The European Commission has recently proposed more legislation affecting financial services. According to the European Commission “Lack of transparency, low awareness of risks, and poor handling of conflicts of interest have meant that consumers across the EU have been repeatedly sold investment and insurance products that were not right for them.” The Commission believes that further legislation is necessary “to improve consumer protection in financial services”.

The Commission proposed a draft regulation on key information documents for packaged retail investment products, aiming at improving quality of information that is provided to consumers when considering investments. If the proposal is adopted the so-called the 'Key Information Document' (KID) would be introduced in 2014.

This proposal is based on Article 114 of the TFEU, the internal market provision concerning the approximation of laws. The Commission has been extensively using this legal base for internal market legislation to expand EC competences to the detriment of the competences of the Member States. The measures proposed under Article 114 TFEU have to be adopted by the Council and the European Parliament (ordinary legislative procedure) with QMV required at the Council. It is impossible, therefore, to veto the proposal.

The proposal lays down harmonize rules on investment product disclosures for retail investors. It would harmonise member states’s investor protection and disclosers measures. The proposal intends to introduce harmonize rules for the way investors in the Union are informed about investment products. It remains to be seen whether the FSA’s planned measures are compatible with the Commission’s proposal.

The Commission’s proposal would introduce a new disclosure document the so called 'Key Information Document' (KID), intend to provide retail investors with the necessary information to consider and compare different investment products prior to an investment. Under the draft proposal every investment product manufacturer, including insurers, banks, investment funds managers, would be required to produce, free of charge, the above-mentioned document for each investment product, in accordance with the requirements laid down in the present proposal, and publish it on paper or a website, before the investment product can be sold to retail investors.

Hence, under the draft proposal, it would not be enough for every investment product manufacturers to simply offer the KID as it must be provided. This proposal entails, therefore, further administrative burdens to the finance sector. According to the European Commission’s impact assessment the KIDs would cost €171 million of one-off costs and around €14 million per year on going costs. However, according to the Financial Times, “One European investments lobbyist (…) said that the proposal could cost each large company a “seven figure” sum because of the additional investment required to produce the customised data.”

Moreover, the Association of British Insurers (ABI) although it supports “the European Commission’s aim to provide high levels of protection to consumers purchasing investment products”, it has raised concerns over the proposals. According to Maggie Craig, ABI’s Director of Financial Conduct Regulation, “Consumers should be free to decide whether or not they require financial advice. Requiring consumers to take advice when buying an insurance PRIP, will restrict their access to financial investments and their ability to make their own investment decisions, and will have a negative impact on long-term savings.” She stressed that “While the ABI is supportive of disclosure, there is no evidence of existing consumer detriment, and minimal future benefit, to warrant disclosure of commission on general insurance products."

The draft regulation provides uniform rules on the format and content of the key information document that must be produced by investment product manufacturers. It sets out the essential elements of the investment product, which should be described in the KIDs, including the risks and costs associated with the investment in that product. The information contained in the key information document must be regularly reviewed and the investment product manufacturer would have to revise the document accordingly.

It is important to note that the draft proposal leaves a lot of room for further harmonisation as the details of the information to be included in the key information document for different products as well as the presentation of this information would be decided by the European Commission through delegated acts. The Commission would be empowered, by the Council of Ministers and the European Parliament, to adopt delegated acts providing the details of the presentation and the content of each of the elements of information that the product manufacturer has to include in the key information document as well as the details of the common format. The detailed rules relating to the conditions and frequency of the review of the information as well as revision of the key information document would be also laid down in a delegated act to be adopted by the Commission. Hence, a lot of room has been left to the European Commission’s discretionary powers. Under Article 290 TFEU, the Council and the European Parliament have the right to reject Commission measures as well as to revoke the delegation of powers. Such delegated acts would only enter into force if the European Parliament or the Council has expressed no objection within a period of 2 months of the notification of the act. It is important to recall whilst before the entry into force of the Lisbon Treaty the Council alone was responsible for conferring such implementing powers and only a simple majority to express an objection was required, now it has to share this power with the European Parliament and a qualified majority is necessary to reject the act.

The draft proposal would also harmonise the liability of the investment product manufacturers, as under the proposal the retail investor would be able to hold the product manufacturer liable for an infringement of the present Regulation in case a loss is caused through the use of the key information document. The European Commission has proposed a reversal of the burden of proof, hence the product manufacturer would have to prove that the KID was draft in observance with the regulation whereas the retail investor would have to demonstrate that his loss has happened due to the use of the information in the key information document.

Moreover, Member States would be required to ensure that any breach of the present regulation would be subject to “appropriate administrative sanctions and measures” which “shall be effective, proportionate and dissuasive.” The member states’s competent authorities would be required to disclose the imposed administrative measures and sanctions to the public and to report them to EBA, EIOPA and ESMA. This would entail further administrative burdens to member states.