EU regulations bring standardisation yet 'high level of complexity' may defeat purpose: study

James Baxter-Derrington
clock
EU regulations bring standardisation yet 'high level of complexity' may defeat purpose: study

Investors across the EU support the principle of standardising investor information but believe the myriad regulations and directives "fall short" of harmonisation, creating a high level of complexity that may defeat the intended purpose, according to a new study from the CFA Institute.

The report found that 69% of CFA charterholders who responded agree that the European Securities and Markets Authority (ESMA) should be granted more powers to oversee the cross-distribution of investment products across the EU, while 51% believe that since the introduction of MiFID II, greater care is given to product design.

However, 29% suggested that the relationship between manufacturers and distributors "presents flaws" regarding investor protection.

The headwinds facing the industry include questions of trust, increasing regulation, the value for money proposition, the rise of low-cost passive instruments and the impact of ever sophisticated technologies challenging established business models."

Over half (54%) think that while investors receive enough information, they are likely "struggling to understand" it due to its complexity, and 57% believe EU marketing rules are only "partially effective" due to inconsistent standards across jurisdictions, both geographically and between retail and professional clients.

There was general agreement among respondents that the controversial PRIIPs KID can be improved by "clarifying performance scenarios, reintegrating past performance and clarifying or simplifying the presentation of costs", but largely, PRIIPs and MiFID II are perceived to have had a positive impact on the quality of the relationship between manufacturer and distributor.

The study also found that the "situation of outsourcing" required further analysis as while most firms a performing operations relating to the production of the KID internally, this could change over time with automation.

Olivier Fines, head of advocacy EMEA at CFA Institute, said: "The headwinds facing the industry include questions of trust, increasing regulation, the value for money proposition, the rise of low-cost passive instruments and the impact of ever sophisticated technologies challenging established business models.

"While new product governance rules have investor protection principles at their core, there are clear variations in the quality and harmonisation of information provided to investors across Member States and between firms themselves.

"Further work needs to be done, by regulators and the industry at large, to ensure these frameworks deliver on their promises to encourage the cross-distribution of valuable investment solutions across the EU, a key goal of the Capital Markets Union which aims to resolve the long-term conundrum of pension funding and financing of structural economic projects via the channelling of individuals' savings."

Subscribe to International Investment's free, twice-daily, newsletter