15.1.2013   

EN

Official Journal of the European Union

C 11/59

1.1

The European Economic and Social Committee (EESC) welcomes the proposal for a regulation put forward by the Commission, and considers that it is consistent with the undertakings made to fill the European legislative gap in the area of retail investor protection.

1.2

The EESC draws attention to the importance of this legislation, which for the first time regulates all types of complex financial product and ensures they are comparable, regardless of the type of manufacturer – bank, insurer or investment company – and appreciates the Commission's efforts to seek balanced solutions that can be applied simultaneously by all.

1.3

In recent opinions, the EESC had called for uniform requirements that were clear, simple and comparable and therefore welcomes the regulation. It hopes that the comments set out in the present opinion will be taken on board in order to make the regulation clearer, more immediately enforceable and applicable.

1.4

In spite of the very considerable volume of regulations issued over the last three years, the EESC notes that two key objectives have still not been reached: that of restoring full integrity to the market, and that of achieving an effectively integrated market that is open to all players. The most recent financial scandals have unfortunately revealed a continuing lack of determined, decisive action by national supervisory authorities to ensure that further acts inflicting huge losses on savers, as in the case of Libor manipulation, are in practice impossible. Obstacles continue to be put in the path of full completion of the internal market, with the aim of protecting the advantageous position of national companies. No significant progress is being made with regard to mortgages; the comparability and transparency of the cost of current accounts and principal services; the content of basic products; access to banking services for specific disadvantaged groups; collective actions; recognition of the capacity of users' and consumers' associations to take action; protection of cross-border contracts; or harmonised dispute resolution procedures; although it should be emphasised that the Commission is striving to fill the legislative gaps.

1.5

The EESC would point out that no provision has been made concerning the possibility of imposing sanctions on third country manufacturers, against whom it is difficult to bring action should they breach the European rules. It suggests that in such cases, intermediaries should bear the cost and assume liability for any breaches of the regulation. In addition, the third countries that host the main financial centres should be urged to adopt similar rules and to ensure they tie in with the guidelines produced by the Financial Stability Board (FSB).

1.6

While the EESC understands the reasons put forward by the Commission for the simultaneous existence of the key information document (KID), as proposed in the present regulation, and the key investor information document (KIID), for which provision was made by Directive 2009/65/EC and which was included in Council Regulation No 583/2010 of 1 July 2010, it considers that assessment of the advisability of retaining two separate documents for financial investments should be brought forward, and suggests that "within two years" of the entry into force of the regulation for investment products, the Commission should be empowered to propose the merger of the two distinct models, bringing the UCITS requirements into line with those for the KID.

1.7

The EESC disagrees with the Commission's choice of delegated acts for essential components of the regulation: such components should be enforceable as soon as the regulation is enacted. The content of Article 8(2) in particular is assigned to delegated acts. This includes the details of the presentation and content of each of the items of key information, of possible additional content and of a common model; in practice 90 % of the rules. The delegation under Article 10(2) concerns content and arrangements for reviewing and possibly revising information. Lastly, the delegation under the terms of Article 12(4) concerns the conditions for fulfilling the requirement to provide the key information document and the method and the time limit for provision of the document.

1.8

The EESC strongly recommends that these proposals, and any wording that could cause confusion or imprecision, such as "in good time" and "seriously jeopardise", be reviewed and urges the Commission to specify more clearly the procedures to follow in cases of breaches of obligations occurring in more than one Member State and to define which authorities are authorised to impose sanctions, which in other cases are determined by the European supervisory authorities.

1.9

The EESC believes there is a need to bring the proposal set out in Article 15 concerning alternative instruments for managing disputes into harmony with the solutions put forward as part of the revision of the proposal for a directive on Alternative Dispute Resolution (ADR) [COM(2011) 793 final] and the introduction, by means of a regulation, of an online consumer dispute resolution system [COM(2011) 794 final], on which the EESC has issued opinions (1). The Commission should make explicit mention of the possibility of taking collective or group actions in the event of improper behaviour, to be inserted into Article 11.

1.10

The EESC suggests that a reference to the right of withdrawal for distance buyers of financial products, as provided under the MiFID directive and existing legislation, be inserted into the text of the regulation.

1.11

The EESC advises considering the possibility of including financial product KIDs on a single portal. This would facilitate comparison between different products and increase market transparency.

1.12

The EESC disagrees with the proposed derogations concerning provision of KIDs; on the contrary, it believes that the derogation for distance selling should certainly be removed, and very careful consideration should be given to the other derogations. Bank or insurance clients should receive the KID in good time before completing a sale by telephone.

1.13

The EESC considers that the real cost for the end user needs to be included on the list of KID contents.

2.1

The proposal for a regulation under examination is about improving transparency in the investment market for retail investors. There are at present no clear rules defining disclosure requirements, and investors are not able to gain a thorough understanding of the risks to which their investments are exposed.

2.2

In the absence of appropriate, straightforward and comprehensible information, retail investors may pay inflated prices which do not match their risk profiles, or may miss other investment opportunities.

2.3

A uniform, simplified and standardised information system would ensure that such information is comparable and comprehensible, increasing market transparency and efficiency.

2.4

In order to fill this gap, and building on the previous experience of the KIIDs for UCITS, the European Commission proposes the adoption of a document containing short, comparable and standardised disclosures, to be drawn up by the product manufacturer.

2.5

The regulation is to apply to all complex products regardless of their form or construction that are manufactured by the financial services industry to provide investment opportunities to retail investors, where the return offered to the investor is exposed to the performance of one or more assets or reference values other than an interest rate.

2.6

The KIDs must be drawn up in accordance with the indications set out in the regulation, and the Commission is entitled to establish further specifications and information to be included by means of delegated acts. In the event of infringement of the legislation or non-compliance with the requirements laid down, manufacturers will be liable to compensate the loss caused to retail investors.

2.7

The regulation lays down procedures for submitting complaints and seeking redress and for timely and active cooperation between the competent authorities. It is up to the Member States to lay down administrative sanctions and measures that are effective, proportionate and dissuasive.

2.8

The transitional and final provisions stipulate, among other things, that the rules governing KIIDs for UCITS are to remain unchanged for a period of five years following the entry into force of the regulation. The proposed regulation will be reviewed four years after its entry into force, at which point a decision will be made on whether to continue with the provisions of Directive 2009/65/EC (2) which deals specifically with the disclosure requirements for UCITS.

3.1

Since its January 2008 opinion on the Green Paper on retail financial services in the Single Market (3), the EESC has been calling for measures to ensure that the mandatory information for retail investors is clear, exhaustive, essential and transparent, especially where packaged and structured products are concerned.

3.2

Adopting measures that can significantly redress the information imbalance between financial product manufacturers and retail investors is a pre-condition for creating a single financial market in which clear, accurate, straightforward and comparable information flows. The Commission's proposal is a step in the right direction.

3.3

The possibility of regulatory arbitrage between less strict and costly rules and other, more prescriptive ones, would distort the market, creating obstacles to the achievement of a genuine, transparent and efficient single financial market.

3.3.1

Adopting a standardised EU information model is crucial to facilitating the development of an integrated cross-border market. The current legislative differences between countries generate an unfair competitive advantage for companies operating in countries that impose no obligations, as they can offer, without hindrance, products that may entail serious hidden risks.

3.4

On these general grounds, the EESC agrees with both the reference to Article 114 TFEU and the choice of a regulation. The EESC has on a number of occasions spoken out in support of this instrument as the best option for regulating finance with a view to preventing the gold-plating and cherry-picking that typically takes place when directives on financial transactions are transposed. The application of Article 5 TEU on the principles of subsidiarity and proportionality appears fully grounded.

3.5

Information on possible profits, including any levies and commissions linked to the product, should be provided. If the financial product is based on different currencies, the exchange risk should be taken into account and the historic performance of the product and the official currency in which it is labelled should be calculated. Product information should include prices in the original denomination and in the currency of the country where the product is marketed. This would go a long way to helping retail investors understand and compare products.

3.6

In the EESC's view, it is essential that the supervisory activity of the relevant authorities, at both national and European level, be stepped up. It is seriously concerned at the Commission's view that the role of the European authorities under the current regulation does not require reinforcement. The increasing responsibilities they bear have not been accompanied by a proper assessment of the resources available. As at 9 October 2012, for example, the EBA had a total staff of 84 with which to carry out a very significant number of duties. Adding further tasks while ignoring the permanent state of crisis in which these authorities have to work could be seen as sending the opposite message to that intended by the proposed legislation.

3.7

The EESC underlines the major impact that the rules on information leaflets for UCITS investors have had. The market in Europe has received a major boost, and the transparency of the information tools (KIIDs) has enabled the market to function more effectively. The requirements set out in the KIDs are more advanced, and the Committee urges rapid movement towards a single model.

3.8

The EESC regrets that no mention is made of the implications regarding third country products, and urges the Commission to think about the need to explicitly include such a provision in the regulation. For such products, intermediaries rather than manufacturers should bear liability.

3.8.1

The 2007-2009 financial crisis was marked by the toxic products devised by major American finance houses. Sub-primes were revealed to be no more than very high-risk junk bonds, and the three main rating agencies were all mistaken in having considered them as reliable. For products manufactured in third countries to be sold, the liability of the product manufacturers, who cannot be directly bound by the European rules on KIDs, must be transferred to the sellers.

3.9

Financial market fragmentation is another problem that the present regulation can help resolve. The variety of rules has so far blocked real integration of national markets, and the cross-border market reflects the patchwork nature of regulation, pushing up costs and making it easier to sidestep stricter rules that are geared to protecting consumers.

3.9.1

Support for consumer financial education programmes is crucial. In an own-initiative opinion (4), the EESC argued that "financial education is clearly key to maintaining confidence in the financial system and ensuring the responsible consumption of financial products".

3.10

The EESC recommends that the impact assessments take account of the full range of rules being framed and their respective costs: unjustified over-regulation would cause incalculable loss not only to the financial industry, but to the entire economy. If finance grinds to a halt an unprecedented crisis could ensue, as demonstrated by recent events with a price tag in the hundreds of billions of euros and by the severe economic crisis affecting several countries.

3.11

In the Commission's proposal, sellers are mentioned only in terms of their liability and sanctions. There is nothing on the training requirements of the staff of companies selling financial products, or the need to severely curtail the link between the sale of specific products and the bonuses awarded to the best-performing employees. Since this aspect, of crucial importance, is addressed in the new MiFID directive, the EESC suggests that an explicit reference to the directive be inserted into the regulation.

3.11.1

The EESC has repeatedly pointed out that one of the main causes of the undiscriminating sale of toxic, unsuitable or high-risk products without proper information about them – causing enormous losses for savers – has been the irrational policy pursued by financial businesses and banks of awarding astronomical bonuses to managers on the basis of very short-term results.

3.11.2

Improper practices have been employed to obtain these results; these practices are now being penalised by the courts in the form of the enormous repayments that certain banks and financial companies are being forced to make to their clients. These include companies whose pay schemes are based on the sale, at all costs, of high-yield products for vendors, with targets being set for each sales point. Such commercial schemes may be appropriate for sausage-sellers, but not for banks using people's life savings!

3.11.3

In spite of the initiatives launched, it must unfortunately be acknowledged that certain improper practices continue unabated, even going so far as to manipulate reference rates, as in the recent Libor scandal, in order to generate exceptional profits. Such behaviour, concerning a very small minority of the European financial industry, besmirches the reputation of the entire system and the legacy of trust built up over years of work. The financial community as a whole must maintain extremely high and unwavering standards of business ethics. Banking associations must punish businesses and individuals severely if they violate the general principles governing behaviour, even excluding them from their meetings and banning them from carrying out banking activities in the event of serious infringements. All too often have they remained silent in the face of clearly illegitimate, and frequently also illegal, behaviour.

3.12

The EESC strongly urges the Commission to monitor the effectiveness of the sanctions that the Member States are to determine. There are numerous differences between national bodies of legislation concerning how seriously financial infringements or offences are viewed, stemming from the different economic and legal cultures of the individual countries. Since it is not possible to issue European laws, with accompanying penalties, in the administrative or criminal fields, the Commission must strive to make not only the rules, but also the sanctions, as uniform as possible. There is a real danger of shifting from regulatory to sanctions dumping, with the same laws but very different sanctions, leading operators to choose to work from the place where the risk is least. Work to coordinate common efforts is key to making regulation effective and efficient. Consideration should also be given to the various types of penalty, which are in some countries administrative and in others judicial.

4.1

Overall, the EESC considers the proposal to be balanced, but it requires improvement with regard to the missing aspects indicated in the general comments.

4.2

The EESC supports the option to focus attention on products with higher risk profiles so as not to burden the industry with unnecessary requirements to provide information documents that would not in practice serve any purpose.

4.3

The EESC welcomes the fact that the regulation clearly highlights the chain of responsibilities and shows who is tasked with drafting the KIDs. In the past, uncertainty over identifying such responsibilities has given rise to problems in seeking redress from those providing inaccurate or misleading information, leading to huge losses for retail investors.

4.4

The EESC endorses the choice by the Commission, for which it had long called, based on the solution adopted for UCITS of a short information document, written in a concise manner, in non-technical language that avoids jargon and drawn up in a common format comparable with other products. Article 8 provides a clear and exhaustive list of the information that the KIDs must contain, adding the real costs to be borne by retail investors.

4.5

This option, however, does not dispense with the need to press ahead with developing financial education (5) as part of the school curriculum, in informal education, among elderly people and for housewives. Particularly vulnerable savers do not always possess the necessary fundamental knowledge to fully understand even simplified KIDs. The EESC recommends that the Commission emphasise – possibly in new recitals to be added to the proposed regulation – the need to expedite efforts to introduce basic financial education for all.

4.6

The EESC appreciates this first attempt to bring greater transparency to the costs, risk profile and information on past returns of the products question or products that may be considered similar.

4.7

The obligation of timely provision of a KID so that retail investors are fully informed and aware of the ensuing risks is vital if the proposed regulation is to be effective. The EESC would point out that specific time limits for providing the document are not indicated. The form of wording "in good time before the conclusion of a transaction relating to the investment product" is not sufficient to ensure that retail investors have all the relevant information. The EESC is against allowing derogations for the provision of KIDs, especially those derogations concerning distance selling.

4.8

The EESC considers that it would be useful for the text of the regulation to refer to the withdrawal option in distance transactions, as is the case in financial transactions.

4.9

The EESC strongly recommends that a reasonable deadline be adopted and inserted directly into the text of the regulation, rather than leaving it to the discretion of subsequent delegated acts, which in turn generate uncertainty for the financial industry regarding application. Moreover, under the terms of Article 5 the document must be drawn up before the product is marketed and published in advance on the internet. There is no reason not to define a mandatory time limit at this stage, failure to comply with which would mean effective non-compliance with the regulation's aims and obligations. A period of at least one week before the transaction can be concluded would seem reasonable. This would allow all the necessary information to be found, and for advice and explanations to be sought, Investors would be adequately protected, and would have time to compare competing sales offers. The EESC does not agree with the use of delegated acts in this area; such acts should be kept to a minimum and should fit in with the form and substance of Article 290 TFEU, being used for non-essential matters where other instruments are not possible.

4.10

The EESC agrees with the provision of Article 9 on the need to keep marketing communications separate from documents containing key information and that such documents must not contradict the content of the KIDs. All too often, toxic products have been publicised as being safe – with the ever-reliable credit rating agencies playing a supporting role by handing out triple As all round. And these products have, for some reason, ended up in the hands of European savers.

4.11

The Commission has placed provisions concerning complaints, redress and cooperation between authorities in Chapter III, and administrative sanctions and measures in Chapter IV. Notwithstanding its general comments above, the EESC warmly welcomes the decision to provide a detailed definition of procedures, methods and conditions for adopting solutions other than law-based ones for disputes regarding retail investment in financial products.

4.11.1

Cooperation between the competent authorities is absolutely vital in the EESC's view. Several previous opinions have called not only for recommendations, but for mandatory rules obliging national authorities to offer the greatest possible cooperation allowed under national legislation and procedures. In the event of clear contradiction between laws, in keeping with the subsidiarity principle the conflicting national rule should be declared null and void.

4.12

Article 22 also contains a sentence that the EESC believes could lead to disputes in the future. The additional sanction of publication of the type of breach and identification of those responsible, which the EESC fully supports, is accompanied by the words "unless such disclosure would seriously jeopardise the financial markets". It is not made clear who is to assess the serious jeopardy. Is it the Commission, the national authorities or the European supervisory authorities? Neither is anything said about cases of breaches of obligations under the regulation that occur simultaneously in more than one Member State. Who is to decide? What happens if for one authority, publication does not jeopardise the financial market while for another it does? What procedure should be adopted? All these questions need to be resolved before issuing a regulation which, by its nature, must be straightforward, clear and immediately applicable, and the wording of which must remove the risk of unnecessary disputes that would be harmful to Europe's interests.

4.13

The Commission continues to issue proposals containing numerous delegated acts. The EESC has repeatedly questioned the legitimacy of these practices, the real need for them, and their consistency with the provisions of Article 290 TFEU for delegated acts and Article 291 TFEU for implementing acts. In this case too, the EESC considers that the Commission is putting forward solutions that touch upon essential regulatory matters. Article 8(2) for example details the presentation and content of each of the items of key information to be included in the document, possible additional content and a common model: in practice 90 % of the rules. The delegation under the terms of Article 10(2) concerns content and arrangements for reviewing and possibly revising information. Lastly, the delegation under the terms of Article 12(4) concerns the conditions for fulfilling the requirement to provide the key information document and the method and the time limit for the provision of the document, which has been criticised earlier in the present opinion.

4.14

The EESC questions whether these are really necessary and match the logic of the regulation under examination. It is understood that delegated acts are much easier to manage, but they must keep strictly to the provisions of the Treaty. The relevant Commission communication (6) states that "Article 290 of the Treaty on the Functioning of the European Union, as laid down in the Treaty of Lisbon signed on 13 December 2007 (hereinafter ‧the new Treaty‧), allows the legislator to delegate to the Commission the power to adopt non-legislative acts of general application to supplement or amend certain non-essential elements of a legislative act".

4.15

In the EESC's view, the Commission's proposals for delegated acts, on the contrary, represent essential elements of a legislative act.

4.16

Lastly, the EESC does not support the decision to retain the rules governing the disclosure obligations for UCITS unchanged for the next five years, and suggests that the Commission plan for a review within two years of the present regulation being adopted, with the aim of harmonising all the key documents for investors concerning financial products of all types as soon as possible.