EFAMA calls for urgent completion of regulation review to protect retail investors

EFAMA, a body representing the European investment management industry, has called the current regulation on investment products for retail investors “fundamentally flawed”, saying it provides investors with “misleading information”.

This comes ahead of the European Supervisory Authorities’ (ESAs) final report on technical changes to the Packaged Retail and Insurance-based Investment Products Key Information Document (PRIIP KID). 

EFAMA is calling for an urgent review addressing these flaws, which is both overdue and essential, and urges all relevant parties to work together to find a practical and common-sense way forward. 

The Covid-19 crisis is resulting in unprecedented economic uncertainty and EFAMA says the asset management industry stands poised to play its part in assisting on the long road to economic recovery. To achieve this, a PRIIP KID that provides retail investors with the right information becomes ever more crucial in helping them to make the most informed investment decisions.

In a letter shared yesterday with the European Commission, MEPs, and ESAs, EFAMA is calling for the final report to be examined carefully by legislators.
EFAMA’s statement highlights a number of key points including:

  • That clear and relevant information on PRIIP KID will be essential in retail investors’ participation to the post-COVID 19 recovery.
  • That the current framework is misleading for retail investors and therefore damaging for the industry and the UCITS brand.
  • That an urgent review of the current PRIIP KID is critical to protect retail investors interests, particularly in times of economic uncertainty.

EFAMA has identified three core areas for improvement, including:

  1. Comparability at any cost is not the right solution. The fundamental problem stems from the PRIIP KID’s inherent conflict to provide clear, fair and not misleading information and comparability between widely different investment products. The pursuit of theoretical comparability has come at the cost of misleading information, adversely impacting the end investor.
  2. Inclusion of past performance is paramount. Inclusion of past performance is paramount as investors need to know how a product has performed in the past. While it is not an indicator of future performance, historical data and standards allow for easy comparisons and show investors that a fund’s value will fluctuate.
  3. Appropriate scenario planning. Performance scenarios should not be future-looking. They should instead provide information to retail investors on how a certain product will function given certain market conditions, based on historical observations.

Director general of EFAMA, Tanguy van de Werve, comments: “While the last few years have clearly shown there are no quick fix solutions to PRIIP KID, we remain confident that most issues can be resolved successfully. In times of unprecedented global economic uncertainty, it is imperative that all the relevant stakeholders work collaboratively to bring this to a positive conclusion. We simply must avoid continued misinformation to retail investors and damaging the UCITS brand by extending the currently flawed PRIIP KID. Time is now of the essence.”

EFAMA will work continue to work closely with all relevant parties in the best interest of investors.