Structured Products Europe: Prips scope could be extended, says EC official

European legislators are discussing the EC’s proposals on packaged retail investment products – and some believe the scope of the regulation should be extended

New European regulations on packaged retail investment products (Prips) should be agreed by legislators by the third quarter of next year, according to Tim Shakesby, seconded national expert, internal market and services, at the European Commission (EC). But a number of issues need to be resolved first – including the exact scope of the regulation.

Speaking at the Structured Products Europe conference in London this morning, Shakesby said there was broad consensus among legislators on the Prips proposals, published by the EC on July 3. However, there has been some debate in both the European Parliament and Council of the European Union on whether the rules should be extended to cover all retail investment products, including shares, deposits, pensions and savings products.

"The view of the parliament is generally that it should cover everything, and I'm pretty sure that is where their report will be. They might concede on pensions, but certainly shares, bonds, whatever, should be covered under the same framework. And the council probably will be more focused on packaged products. So we will see how that develops," said Shakesby.

"Our concern, and the reason why we did not produce a proposal covering everything, was to try and keep this manageable, and also to try and focus on products rather than assets. But I can see that we might need to broaden it, so we will need to think about how to make this work if it covers everything."

Other areas of debate include the issue of liability, and whether to include explicit rules on product design and governance within the regulation. The liability issue is particularly problematic, Shakesby said. Essentially, legislators want to ensure there is some liability attached to the key information document (Kid) required under the Prips rules. However, this could cause the Kid to end up resembling a complex legal document, as product manufacturers look to cover themselves against litigation.

"I would expect this to develop in the negotiation. I don't think the text of the commission will remain as it stands – this is one of the areas where there will be development. I would think the parliament will take a fairly strong line on this, as they want to see some liability attached. We have always been quite clear that there is a challenge here: when you are producing a communication document, if you attach too many legal consequences to it, then it becomes a legal document," he said.

Some members of the European Parliament are also keen to include rules on product governance and design within the regulation, said Shakesby – and he acknowledged there could be changes in the regulation to reflect this. "I think it is relatively likely there will be some development in this area, so everyone needs to think about what would make sense and what wouldn't. There are obviously very different ways of approaching this point."

The European Parliament's rapporteur on the Prips regulation is expected to publish a report before Christmas, Shakesby said. A first compromise text from the council is also likely before the end of the year, he added. A trialogue negotiation between the parliament, council and EC would then follow, with a final set of rules likely to be agreed by the third quarter of 2013, he said.

"There is a degree of uncertainty in Brussels at the moment around all negotiations because of the banking union debate that is under way. This takes priority over everything, and so there is some uncertainty around the timing. But having said that, from an early view on the discussions, I would say a compromise would not be too difficult to achieve because it is a relatively consensual file and there seems to be a fair degree of political interest in achieving a compromise. So I would expect to have a position by the summer of next year."