
balance between risks, costs, benefits).  

The  key  issues  relating  to  options  on  how  to  enhance  comparability  in  product  disclosures 
relate  not  so  much  to  the  use  of  standardisation  (which  is  intrinsic  to  this  objective),  but  to 
technical  details  on  the  application  of  standardisation  to  particular  types  of  PRIPs.  These 
technical issues will be assessed as part of follow up work on detailed implementing measures 
to support the overall PRIPs framework. 

General assessment 

In general the foregoing analysis has identified a detailed range of options that range from the 
adoption of high-level approaches, to seeking standardisation, but combining this with some 
flexibility  for  addressing  different  product  forms,  to  approaches  which  seek  the  maximum 
degree of standardisation. 

Benefits of standardisation of disclosures 

A key conclusion of the Decision Technology study was that greater levels of standardisation 
(and  simplification,  via  standardisation)  are  likely  to  be  effective  regulatory  tools  for 
achieving benefits for consumers. Standardisation can aid comprehension, and offer a way of 
ensuring  common  minimum  standards  in  regards  information  –  it  provides  a  recipe  for 
disclosure documents that can be careful developed on the basis of consumer testing, and so 
its design can build on best practices. Standardisation also crucially underpins possible ways 
of  improving  comparability  in  information  (there  are  other  ways  such  as  standardising 
products  themselves)  –  showing  information  in  a  structured  and  consistent  way  is  a  key 
precondition  for  aiding  investors  in  comparing  between  different  products.  Consumer 
representative  respondents  to  the  PRIPs  consultation  broadly  underlined  the  value  of 
standardisation techniques in ensuring better comparability of information. 

However, there is a relationship between the degree of standardisation possible and levels of 
product heterogeneity or homogeneity.  

The greater the variety in products and their features, the greater the extent to which a single 
‘one-size-fits-all’  approach  can  lead  to  results  that  are  potentially  misleading.  For  instance, 
specific  products  might  possess  features  that  standardised  prescriptive  requirements  do  not 
take into account. This could either lead to misunderstandings on the part of those relying on 
the information, or a reliance on other information tools, reducing the impact and relevance of 
the  standardised  disclosure.  This  implies  that  rules  should  reflect  to  some  degree  the 
heterogeneity of products (and thereby places an absolute limit on the degree of prescription 
that is advisable). 

EN 

84 

   EN 

 
 
 
Standardisation is not the only way to raise the general quality of disclosures; non-regulatory 
tools  (supervisory  cooperation,  industry-led  action)  could  in  principle  contribute  to  raised 
standards of clarity for disclosures. Under such a scenario, the burden of raising the standard 
of disclosures would be borne partly through increased supervisory work, increasing costs for 
supervisors.  

However, the fundamental weakness (other than efficiency problems) of such an approach is 
that  it  could  not  lead  to  greater  comparability  at  the  level  of  the  disclosures.  Different 
supervisors would likely take different views on the application of the principles, even where 
supporting  coordinator  work  is  undertaken  at  the  level  of  the  European  Supervisory 
Authorities.  In  addition,  so  as  to  address  the  objective  of  regulatory  consistency,  any  such 
approach  would  need  to  give  little  additional  flexibility  to  Member  States  to  augment  the 
principles, so that comparability could not be readily tackled even at the level of the Member 
State.  

This  could  also  undermine  the  extent  to  which  improved  consistency  in  regulatory 
requirements  could  be  achieved  cross-border  or  between  sectors  where  these  are  supervised 
on a sectoral basis (as is the case in many Member States).  

Impact of standardisation for industry and supervisors 

In respect of the product manufacturers and distributors, some stakeholders have noted certain 
possible  benefits  of  further  standardisation:  greater  legal  certainty  in  regards  disclosure 
responsibilities  on  behalf  of  product  manufacturers,  reduced  search  costs  for  advisors  and 
provided a potential basis for improved quality of advice when considering different products, 
and, for those operating cross-border, reduced barriers to entry to new markets. It is difficult 
to assess the extent of such benefits (similar arguments were made in respect of UCITS KII 
compared  to  its  predecessor,  the  Simplified  Prospectus,  yet  the  CSES  study  showed  many 
providers anticipated an increase in costs for the standardised document; such increases may 
however be factoring in uncertainty and a period of adaptation).  

For supervisors, greater standardisation could reduce costs, as there would be less discretion 
for firms and the assessment of the adequacy and compliance of disclosures would in some 
regards be more straightforward. 

However, the industry – and indirectly investors, in so far as immediate costs are passed on to 
them  –  would  carry  the  incremental  and  ongoing  costs  of  changing  to  a  new  regime,  and 
greater standardisation implies change for providers.  

Summary 

Comparability of disclosures depends on standardisation of information provided for different 
products, but the benefits in terms of comprehensibility of disclosures can become attenuated 
if this standardisation is taken too far. Comprehensibility does not depend on standardisation, 
but  standardisation  contributes  to  it,  and  standardisation  is  likely  to  be  more  efficient  at 
improving comprehensibility across all EU markets.  

Costs for firms are largely driven by the extent to which changes practically have to be made 
and  the  precise  nature  or  extent  of  the  procedures  that  have  to  be  followed  in  making  such 
changes.  Standardisation  drives  costs  to  the  extent  that  it  requires  a  changeover  to  a  new 
regime (less flexibility is available to adapt existing approaches). However non-standardised 
approaches  which  require  improvements  could  also  be  costly,  as  these  too  can  lead  to 
changeovers to disclosures: where changes are to be made, standardisation potentially reduces 
costs against a more ‘principles-based’ approach since it provides a more detailed 'recipe' to 
follow when preparing the product disclosure.  

EN 

85 

   EN 

 
The preferred approach is therefore to pursue standardisation, by building on the KIID 
model, but in a targeted way which allows for adaptations and tailoring of the details of 
this model for other kinds of PRIP. 

1.3. 

ISSUE 3: Responsibility for producing document 

For  the  UCITS  KII,  responsibility  for  producing  the  KII  is  clearly  allocated  to  the  fund 
manager. Is it possible to apply this general approach to all other PRIPs? Options range from 
leaving this open for the market to determine (i.e., specifying the outcome being sought, but 
not harmonising who would be deemed responsible for doing it), to making a hard rule that 
product  originators  are  the  only  entities  who  can  be  responsible.  A  separate  (not  exclusive) 
option raised by stakeholders would be to always require disclosure in the KIID of who was 
responsible for manufacturing the product, and who for preparing the document (normally the 
same). 

Options for responsibility for producing documents 

[Options 1-3 mutually exclusive] 

1 

2  

3 

4 

Flexibility over who prepares the document 

Flexibility over who prepares the document, but requiring agreement on responsibility 

Product manufacturer normally responsible for preparing the document 

Require disclosures of responsible parties in document 

Consultation responses 

Responsibilities for preparing and producing or disseminating (printing and making available 
to clients or distributors, including electronically e.g. as a 'PDF' or in some other electronic 
format)  the  KIID  have  been  an  important  area  in  debate  amongst  stakeholders,  but  the 
materiality  and  impact  of  different  options  have  proved  difficult  to  assess.  Consultation 
respondents note that determining responsibilities in a manner that does not match capacities 
to deliver on responsibilities could drive significant costs for the industry or lead to structural 
changes in distribution models with impacts that might be difficult to assess beforehand. 

In  response  to  our  consultation  with  stakeholders,  and  also  in  our  engagement  with 
supervisors  and  their  independent  work  on  PRIPs,  a  majority  of  respondents  argued  that 
product  manufacturers  should  be  responsible  for  the  document  (and  that  disclosure  of 
responsibility  was  a  vital  element  of  the  regime).  In  general,  it  has  been  argued  that  the 
product manufacturer are the best placed entities in distribution chains to prepare the KIID so 
that it is accurate, given their knowledge and responsibility for the product.  The 3L3 report 
on PRIPs came to the same conclusion.90 

Some respondents also argued that placing responsibility on providers ensures that they can 
better control when their products might be sold to retail investors. In addition, a number of 

90  

[Reference: joint 3L3 report on PRIPs, November 2010]. 

EN 

86 

   EN 

 
 
 
 
                                                 
 
respondents noted that it is important for investors to both know who produced the product, 
and  who  prepared  the  information  about  the  product  and  is  responsible  for  its  accuracy. 
Respondents generally felt that this latter entity would in practice for much of the market be 
the product producer. 

In developing the UCITS KII requirements greater legal clarity (and transparency through the 
KII) was introduced precisely on this point of responsibilities, following feedback that a lack 
of legal certainty in the prior framework had led to additional uncertainty for investors. 

On the other hand, some industry respondents, notably those producing PRIPs in the form of 
securities  that  may  be  sold  on  secondary  markets  outside  the  control  of  the  product 
manufacturer,  argued  that  making  the  PRIP  provider  solely  responsible  for  preparing 
disclosures  could  lead  to  a  misalignment  between  the  allocation  of  responsibilities  and  the 
capacities  of  different  entities  to  practically  discharge  those  responsibilities,  for  instance  if 
third  parties  might  have  some  responsibility  for  providing  information  to  be  included  in 
disclosures.  

Analysis of costs and benefits 

In  practice,  for  banking,  insurance  and  fund  sectors  a  clear  allocation  of  responsibilities  for 
preparing the document – and linked to this a clear ‘ownership’ of the PRIP by a clear PRIP 
manufacturer – appears relatively non-controversial.  

However, despite much debate on this point with stakeholders, it remains difficult to assess 
the practical consequences of applying such a model in the securities sector.   

An additional complexity would be where there is a product that would be a PRIP in the EU 
that  has  originated  in  a  third  country  not  subject  to  EU  rules;  in  these  cases,  in  principle  it 
would seem reasonable that a distributor might take responsibility for preparing a KIID where 
the  product  originator  –  not  directly  subject  to  EU  rules  –  has  failed  to  do  so.  In  addition, 
distributors  might  be  permitted  to  prepare  a  KIID  (to  bring  a  product  to  the  retail  market) 
where the product producer has not done so (not intending the product for retail distribution 
themselves), so long at they take full business responsibility for this.91 

Note, for clarity, that the preparation of the document would only be necessary where a 
product was to be sold or distributed to retail clients.  

Option 

Effectiveness 

Efficiency 

0 – Take no action 

1 -- Flexibility over 
who prepares the 
document 

Comprehension 

Comparison 

0 

- 

0 

- 

Regulatory 
Patchwork 

0 

- 

For the much of the 
PRIPs market, this 
may reduce clarity  

May lead to 
differences in 
approach to 
information about 

Lack of consistency in 
allocation of 
responsibilities likely 
to lead to different 

0 

Allows for tailoring of requirements 
for market realities / responsiveness to 
changing distribution arrangements 

May exacerbate legal uncertainty over 
responsibilities, undermining 

91  

This reflects the extent to which the allocation of responsibilities can be a tool which controls what 
PRIPs can in fact be sold to retail customers.  

EN 

87 

   EN 

 
 
                                                 
the same product 

supervisory practices 
between Member 
States and sectoral 
supervisors 

'ownership' of the KIID and 
undermining its practical development 
in some market segments 

2 -- Flexibility over 
who prepares the 
document, but 
agreement on 
responsibility  

- 

- 

- 

As above 

As above  

As above in regards 
consistency 

3 -- Product 
manufacturer 
normally responsible 
for preparing the 
document 

+/- 

+/- 

+ 

Reflects existing 
approach in much of 
PRIPs market 

Reflects existing 
approach in much of 
PRIPs market. 

Greater consistency 
depends on care taken 
in regards targeting of 
exceptions 

Determination of 
allowed exceptions 
would need to be 
subject to detailed 
implementing work 
and impact analysis in 
this regard to avoid 
impractical solutions 
that lead to 
misalignment between 
responsibilities and 
capabilities 

As above, though there would be 
clarity as to individual responsibilities 
in regards specific arrangements.  

Impact could be significant for 
providers and distributors where 
agreements have never been 
established in the past 

Allows for some adjustments for 
practical scenarios where 
responsibilities and capabilities might 
not otherwise be appropriately aligned 
(split responsibilities, handling of 
delegations); this could mitigate 
possible unintended consequences, 
whilst still allowing for broad legal 
certainty for much of the remainder of 
the market. 

4 -- Require 
disclosures of 
responsible parties in 
document 

+ 

n/a 

n/a 

Important for 
investors in relation to 
possible complaints, 
also ensuring clarity 
as to who is actually 
producing product 

Identification of product manufacturer 
may require supporting clarification 
work in some instances (complex 
chains of intermediation and 
'remanufacturing' possible in some 
areas in PRIPs market) 

1.4. 

ISSUE  4:  Ensuring  effective  provision  of  product  disclosure  information  to 
retail investors 

Evidence (such as the recent Synovate study) shows that mandatory disclosures may often be 
either not provided or downplayed at the point of sale, or they may be delivered only at the 
point  of  conclusion  of  the  contract  (not  at  a  point  sufficiently  early  in  the  decision  making 
process  so  as  to  effectively  contribute  to  the  investors’  deliberations  on  what  investment  to 
make).  In respect of requirements for mandatory provision, this is primarily an enforcement 
matter.  

Under the UCITS framework there is a ‘hard’ requirement on provision, such that an investor 
seeking to buy a unit in a UCITS must be provided with KII before they buy the units, though  
this  provision  may  be  undertaken  by  means  of  a  durable  medium  or  website  (under  certain 
conditions).  This  requirements  was  adopted  following  uncertainty  in  the  prior  UCITS 
framework  as  to  relative  responsibilities  for  handing  over  or  giving  the  KII  to  the  investor. 
Delivery of the document, particularly in advised sales, was identified as necessary for better 
ensuring its effective use by investors.  

EN 

88 

   EN 

 
 
 
 
Currently, for non-UCITS PRIPs caught by MiFID intermediaries are not required to use any 
particular document to satisfy information requirements. 

Some stakeholders have noted that hard requirements on provision might create costs around 
certain  distribution  models,  or  require  clarification  in  relation  to,  for  instance,  online  sales 
channels. 

Three policy options emerge: (1) provision is not addressed directly, leaving arrangements to 
market  participants  to  decide;  (2)  a  ‘hard’  requirement  analogous  to  that  within  the  UCITS 
directive is applied to all sales of PRIPs, stressing that the KIID must be provided sufficiently 
early  in  the  sales  process  as  to  be  of  value  in  the  investors  decision  making;  (3)  specific 
timing and media exceptions permitted, the precise scope of which to be strongly controlled 
through detailed implementing measures.  

Options for responsibility for provision of documents 

[Options are mutually exclusive] 

1 

2  

3 

Soft requirement on provision and its timing 

Hard requirement on provision and its timing 

Follow 2, but allow for some targeted exceptions 

Consultation responses 

Some consultation respondents have noted that hard provision may not always be appropriate, 
for  instance  in  cases  of  ‘execution  only’  sales  where  the  retail  investor  has  already  made  a 
decision  to  invest,  and  is  requesting  a  broker  to  execute  a  deal,  possibly  in  a  time  critical 
manner. The question of what technical might be appropriate in terms of ‘providing’ the KIID 
arises in this circumstance. 

Analysis of costs and benefits 

For  the  UCITS  KIID  a  'hard'  provision  requirement  has  been  considered  key  to  ensuring 
regulatory documents actually get used. National supervisors, when working on the detailed 
implementing measures to those proposals, noted that a more permissive regime in this regard 
could create great cost for the industry (satisfy regulators that they have produced documents 
that are compliant with the requirements) but no benefits to investors if the documents are not 
provided to the investors by distributors or intermediaries. 

It is difficult to assess the extent to which detailed level 2 provisions might be necessary to 
tailor the provision model to different distribution channels; however, the heterogeneity of the 
PRIPs market suggests scope for such provisions would be sensible. For this reason, option 
3 appears preferable over option 2. 

Option 

Effectiveness 

0 – Take no action 

1 – 'soft' requirement 
on provision -- 
information made 
available, but not  
required to be actively 
provided, e.g. by 
intermediaries 

0 

-- 

This could potentially weaken requirements, e.g. compared 
with the standard now in UCITS; this is incompatible with 
ensuring disclosures are made to improve investment 
decision making 

Efficiency 

0 

Would appear low cost for firms and distributors, 
but mis-buying could raise costs more widely 

EN 

89 

   EN 

 
  
 
2 – ‘Hard’ 
requirement on 
provision and its 
timing – following 
UCITS model 

Possibilities of mis-selling likely would lead to ad hoc 
arrangements for provision between distributors and firms, 
and variations between member states would emerge 

+/- 

In the context of advised sales, actual provision of KII 
relating to proposed investment is key to effectiveness of 
these documents – a strong requirement on this would make 
clear responsibilities on this, able to act as a better basis for 
effective supervision, compliance and redress in this area 

3 – Broadly follow 2, 
but allow for some 
targeted exceptions 

+  

Allowing additional flexibility over and against option 1 
would allow certain execution only and other specific 
distribution scenarios to be better addressed (e.g. where 
timing is critical). 

Hard provision may clarify legal responsibilities 
between providers and distributors over what 
information can be used to discharge 
responsibilities of the distributor. 

Hard provision may reduce flexibility over how 
to provide information for some distributors.  

Hard provision could however improve the 
control of providers over the information given to 
investors about their products. 

Additional element of flexibility could mitigate 
potential consequences of applying hard 
requirement across all distribution channels. 

1.5. 

ISSUE 5: Civil liabilities and sanctions 

As is clear from the above discussion of responsibilities for preparation (and separately under 
issue 4 for delivery), important questions arise as to what additional steps might be taken to 
ensure  effective  and  practical  compliance  with  the  new  framework  by  firms.  The  practical 
effectiveness of a disclosure regime involves a much wider range of factors than simply the 
establishment of a sound regulatory framework that sets out requirements and outcomes in a 
clear  and  unambiguous  manner.  The  supervision  and  enforcement  of  the  requirements  are 
clear  and  key  elements.  In  addition,  preparing  effective  documents  that  communicate  well 
with  retail  customers  is  not  a  trivial  'tick-box'  exercise  for  firms.  It  can  involve  developing 
new skills, and even the use of consumer testing and focus groups by the firm itself to ensure 
its  communications  are  hitting  their  target  and  working  as  intended.  It  is  clear  that  'buy  in' 
from all stakeholders is a necessary precondition for maximising benefits. Respondents to the 
PRIPs consultation noted a number of different tools that could be used to ensure the practical 
effectiveness of any new disclosure regime. These included clarifications on the liabilities that 
should  attach  to  the  document.  The  sanctions  regime  applied  by  competent  authorities  was 
also underlined; , some industry stakeholders have expressed the view that inconsistencies in 
supervisory  approach  between  Member  States  in  the  consumer  protection  area  were  a 
significant barrier to the further development of the single market.  

In  addition,  respondents  mentioned  a  number  of  other  possible  steps.  These  included  the 
possibility of pre-approval of documents by supervisors (to check ex-ante their accuracy and 
compliance),  though  a  number  of  respondents  questioned  the  practicality  or  coherence  of 
this.92 A number of respondents underlined that developing prescriptive requirements on the 
content and form of documents would be a practical way of driving overall improvements by 
ensuring  a  common  minimum  standard.  Others  noted  the  vital  importance  of  improving  the 

92  

The FSA in its recently published paper on product interventions noted that pre-approval of products 
(and/or disclosures about them, which may be taken to amounting to the same thing) had some strong 
disadvantages in their eyes, for instance it could lead to a transfer of risk onto the regulator from the 
industry, that would thereby take less responsibility for the design of products being marketed at the 
retail client. 

EN 

90 

   EN 

 
 
 
 
                                                 
overall  consistency  and  clarity  of  the  language used  by  the  financial  services  for  describing 
investments,  investment  strategies,  asset  types,  and  so  forth.  (A  number  mentioned  the 
possibility of developing a common 'glossary' of terms). 

When considering the supporting measures that might be taken to ensure practical success of 
the new regime, these can be split between those measures that relate to the legal framework 
itself (civil liability and sanctions), and properly need to be considered when developing that 
framework,  and  those  measures  that  relate  more  to  the  effective  implementation  of  that 
framework. (This impact assessment will consider the first area as an immediate concern, but 
further work will be needed as this initiative matures to clarify the necessary additional steps 
that might be taken, and to clarify in particular who might be best placed and responsible for 
taking these additional steps.  

In terms of legislative  design, two  issues remain, both of which have been addressed in the 
UCITS KIID regime that need to be considered in relation to other PRIPs: the clarification of 
the  civil  liability  attached  to  PRIPs  product  disclosures,  and  the  sanctions  regime  applying 
through the relevant competent authorities. 

Civil liability 

On  this  issue,  three  main  options  emerge,  (0)  taking  no  action  (that  is,  remaining  silent  on 
liabilities);  (1)  supporting  non-legislative  measures  to  build  capacity  for  consumers  to  seek 
and obtain redress; and (2) clarifying the civil liabilities. (1 and 2 are not mutually exclusive). 

The UCITS KIID experience 

In regards civil liability, the UCITS KIID approach on this was developed in response to failings in regards the 
simplified  prospectus,  where  uncertainty  as  to  the  liabilities  for  the  'simplification'  of  information  (that  is, 
whether the simplified prospectus must contain all elements in the prospectus that might be taken as material for 
an investment decision) had led to firms including too much information in the notionally simplified prospectus 
so as to avoid liabilities. There were cases of simplified prospectuses that were longer than the full prospectus 
that they were supposed to simplify.  

For this reason, a delimitation of liability, modelled on that in the PD in relation to the summary prospectus, was 
included in UCITS IV – civil liability attached to the KIID only in relation to consistency with the prospectus. 
The aim was to ensure that the KIID was approached as a communication document by firms, not as a legal or 
contractual document.  

Take no action: It would be possible to take no comparable steps on civil liability for other 
PRIPs,  remaining  silent  in  this  regard,  leaving  liabilities  to  existing  sectoral  and  national 
requirements.  However,  while  prescription  of  the  form  and  content  of  PRIPs  product 
disclosures  reduces  the  risk  that  the  document  be  used  by  firms  primarily  as  a  contractual 
rather than communication document, respondents to the PRIPs consultation raised concerns 
that if liabilities were not clarified in some form, the PRIPs regime could be undermined in 
just the same way as the simplified prospectus. 

Clarifying civil liabilities: But how might civil liability be addressed? Two possible options 
can be identified, which are not mutually exclusive. The first option would be to support the 
the development of (non-legislative) measures to build the capacity of retail investors to seek 
and  obtain  redress  in  relation  to  failures  linked  to  the  PRIPs  product  disclosures.  Option  2 
would  draw  on  the  UCITS  approach,  to  buld  explicit  (legislative)  requirements  on  civil 
liabilities  (since  there  may  not  always  by  a  prospectus  or  other  full  disclosure  document  to 
refer to, a simple copy of the UCITS approach is not possible). On this basis, the focus would 
be  on  establishing  clearly  that  the  PRIPs  product  disclosure  is  a  communication  document 

EN 

91 

   EN 

 
designed  to  address  pre-contractual  rather  than  contractual  issues,  but  not  presupposing  the 
form of other documents. 

 Option 

Effectiveness 

0 -- Take no action 

0  

Efficiency 

0 

1 – Supporting non-legislative measures (to build 
capacity for consumers to seek and obtain redress, 
collective redress work, etc.) 

+  builds practical capacity directed at 
retail investors themselves and their 
behaviour  

Targeted and proportionate 

2 – Clarify civil liabilities (but adjusted as 
necessary; to establish clearly that the PRIPs 
product disclosures on its own is a communication 
document and is designed to address pre-contractual 
rather than contractual issues) 

+ could reduce uncertainty, encourage 
clear commitments in relation to 
production of product disclosure 

Likely to lead to greater confidence in 
industry, and ensure benefits of changes 
more likely to be realised. 

Could reduce costs related to cross border 
activity. 

Given  the  need  for  legal  clarity  but  also  for  flexibility,  option  1  and  2  are  both  preferred 
options.  

Clarifying civil liabilities would also contribute to better achievement of an effective remedy 
for  consumers,  as  enshrined  in  the  Charter  of  Fundamental  Rights,  article  47.  As  such  this 
would help achieve the aims under article 38, which seek a high level of consumer protection. 

Sanctions 

UCITS IV currently contains a high-level requirement on sanctions, which provides for only 
limited convergence in this area amongst competent authorities. Other Community legislation 
(such  as  the  Distance  Marketing  in  Financial  Services  Directive  and  the  E-Commerce 
Directive)  contain  sanctions  regimes,  however,  this  legislation  has  been  drafted  to  address 
specific issues that are separate from those addressed in this initiative. In addition, the regimes 
within these other areas of legislation can co-exist with those that might apply in regards this 
initiative; this is already the case in relation to the UCITS KII regime, which is in parallel to 
those in these two other areas. 

Other work is underway that has identified efficient and sufficiently convergent sanctioning 
regimes  as  a  necessary  corollary  to  the  new  supervisory  system.93    More  convergence  as 
regards  the  contents  and  the  form  of  disclosures  requirements  alone  do  not  create  by 
themselves  a  more  convergent  regime  in  this  area.  Such  requirements  should  be  flanked  by 
common  supervisory  tools  for  national  authorities.  Certainly,  also  other  non  legislative 
measures would be important to flank such regime. A more harmonised approach to sanctions 
alone will not be sufficient. However, divergences between the powers of Member States to 
take action with respect to non-compliance with the new requirements could be one important 
factor which incurs the risk diminishing the effectiveness of the new requirements. Therefore, 
national  authorities  need  to  act  in  a  coordinated  and  integrated  way.  The  new  European 
Supervisory Authorities (ESAs) will bring about improvements in the coordination of national 
authorities'  enforcement  activities.  Nevertheless,  in  order  to  achieve  such  convergence  it 
would be necessary to equip supervisors across Europe with the same supervisory tools on the 
legislative level at the first instance.  

93  

See the impact assessment prepared to accompany the November 2010 Communication on sanctions, a 
summary can be found at: 
http://ec.europa.eu/internal_market/consultations/docs/2010/sanctions/resume_impact_assesment_en.pd
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Take no action: If no action was taken for non-UCITS PRIPs on sanctioning regimes, leaving 
these  to  sectoral  and  national  legislation,  then  this  could  lead  to  material  inconsistencies 
across sectors and Member States in approaches between UCITS and non-UCITS PRIPs. In 
particular,  the  PRIPs  product  disclosure  requirements  may  not  be  clearly  covered  by  other 
legislation, which would undermine the goals of this initiative. More convergence as regards 
the  contents  and  the  form  of  disclosures  requirements  alone  do  not  create  by  themselves  a 
more convergent regime in this area without effective and deterrent enforcement. Divergences 
between the powers of Member States to sanction non-compliance with the new requirements 
could  diminish  their  effectiveness.  In  addition,  with  regard  to  consistency,  other  work  is 
underway  at  the  Commission  on  sanctions  (as  set  out  in  Annex  I.2),  that  has  identified 
efficient and sufficiently convergent sanctioning regimes as a necessary corollary to the new 
supervisory  system,  calling  for  steps  to  this  end  to  be  taken  across  all  sectoral  financial 
services legislation.94  

Clarifying  sanctions:  Taking  steps  on  sanctions  for  PRIPs  raises  two  possible  options  – 
following the high-level approach in UCITS, or specifying the form and content of possible 
sanctions  in  more  detail  so  as  to  allow  for  greater  consistency  in  these  across  the  EU.  In 
practice  it  would  appear  that  product  disclosures  are  seldom  a  direct  target  for  sanctions  in 
themselves,  and  mechanistic  or  overly  prescriptive  alignments  of  supervisory  activities  here 
would  seem  disproportionate.    Under  this  option,  sanctions  can  be  perceived  in  three  broad 
areas: 

• 

• 

• 

the  power  for  competent  authorities  to  require  sales  of  PRIPs  to  cease  where 
preparation  of  the  PRIPs  disclosure  document  has  not  occurred  or  it  has  breached 
requirements on its contents; 
the power for competent authorities to publically name a PRIPs producer where that 
producer has breached requirements on the product disclosure's contents; and 
the power for competent authorities to fine a PRIPs producer where that producer has 
breached requirements on the product disclosure's contents. 

0 – Take no action 

3 – Take high level approach on 
sanctions 

0 

+/- 

4 – Clarify sanctions (as regards the 
areas and breaches against which 
sanctions might need to be used and the 
broad kinds of sanctions that might 
thereby apply in these areas) 

A high-level approach to sanctions might leave 
material differences in use of sanctions across 
Member States that reduce consumer protection 
standards overall and could contribute to 
continued barriers to the single market 

+ allows consistency with commitments in 
Sanctions communication 

Allows tailoring of liability regime to specifics of 
different PRIPs 

Level playing field between different areas of 
financial services business 

0 

Largely neutral for industry compared to 
current requirements, but may reduce 
effectiveness of new regime, thereby 
limiting scale of possible benefits (e.g. in 
regards those involved in cross-border 
business or active in more than one national 
market). 

Likely to lead to greater confidence in 
industry, and ensure benefits of changes 
more likely to be realised. 

Could reduce costs related to cross border 
activity. 

Level playing field between different areas 
of financial services business 

94  

See the impact assessment prepared to accompany the November 2010 Communication on sanctions, a 
summary can be found at: 
http://ec.europa.eu/internal_market/consultations/docs/2010/sanctions/resume_impact_assesment_en.pd
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Given the importance of proportionate sanctions to underlining the importance of the PRIPs 
product  disclosure  regime,  and  given  the  PRIPs  regime  would  create  consistent  duties  on 
firms across all Member States, option 4 appears most effective and efficient. 

2. 

ESTIMATION OF ADMINISTRATIVE BURDEN 

The  administrative  costs  that  this  initiative  would  lead  to  cannot  be  assessed  solely  on  the 
basis  of  the  measures  being  examined  in  this  impact  analysis,  as  it  is  proposed  that  the 
initiative  follow  a  Lamfalussy  structure,  and  the  whole  package  (level  1,  level  2  and 
supporting  guidance)  would  only  come  into  force  once  the  detailed  level  2  measures  had 
themselves been developed and their administrative costs assessed. We will however provide 
here  an  estimate  of  magnitude  of  administrative  costs  and  burden  that  such  a  package  may 
lead to in the future.  

The  Commission  Impact  Assessment  Guidelines  define  administrative  costs  as  "the  costs 
incurred by enterprises, the voluntary sector, public authorities and citizens in meeting legal 
obligations to provide information on their action or production, either to public authorities 
or to private parties." 

The preferred options emerging from this impact assessment include stronger standardisation 
and prescription at the EU level of retail product disclosures for PRIPs. Under the Guidelines 
legal  requirements  on  information  disclosure  to  investors,  as  in  the  form  of  a  financial 
prospectus,  qualify  as  administrative  costs.95    In  fact,  broadly  all  costs  relating  to  a  future 
PRIPs regime will fall within the category of administrative costs, as the new regime will of 
necessity require all firms to replace existing product disclosures with new ones. 

As noted, the envisaged PRIPs product disclosure instrument would take the form of a level 1 
framework regulation, supported by detailed implementing measures at level 2. While level 1 
requirements  would  determine  that  new  product  disclosures  should  be  introduced  for  all 
PRIPs,  the  precise  form  and  content  of  these  disclosures,  which  is  important  for  assessing 
administrative costs, would be determined through technical implementing measures at level 
2. In other words, the alternative options analysed in this impact assessment – apart from the 
scope96  –  are  not  as  strong  drivers  of  the  compliance  and  administrative  costs  as  the  future 
Level 2 measures that are likely to determine the magnitude of costs, which, depending on the 
precise details of those measures, could be very substantive or moderate. One example is the 
number of product disclosure documents that need to be prepared for certain types of product. 
An  impact  assessment  at  level  2  will  address  various  implementation  options  and  make  the 
case for any such choices on the basis of a more detailed analysis following the standard cost 
model to assess administrative burden. However in this impact assessment we provide already 
a  forecast  estimate  of  the  magnitude  of  administrative  burden  that  could  result  from  these 
Level 1 and future Level 2 measures.  

95  

96  

See IA Guidelines Annex p. 49. available at: 
http://ec.europa.eu/governance/impact/commission_guidelines/docs/iag_2009_annex_en.pdf  
Different options on the scope of the regime could materially impact costs, to the extent that the chosen 
option on the scope of the regime would determine the degree of standardisation adopted. A wide scope 
that applies only high-level principles to non-packaged retail investments, but standardises disclosures 
for packaged investments, would functionally be very similar to the proposal being assessed here. The 
impact of a wider scope that standardises disclosures across the board would require much further work 
to assess its likely impact. 

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The case of costing UCITS KII 

To do this for PRIPs, a reasonable proxy exists. For the introduction of the KII for UCITS, the 
form and content of the proposed changes was already in large part available during the latter 
phase of policy development for UCITS IV implementing measures. On this basis CSES were 
commissioned  to  survey  a  representative  sample  of  the  UCITS  industry,  including  both 
smaller  and  larger  firms  across  different  national  markets  and  distribution  models.97  This 
survey  was  designed  to  address  both  the  one-off  costs  of  introducing  the  KII  and  any 
incremental  impact  on  ongoing  costs.  These  figures  can  be  used  for  indicating  the  broad 
possible order of magnitude of costs, but again, level 2 work will be necessary to clarify more 
detailed options and thereby final overall costs. 

CSES focused on administrative burden.98 This means that they identify the incremental costs 
of  introducing  KIID,  over  and  above  existing  costs  borne  under  business  as  usual99  (be  it 
industry  practice  or  national  legal  requirements  that  lead  to  disclosures  on  a  "business  as 
usual"  basis). Following  the  prescription of the Guidelines, the figures cover the production 
costs  of  a  disclosure  document,100  including  translation  costs,  use  of  external  advisors  or 
graphic designers, and so forth, which fall under various types of required action101 along the 
different  phases  of  introducing  a  KII,  such  as  drafting  of  the  document  or  arranging  its 
printing  or  dissemination.  Having  identified  the  target  groups  and  relevant  cost  parameters, 
the study sought estimates from firms102 of the hours of professional and other staff, and other 
fixed  costs  that  might  be  incurred.  The  costs  were  split  between  one-off  costs  and  ongoing 
costs. 

CSES estimated one-off administrative burden of around EUR 10100 per KIID (EUR 10100 
for preparation and dissemination,  and EUR  5900 for regulatory costs).  Ongoing costs (for 
updating  documents)  were  EUR  5700  (EUR  5700  for  preparation  and  dissemination,  EUR 
1500  for  regulatory  costs).  The  regulatory  costs  under  both  of  these  estimates  relate  to 
approval and notification requirements that are specific to the UCITS market. Such measures 

97  

98  

99  

100  

101  

102  

"Study on the Costs and Benefits of the proposed UCITS Key Investor Information" Final Report 2009 
December; prepared by CSES for the European Commission, (hereafter referred to as the CSES study). 
Administrative burdens are administrative activities that an entity only conducts because of legal 
obligations. (See p.47 of the Annexes to the Impact Assessment Guidelines). "Given the design of the 
KID as shown above, as part of the study we needed to design an approach to costing the KID. What we 
were trying to cost is the additional cost of the KID over and above existing requirements. So it is the 
marginal costs that were sought – not the cost of providing underlying information which are incurred 
anyway." CSES study, p.6. 
Business as usual costs are created by administrative activities that an entity would continue if legal 
obligations (at EU level) were removed. (See p.47 of the Annexes to the Impact Assessment 
Guidelines) 
For the types of obligations that qualify as "administrative", see p.49, box 1 of the Annexes to the 
Impact Assessment Guidelines. 
For the typology of required actions see p. 51, box 3 of the Annexes to the Impact Assessment 
Guidelines. The types of information obligation assessed in the CSES study fall under the categories 1 
to 11 and categories 13 and 14.  
Concerning the methodology of surveying firms, it should be added here that assessing compliance and 
administrative costs and burdens of proposed changes is in practice very difficult for firms on an ex ante 
basis, where precise details of all the measures are not yet in place; any assessment requires many 
assumptions to be made. This problem applies for the PRIPs changes being assessed here, as much of 
the detail necessary for firms to understand the likely changes will be prescribed at level 2 rather than 
level 1. Nonetheless, we use these figures for a rough estimate of possible administrative burdens 
flowing from this initiative once the Level 2 measures are determined. 

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are outside the scope of PRIPs proposals covered in this impact assessment, so these costs are 
disregarded here.   

Grossing these costs up for the UCITS market (on the basis of the number of funds that need 
to have a KIID prepared), CSES calculated a best estimate of overall one-off administrative 
burden  for  introducing  KIID  of  around  EUR  389  million;  roughly  adjusted  for  regulatory 
costs, this stands at EUR 246 million.103 Incremental increase in ongoing costs was calculated 
to  be  around  EUR  25  million;  again,  adjusted  for  regulatory  costs,  this  is  around  EUR  20 
million. This represents a 7.5% increase in the costs of previously existing disclosures. 

Estimating the PRIPs compliance costs, administrative costs and administrative burdens 

A  rough  estimate  of  administrative  costs  for  all  PRIPs  can  be  achieved  by  grossing  these 
figures up on the basis of proportions of business relative to UCITS. Under such an approach 
we  arrive  at  one-off  figures  of  around  EUR  171  million  for  non-UCITS  PRIPs,  and  on 
going costs of around EUR 14 million.104 In broad terms, if cost structures for the rest of the 
industry are similar for UCITS by volume of business, the impact of requiring a KIID for all 
the other PRIPs will be of  the same broad  scale as  for  UCITS  given the  size of  the  UCITS 
market. 

The  CSES  study  suggests  the  'cost  per  product'  might  be  used  to  estimate  a  more  accurate 
figure, by multiplying the cost per product by the numbers of products on offer / turnover in 
product  offerings  across  all  PRIPs  sectors.  This  is  because  the  cost  per  product  was  not 
dramatically different for different sized firms (of course some economies of scale apply for 
larger firms).  

However  it  is  not  possible  to  use  an  estimate  of  this  kind  at  this  stage,  as  it  will  only  be  at 
level 2 that the precise application of the requirements to different PRIP product forms will be 
determined.  For  instance,  within  the  retail  structured  product  market  (covering  structured 
deposits and structured securities) there were a total of 274000 products brought to market in 
2009 (for reference there were 36000 UCITS registered at end December 2009).105  

What might impact the costs/burden at Level 2 measures? 

Level 1 measures assessed here do not determine whether a KIID would need to be produced 
for  each  individual  product,  or  whether  a  single  KIID  might  be  used  for  multiple  tranches 
(releases) for a product (updated as may be necessary). In the retail structured product market, 
this could have a very strong impact on costs: if the 10100 EUR one-off costs were accurate 
per  product,  a  market  with  274000  products  could  face  potential  costs  of  almost  2.8  billion 
EUR.  Likewise,  for  the  unit-linked  insurance  market  the  application  of  requirements  at  the 
fund  or  product  level,  and  the  extent  to  which  insurers  may  rely  on  KIID  produced  for 
underlying  funds  where  the  insurance  contract  is  to  link  to  these,  will  be  important 
determinants  of  costs,  and  the  details  of  these  arrangements  will  be  established  at  level  2 
rather than level 1. On this basis a more sophisticated assessment of burdens seeking to tailor 
the precise  impact of  proposals on different market sectors could at this stage be premature 

103  
104  

105  

See CSES Table 7.6, page 24. Some assumptions were made in grossing up: a possible range of overall. 
2009 basis, on a conservative assessment: unit-linked as proportion of life insurance business held as 
securities or units; Arete Consulting data for outstanding retail structure products (with securities or 
deposit forms), EFAMA market data on size of UCITS and non-UCITS fund markets in EU.   
Source: Arete Consulting, EFAMA. 

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and potentially misleading. Such assessment will be carried out within the impact assessment 
leading up to the Level 2 implementing measures.   

However,  it  would  be  useful  to  explore  some  of  other  factors  –  other  than  the  volume  of 
issues  for  which  a  KIID  might  be  required  –  that  are  likely  to  impact  on  the  scale 
administrative burdens.  

As noted above, the CSES study focused on the broad administrative burden of replacing, in 
effect,  a  more  high-level  disclosure  regime  with  one  which  is  more  prescriptive.  For  this 
reason, the study assessments have some wide relevance. Cost drivers for the one-off costs of 
change  over  –  systems  changes,  staff  training,  consultancy  fees  and  data  gathering  –  are 
broadly likely to be similar for all financial services firms. In terms of ongoing costs, changes 
to the number of disclosures required (related to the stand-alone nature of KII proposals, such 
that the new document needed to be produced for most sub-funds and share classes, where as 
before  a  combined  document  could  be  produced)  appeared  the  largest  cost  driver,  whilst 
otherwise  it  was  anticipated  that  the  new  requirements  would  be  similar  in  impact  to  old 
requirements.  

The CSES research saw no major differences between smaller and larger firms in terms of the 
costs, though larger firms in general were better placed to absorb ongoing costs, and smaller 
firms  found  it  harder  to  reliably  assess  possible  costs  (it  was  in  fact  difficult  to  ensure  a 
representative  sample  from  smaller  firms).  This  to  a  degree  is  reflected  in  a  number  of 
respondents' comments in regards the PRIPs consultation, which indicated a view on the part 
of  the  larger  firms  that  the  ongoing  costs  of  the  new  regime  might  be  readily  absorbed,  so 
long as reasonable transitional arrangements were put in place.  

To be clear, for most of the PRIPs market regulatory disclosure requirements, at national or 
EU level, already apply. The only area where a gap has been identified is in regards structured 
term deposits. According to Arete data, this is likely to be a relatively small part of the overall 
market – 14% of the retail structured product amount outstanding in 2009, or 0.6% (roughly) 
of  the  EU  PRIPs  market.  For 99.4%  of  the  PRIPs  market  (by volume  of  existing business), 
therefore,  the  proposals  in  this  impact  assessment  are  largely  a  matter  of  one-off  costs  of 
change  from  one  approach  to  product  disclosures  under  regulatory  requirements  to  another, 
and possibly a maximum of 7.5% increase in ongoing costs for the new requirements.  

The one-off compliance costs  of the PRIPs regime would clearly fall under the category of 
administrative  burden  –  these  are  the  costs  for  the  whole  industry  of  introducing  new 
disclosures;  these  costs  are  incurred  irrespective  of  whether  such  a  disclosure  might  be 
produced under business as usual. However, for ongoing costs the situation is more complex. 
The CSES study specifically asked respondents to identify incremental costs over and against 
what they would do as 'business as usual'; on this basis these estimates (a maximum increase 
of costs of 7.5% over existing disclosures) are a proxy for the ongoing administrative burden. 

Comparing estimated costs to estimated benefits 

It  is  important  to  note,  however,  that  these  costs  are  dwarfed  by  the  scale  of  potential  mis-
selling or buying in the retail investment market. As set out above, even if disclosure failings 
were seen as only contributing 1% to such problems, our analysis still suggests potentially 8 
billion EUR of mis-placed investments attributable to such failings.  

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3. 

POSSIBLE 
LEGISLATION 

IMPACTS  OF  HORIZONTAL  PRIP  ACT  ON  EXISTING  SECTORAL 

Sectoral 
legislation 

Possible impacts of horizontal PRIP act on existing sectoral legislation 

PD 

Impact on Article 5(2) 

Art.  5(2)  of  PD  requires  drawing  up  of  a  summary  of  a  prospectus  which  should  provide 
appropriate  information  about  essential  elements  of  the  securities  concerned  in  order  to  aid 
investors when considering whether to invest in such securities. These essential elements are 
defined in Art. 2(s)(i) – (iv): 

(i) a short description of the risk associated with and essential characteristic of the issuer and 
any guarantor, including the assets, liabilities and financial position: 

(ii) a short description of the risk associated with and essential characteristic of the investment 
in the relevant security, including any rights attaching to the securities; 

(iii)  general  terms  of  the  offer,  including  estimated  expenses  charged  to  the  investor  by  the 
issuer or the offeror; 

(iv) details of the admission to trading 

So  as  to  avoid  duplication,  the  proposed  PRIPs  disclosure  rules  could  be  designed  so  as  to 
ensure  that  information  in  the  KIID  can  be  regarded  as  appropriate  for  certain  pieces  of  key 
information to be provided in the summary such as e.g. information on risks and costs. 

Solvency II 

Impact on Article 185 

Art.  185  specifies  types  of  information  the  insurance  undertaking  is  to  provide  to  the  policy 
holder before a life insurance contract is concluded. 

So  as  to  avoid  duplication  of  requirements,  the  proposed  PRIPs  disclosure  rules  could  be 
designed so that the information contained in the KIID in accordance with the overall PRIPs 
act (regime) (level 1 and 2) would be regarded as equivalent to the information  required by Art 
185(3) and (4), such that information under Art 185(3) and (4) would not need to be supplied 
again if a KIID has been provided. The precise degree of equivalence depends, however, on an 
assessment of detailed level 2 PRIPs measures as these may develop. 

UCITS 

UCITS will be excluded from the scope for a transitional period. 

AIFMD  

AIFMD  only  regulates  marketing  of  AIF  to  professional  investors.  The  marketing  of  AIF  to 
retail investors is left to national law. Therefore, the PRIPs act requiring that retail clients are to 
be provided with a KII will apply independently from AIFMD  

Transparency 
Directive 

As the Transparency Directive establishes requirements in relation to the disclosure of periodic 
and  ongoing  information  about  issuers  whose  securities  are  already  admitted  to  trading,  its 
scope  is  different  than  that  of  PRIPs  disclosure,  which  will  play  its  role  before  a  contract  is 
concluded (pre-contractual disclosure). 

e-Commerce 

Impact on Article 5 

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Art. 5 contains a list of information which the service provider should render accessible to the 
recipients  of  the  service  and  competent  authorities.  The  list  is  not  exhaustive  and  it  has  a 
complementary  character  with  regard  to  other  information  requirements  established  by 
Community law. 

Art.  5(2)  requires,  'in  addition  to  other  information  requirements  established  by  Community 
law' that Member States should 'at least ensure that, when information society services refer to 
prices,  these  are  to  be  indicated  clearly  and  unambiguously  and,  in  particular,  must  indicate 
whether they are inclusive of tax and delivery costs'.  

Since these requirements are in addition to other information requirements in community law, 
both regimes can generally exist in parallel; detailed requirements at level 2 to the PRIPs act 
would be designed so as to avoid unnecessary duplications. 

Distance 
marketing  

Impact on Article 3(1) 

Art. 3 requires that certain information concerning the financial service will be provided to the 
consumer before the consumer is bound by any distance contract or offer., like, for instance: 

- a description of the main characteristics of the financial service, 

- the total price to be paid by the consumer to the supplier for the financial service, including 
all related fees, charges and expenses and all taxes paid via the supplier, 

-  information  on  special  risks  related  to  specific  features  of  the  instrument  to  which  the 
financial service is related. 

Since  these  information  requirements  are  mainly  service  related,  both  regimes  can  generally 
exist in parallel; where relevant with respect to product information, detailed requirements at 
level 2 to the PRIPs act would be designed so as to avoid unnecessary duplications 

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