Magazine Issues » September 2018

OPINION: An act of self-harm

Fiona_RintoulNo one, it seems, is happy with the EU Priips regulation, which went live on 3 January 2018. Simply reading an explanation of what the rules hope to achieve helps us to understand why. The European Fund and Asset Management Association (Efama) explains it thus: “These rules are designed to enhance investors’ understanding of retail investment products whether bank, insurance or fund-based. They do so by adapting existing Ucits disclosure rules (the Ucits Key Investor Information Document, or KIID) into a Priip Key Information Document or KID.”

From KIID to KID. Already one wants to scream.

Before we deal with the problems the KID introduces, we must wade through acronym hell. Priips stands for ‘Packaged retail and insurance-based investment products’. Really? We can’t come up with anything snappier? I note that the European Commission website declines to translate this into German – or any other EU language. We must be thankful for small mercies.

However, the explanation on the English-only page is illuminating: “…Priips are at the core of the retail investment market. They are investment products…” Aha. So, Priips are investment products.

That sounds like something the person on the street might have a fighting chance of understanding.

The same cannot be said of the Priips KID. In a robust statement, trade association Efama contends that:
     •  the methodology used to calculate transaction costs is flawed and produces misleading results;
     •  the removal of past performance from the Priips KID deprives investors of important information; and
     •  the framework for calculating future performance is flawed and could promote pro-cyclical investor behaviour.

“The new rules are threatening to cause serious investor detriment by mandating figures, particularly in relation to performance and costs, that will at best confuse investors and at worst mislead them,” the trade association writes.

Serious investor detriment. One senses that the good folks at Efama are fairly fuming, and no wonder. Not only will European fund investors receive information that may be deficient from 1 January 2020 when Priips KIDs are issued, that information could contradict existing information.

The German fund association, the BVI, has been a tireless opponent of Priips KID, and points out that investors will ask their advisers what it all means. Very likely, the advisers will reply that they think it’s a load of old nonsense too, but they are obliged by the EU to issue the information. This brings us to the real problem, which Thomas Richter, chief executive of the BVI, identifies as “Europafeindlichkeit” – hostility towards Europe in the shape of the EU. Silly rules and impenetrable acronyms are grist to the mill for Eurosceptics. They are an act of reputational self-harm on the part of the EU. As Richter puts it, “Standardised gherkin bendiness is as nothing by comparison.”

The EU brand, he says, has become so toxic that EU defenders often refer to “Europe” instead of “the EU”. But such semantic niceties won’t help much in the long run if the EU “doesn’t make it easier for voters to applaud its achievements”.

In the UK, we know where such failure leads. Personally, I think it’s a shame that former UK prime minister David Cameron didn’t push for EU reform instead of presenting the public with an in-out referendum. But Euroscepticism has now spread. Priips KID must be reformed – and so must the institutions that devised it.

Fiona Rintoul is editorial director at Funds Europe

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