fpmi rejects legally-mandated standardization of product information sheets
09. Mar 2010, Munich Financial Centre Initiative
The Munich Financial Center Initiative (known by its German abbreviation of ‘fpmi’) regards legislation standardizing product information sheets as being counterproductive. Instead of achieving its objective of improving consumer protection, it would in fact weaken it.
On January 1, 2010, the documentation of consultations involving financial investments became mandatory. This move has been accompanied by an ever-greater number of banks providing their customers with product information sheets prior to their entering into a contractual relationship with them. These sheets are designed to be quick and easy-to-understand briefings offering investors all the information needed to appreciate product features and risks. The forms and contents of such sheets depend on and depict the natures and thrusts of such products. These sheets enable providers of securities-related services to meet their legal obligation to dispense in an honest and clear way information on their products. Their meeting of this obligation is attested to by auditors not affiliated with them.
Legislators are currently considering passing regulations which would standardize such product information sheets. FPMI views these proposals as being counterproductive. The legislators’ insistence upon a schematization of contents and of depiction would not take into account the differences existing among these products, and would thus reduce the clarity and comprehensibility of the sheets. The standardization would also give rise to the misleading impression of these products’ having comparable functions and of their bearing similar levels of risk. “Consumer protection would not be in any way strengthened by such regulations,” comments Dr. Christine Bortenlänger, fpmi’s speaker. “Quite the opposite. We at fpmi view such regulations as having the potential to weaken it.“
Instead of such regulations, fpmi is calling for the financial services industry’s undertaking under its own initiative an audit of its product information sheets. This audit would identify how these sheets’ transparency and clarity can be improved, and how they could be standardized for categories of products.
The Initiative notes that the enacting of national-level legislation is, in any case, unnecessary, as the EU is about to introduce Key Investor Documents (KID). As their names suggest, the documents will provide investors, in standardized forms, with key information.
An exception to the above is constituted by the products offered on so-called “gray markets”. These are largely unregulated. FPMI supports these products’ being thoroughly audited by supervisory authorities. The Initiative is also coming out for legislation governing the contents of materials offering such products for sale. These moves would increase such products’ transparency and would thus be an effective way of better protecting consumers.
On January 1, 2010, the documentation of consultations involving financial investments became mandatory. This move has been accompanied by an ever-greater number of banks providing their customers with product information sheets prior to their entering into a contractual relationship with them. These sheets are designed to be quick and easy-to-understand briefings offering investors all the information needed to appreciate product features and risks. The forms and contents of such sheets depend on and depict the natures and thrusts of such products. These sheets enable providers of securities-related services to meet their legal obligation to dispense in an honest and clear way information on their products. Their meeting of this obligation is attested to by auditors not affiliated with them.
Legislators are currently considering passing regulations which would standardize such product information sheets. FPMI views these proposals as being counterproductive. The legislators’ insistence upon a schematization of contents and of depiction would not take into account the differences existing among these products, and would thus reduce the clarity and comprehensibility of the sheets. The standardization would also give rise to the misleading impression of these products’ having comparable functions and of their bearing similar levels of risk. “Consumer protection would not be in any way strengthened by such regulations,” comments Dr. Christine Bortenlänger, fpmi’s speaker. “Quite the opposite. We at fpmi view such regulations as having the potential to weaken it.“
Instead of such regulations, fpmi is calling for the financial services industry’s undertaking under its own initiative an audit of its product information sheets. This audit would identify how these sheets’ transparency and clarity can be improved, and how they could be standardized for categories of products.
The Initiative notes that the enacting of national-level legislation is, in any case, unnecessary, as the EU is about to introduce Key Investor Documents (KID). As their names suggest, the documents will provide investors, in standardized forms, with key information.
An exception to the above is constituted by the products offered on so-called “gray markets”. These are largely unregulated. FPMI supports these products’ being thoroughly audited by supervisory authorities. The Initiative is also coming out for legislation governing the contents of materials offering such products for sale. These moves would increase such products’ transparency and would thus be an effective way of better protecting consumers.