European policymakers have agreed on draft rules that would introduce new short, standard, plain language disclosure documents for all retail investment products.
The European Parliament and Council of Ministers announced that they have reached a deal on draft rules that will require financial firms to provide retail investors with comparable summary disclosure documents for all investment products. Under the rules, “clear, comparable and complete information” on investment products would have to be provided in a mandatory, three-page Key Information Document (KID).
Similar to the Canadian Securities Administrators’ efforts to require mutual funds and, later this year, exchange-traded funds (ETFs), to provide simple, plain language disclosure through the new Fund Facts documents, European retail investors would have to be given the new standardized KIDs upfront, before they make an investment decision, “to help them to understand and compare packaged retail and insurance-based investment products, estimate the total cost of their investment as well as be aware of its risk-reward profile.”
The new rules would apply to all investment products that are targeted at retail investors, but not to traditional life insurance products that are payable upon death, or traditional deposits.
The KIDs will also tell investors whether their investment will contribute to any projects with environmental or social aims. And, the documents are to include a “comprehension alert” warning that “you are about to purchase a product that is not simple and may be difficult to understand”.
Investors will also have a right for civil action against a product manufacturer for misleading information included in the disclosure.
To take effect, the new rules must be approved by the full European Parliament during its forthcoming plenary session in April, and endorsed by the member states.