European Association of Public Banks

Transcription

1 European Commission DG Markt G4 18 January 2008 EAPB comments on the call for evidence on substitute retail investment products The European Association of Public Banks (EAPB) represents the interests of 28 public banks, funding agencies and associations of public banks throughout Europe, which together represent some 100 public financial institutions. The latter have a combined balance sheet total of about EUR 3,500 billion and represent about 190,000 employees, i.e. covering a European market share of approximately 15%. A. Introduction We thank the Commission for the opportunity to comment on its call for evidence on substitute retail investment products. In the following, please find our comments on the Commission s considerations. We have limited our response to some general comments. However, we feel that these general comments also answer most of the more detailed questions posed in the call for evidence. The EAPB would very much appreciate the Commission taking our comments into account

2 B. Comments on the call for evidence The EAPB fully acknowledges the Commissions interest in examining the inter-product regulatory differences, which to some market participants perception may threaten investor interests and distort markets for retail investment products. However, we take the view that the alternative investment products mentioned in the call for evidence are not entirely comparable able from a product design and product structure point of view product diversity is one of the key element of Europe s internal market for financial services and should not be put at risk through standardisation or harmonisation of financial products a range of already existing capital market provisions ensure a sufficient level of consumer protection and information. In the following, we would like to elaborate in more detail on these statements. 1. Lack of product comparability The call for evidence sets out that, although there is no legal or clearly established definition or description of the set of substitute investment products, some products may be seen as de facto alternative ways of making investments with similar economic characteristics. The Commission includes in this basket UCITS funds, exchange traded or listed funds, retail tranches of structured notes, etc. Differences in product features First of all, many of these products are merely not comparable as their features are very different. Debt security funds (investment fund which mainly invests in debt securities) and debt securities may serve as an example of incomparability: The issuer of debt securities mainly promises to fulfil its obligations by paying out interests and the principal amount. The collective investment undertaking, by contrast, makes a long-term commitment to deliver, similar basically to portfolio management. Moreover, funds (as special property) are protected against insolvency

3 It is against this background, that we cannot support the Commissions request for asset managers and product originators to provide factory-gate information on the basic features of the investment proposition. After all, such a uniform simplified prospectus regardless of product types would not change the fact that the products mentioned in the call for evidence are not entirely comparable. Cultural differences Although we acknowledge that from a retail investor s point of view such an interchangeability might be comprehensible to a certain degree, we take the view that comparability should not be artificially forced against the background of cultural differences, the request to maintain product diversity and also from a simple supply side of view. The products listed in the call for evidence and their features are often very different, legally and economically throughout the EU. Member States have different regional traditions which are often due to national supervisory rules, tax laws and retirement provisioning. Apart from regulatory differences in the Member States, also investor preferences play a significant role: retail investors often have strong preferences for local providers and nationally-branded products, as the Commission also notes in its call for evidence. Differences in product structures ultimately reflect different investment and investor profiles. Products are developed according to these needs. Comparison of distribution channels rather than products Given the above, instead of comparing products rather distribution requirements should be compared. In this regard, the MiFID is probably the most suitable guideline in order to achieve a common investor and consumer protection as well as similar requirements for the competing distribution channels. Now that MiFID is in force, the rules governing many types of products are largely identical, not least because the Directive classes UCITS as financial instruments

4 2. Maintenance of product variety and innovation The above mentioned divergences are at the bottom of the broad product variety and the level of product innovation in Europe. Investors are able to take advantage of these varied investment products, according to their investment horizon, their opportunity/risk profile, their market expectations and investment requests. Harmonising the different investment products by unifying them without taking account of the specific characteristics would neither serve the individual investor nor the financial market as such. It would, on the contrary, be detrimental to the competitiveness of the European internal financial market. 3. High level of information guaranteed by a set of capital market rules The current regulatory environment already provides for a dense corpus of legislation aiming at protecting investors and giving investors guidance in their investment decision. It includes the UCITS Directive, the MiFID, the Life insurance Directive, the Insurance Mediation Directive, the Prospectus Directive, the Distance Selling Directive for Financial Services, the E-commerce Directive as well as their respective implementation Directives and Regulations. Most of these Directives do not only provide high-level principles but set out detailed rules. These rules take account of the high complexity of investment products by setting out detailed contractual and pre-contractual obligations vis-à-vis the investor, including Comprehensive information obligations and duties of disclosure for investment services European investors are provided with extensive pre-contractual information, as set out in Art 19 MiFID and further specified in the Implementing Directive (Art 28 MiFID Implementing Directive sqq.), including o o information about financial instruments information on costs and associated charges Information on conflicts of interest Investment firms are required to establish an effective conflicts of interest policy in order to ensure appropriate procedures to avoid conflicts of interest. Investors have to be informed about the investment firms conflicts of interest policy (Art 30(1)(h) in conjunction with Art 22 Implementing Directive)

5 Information on inducements In general, inducements are only permitted within very narrow limits (Art 26 Implementing Directive). Within these limits they are only allowed if they are clearly disclosed to the customer in a comprehensive, accurate and understandable manner prior to the investment service. Suitability The individual investment advice is a key feature in the MiFID. Information has to be fair, clear and not misleading. The advice has to be given in an objective way. The personal dialogue with the customer is the central point of investor protection. The individual response to investor needs, its personal situation and its investor horizon can not be substituted by written general information. Any differences in transparency provisions which might be detected between competing investment products do not, in our view, influence investor behaviour. Rather, investment decisions are mainly motivated by the following components: security, liquidity, profitability and tax aspects. Therefore, an investor will try to find a balance between these investment criteria according to its investment horizon, its risk appetite and the financial means, without taking into account differences in transparency obligations. C. Summary Against the background set out above, we do not notice any market failure. Therefore, we oppose to any additional European legal framework for substitute products. We do not see any additional benefit, neither for investors nor for other market participants, from a further harmonisation. If you have any questions, please do not hesitate to contact us. With best regards, Henning Schoppmann EAPB Walburga Hemetsberger EAPB - 5 -