The ambitions of the European Commission appear to have no bounds. Fresh from their rescue of the Greek and Irish economies and their establishment of unifom solvency rules for all insurance companies across the continent the European Commission have turned their unlimited talents to the problem of investment products – in particular how to commoditise them to the point where they can be easily compared across the European boundaries.
The latest consultation on the legislation of the sale and distribution of PRIPs (Packaged Retail Investment Products), is designed to somehow reduce the risk involved in the purchase of investment products by providing more information to the general public at the point of sale.
A noble aim, but is it really possible to achieve it? Can they get to the point where investment products have a complete list of the ingredients on the outside like a packet of crisps; making people aware of the dangers inside such as the amount of e-numbers and the fat and sugar content?
It’s hard to see how this aim can be achieved. Despite the noble efforts of the commission, no amount of controlling regulation can really ensure that all risks inherent in a ‘risk’ investment are truly understood by the average consumer.
In an effort to prove that enough beauraucracy will solve any problem, the commission have started a consultation process on PRIPs – Packaged Retail Investment Products. The goal is to establish a harmonised way of selling and disclosing that will make products comparable across the EU. This, they believe, will help to increase consumer confidence in the products, a confidence they believe was badly damaged by the recent global meltdown.
And it is true that recessions in most western democracies has made people wary of financial products. But that is not what the PRIPs consultation is proposing to tackle. Instead, they seem to believe that the primary reason that consumers are steering clear of financial products is that there is a lack of consistency in the key sales documents.
This is hardly a credible position. When day after day news broadcasts cover the banking failures globally and every increase in taxation is blamed on the need to bail out the banks, it’s hardly likely that consumer fear is being driven by a lack of point-of-sale information.
So once again the bureaucrats’ syllogism comes into play; We must do something. This is something. Therefore, we must do this. As a result a new layer of complexity in sales of packaged retail products is on the way for insurers currently battling with Solvency II and the Retail Distribution Review. It’s enough to make you turn to drink....without or without PRIPs.