With the new year, two European standards came into force: the new PRIIPs Regulation and the law transposing the MIFiD 2 Directive. Two standards intended to increase the level of protection and transparency for investors.
THE NEW PRIIPS REGULATION
The PRIIPs regulation is applicable to financial instruments such as derivatives, certificates, covered warrants, ETF / ETC / ETN, structured bonds. It requires the intermediary to make available to its customers a document called KID (Key Information Document), created by the issuer.
The KID, briefly written and standardized, is part of the offer documentation and is used by the investor to know the main characteristics of the financial instrument.
THE MIFID DIRECTIVE 2
MIFID 2 is the discipline which revises and expands the legislation already in force with three innovations:
increases transparency on the costs of each investment. In fact, before placing an order, the costs will be shown, both for listed instruments (shares, bonds and derivatives) and for mutual funds and SICAVs.
Finally, the securities account statement will be made available online in the dedicated area or sent at least quarterly.
COMMUNICATION OF POTENTIAL LOSSES
For operations on derivatives, certificates, leveraged ETFs, etc., the legislation finally introduces an obligation relating to liabilities. The sending to the customer of a specific communication relating to the exceeding of the 10% threshold and multiples of 10% of potential liability becomes mandatory.
The first is the following: if this is what is meant by safe investments, I do not believe that I am interested in investing in this type of product; if a law is needed to force those who sell me something to explain in writing what they are selling me, there is something unclear and potentially dangerous in that object or service or whatever it is.
The second is that the more complex and convoluted the mechanism, the less it will be possible to understand how to invest and where to invest. We will increasingly rely on those who handle these financial instruments by profession.