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New EC proposals to help protect consumers from mis-selling of personal finance and insurance products
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The European Commission is today asking Member States and the European Parliament to enact new, consumer-friendly standards for information about investments and insurance products and to tighten certain rules on investment funds. This is intended to prevent consumers across the EU from being sold investment and insurance products – including pension plans - that are not right for them.

Internal Market and Services Commissioner Michel Barnier said: "Retail financial products must be safer, information standards must become clearer, and those who are selling products must always be subject to the highest standards. We have adopted a package which puts the consumer's interests first."

Today's package is composed of three legislative proposals covering packaged retail investment products (PRIPS), insurance mediation and investment funds.

Packaged retail investment products (PRIPS)
The EU retail investment market is worth up to 10 trillion euro (£8 trillion) and for consumers, life savings are often at stake if something goes wrong.

If national Ministers and MEPs agree to the Commission's proposal, every institution offering investment products (e.g. investment fund managers, insurers, banks) will have to produce a concise 'Key Information Document' (KID) for each product.

Each KID will provide information on the product's main features, as well as straightforward information on the risks and costs. The KID will make clear to every consumer whether or not they could lose money.

The KIDs will follow a common standard so consumers will be able to compare different investment products more easily.

A KID will be required for private pensions, all types of investment funds, insurance-based investments and retail structured products.

    Internal Market and Services Commissioner Michel Barnier

    Internal Market and Services Commissioner Michel Barnier

    Insurance Mediation Directive (IMD) Revision
    Consumers are often not aware of the risks associated with buying insurance cover and recent surveys (see links below) show that more than 70% of insurance products are sold without appropriate advice.

    So the Commission wants to upgrade consumer protection by creating common standards across insurance sales and ensuring proper advice. To achieve this, the following changes to current IMD legislation are proposed: 

    So the Commission wants to upgrade consumer protection by creating common standards across insurance sales and ensuring proper advice. To achieve this, the following changes to current IMD legislation are proposed:

    • the same level of consumer protection will apply whether a consumer purchases a product directly from an insurance company or from an intermediary (e.g. an agent or a broker). The current IMD only covers sales by intermediaries;

    • consumers will be given clear information about the professional status of the person selling the insurance product. There will be more effective rules to tackle conflicts of interest, including disclosing how sellers are remunerated – such as through commission;

    • insurance sales will have to be accompanied by honest professional advice;

    • it will be easier for intermediaries to operate cross-border, thus promoting a real single market in insurance and more choice and lower prices for consumers.

    Investment funds: Undertakings for Collective Investment in Transferable Securities – UCITS
    Managing almost €6 trillion in assets (link), UCITS – collective investment funds like unit trusts, operating across the EU single market - are widely used by European retail investors. UCITS are also regularly sold to investors outside the EU where they are valued due to their high level of investor protection.

    The Commission's proposed amendments to the UCITS rules are based on experience from the financial crisis – including the Madoff scandal - and address three areas:

    • a precise definition of the tasks and liabilities of all depositaries acting on behalf of a UCITS fund. Depositaries are separate organisations – often banks -which hold the funds' assets;

    • clear rules on the remuneration of UCITS managers to avoid excessive risk-taking. Remuneration policy will be better linked with the long-term interest of investors and the achievement of investment objectives; and

    • a common approach to how core breaches of the UCITS legal framework are sanctioned, introducing common standards on the levels of administrative fines so as to ensure they always exceed potential benefits from breaches of the rules

    Further details:

    Related surveys:
    Aviva survey on consumer attitudes
    DG SANCO research on behavioural economics

    For more information, please contact the London press office on 020 7973 1971.

    Please note: all amounts expressed in sterling are for information purposes only.

    Last update: 11/07/2012  |Top