Small investors should get a Key Information Document (KID) giving clear, comparable and complete information on any investment product before signing a binding contract, said Economic and Monetary Affairs Committee MEPs voting on a draft law on Monday. The EU investment market is worth €10 trillion, so unsuitable investment products harm the economy, as well as small investors’ interests, they add. Parliament will put the rules to a plenary vote before fine-tuning them with EU member states.
The committee approved the KID rules by a large majority, but did not give rapporteur Pervenche BERÈS (S&D, FR), a mandate to open negotiations with EU member states immediately. Regretting the delay as a result of the issue having to pass by the full House first, she said that this would harm small investors.
Two-page A4 standard format KIDs should be given to all small investors, to help them to understand and compare investment products, said the committee. KIDs should make no reference to advertising material and should be prepared by a clearly identifiable entity that created the product, it added.
The new rules should make all risks clear and enable small investors to compare products. Packaged investments can benefit small investors by spreading risks across many different economic sectors or underlying assets. They can also enable them to engage in investment strategies that would otherwise be inaccessible to them. However, packaged products may also mislead small investors, by focusing on immediate gains and hiding future risks.
The rapporteur agreed by way of compromise to exclude from the rules deposits, securities and insurance products which do not offer a surrender value.
The information in the KID should be regularly revised by its creator, especially where any changes made to the investment product could affect risk assessment or value added. The investment broker’s fees would be stipulated in an annex to the KID.
KIDs must not be misleading. If a small investor could show that a loss was caused by identified information in a KID, then the investment product manufacturer could be liable under civil law.
Competent authorities designated by EU member states would be able to impose penalties such as suspending or prohibiting the sale of a product, issuing a public warning and administrative fines of up to 10% of the investment product manufacturer’s total annual turnover or up to €5,000,000 on individual persons.
Parliament will need to put the rules to a plenary vote before they can be fine tuned with member states.