In a statement responding to the publication of the latest drafts of the packaged retail investment products (Prips) and insurance mediation directive (IMD2) regulations, released on 3 July, the association took the opportunity to highlight its concerns over the proposed measures on adviser remuneration.
It said: “AILO has deep concerns in relation to the commission’s proposal to ban commission payments for independent advice.
“AILO presumes this is to maintain consistency with the MiFID proposals, although MiFID will not be voted on until later in 2012. Research undertaken by AILO has revealed that a commission ban can practically eliminate the independent intermediary channel and thus lead to market concentration in tied channels.”
AILO stated it will urge policy makers to reconsider whether other measures, such as high qualification standards and appropriate suitability and disclosure rules, present a better alternative to address conflict of interest concerns in relation to commission.
In March this year, AILO wrote to Sharon Bowles who chairs the European Parliament’s Economic and Monetary Affairs Committee, to warn over potential “unintended consequences” stemming from the interaction between Mifid II and other European Union (EU) financial services legislation.
The trade body advised against including similar investor protection and commission prohibition provisions to those set out in Mifid II, in other EU legislation – specifically Prips and IMD2.
New Prips draft
The latest Prips draft meanwhile, contained the long-awaited basis for the structure and content of a new disclosure regime through the key investor information document (Kiid) – a two page easy-to-understand document.
The rules, scheduled to go live by 2014, will apply to insurance products, investment funds, structured products, and life insurance with an investment element, and the Commission had outlined how each Kiid will provide information on the product’s main features, as well as the risks and costs associated with the investment in that product.
“Information on risks will be as straightforward and comparable as possible, without over-simplifying often complex products. The Kiid will make clear to every consumer whether or not they could lose money with a certain product and how complex the product is,” the Commission also explained.
AILO stated that it specifically welcomed the inclusion of all life assurance products with an investment content or surrender value in the new regime, and it reiterated its support for an inclusive approach in the interests of a level playing field.
It was also important, said AILO, that the detailed information rules to be developed under Prips “properly reflect the unique value of an insurance promise. Insurers provide benefits such as the security of a lifelong annuity and they back such promises by significant capital”.
AILO plans to engage in the consultation process on the detailed information rules “to ensure that these advantages, as well as the products’ costs, will be clearly understood by the consumer”.
The Prips draft also dealt with the complicated issue of what AILO calls “so-called portfolio products where the value of the insurance policy is linked to a number of internal or external investment funds selected by the policyholder or their adviser”.
AILO further stated its intention to contribute to the discussion on how disclosure can most efficiently be achieved where there is a wide investment choice and there is a risk that unnecessary information could confuse the consumer.
IMD2
In relation to IMD2, AILO stated that the latest draft clarifies a number of points of concern to its members on which representations have been made. These include extending the scope to cover all distribution channels and clarifying the responsibilities of host state regulators and networks operating across borders.
“The creation of a central registry of intermediaries who passport on either a freedom of services or establishment basis is also to be welcomed, as this will enhance the development of the single market,” AILO stated.
The IMD2 draft also amends the definition of a tied intermediary by including ties to insurers and to other insurance intermediaries, i.e. networks. AILO further welcomed the proposal that tied intermediaries may in future offer competing products from other insurers.
