A German trade body has claimed that because of “alarming deficiencies,” the new rules on European investment fund that are designed to protect the retail investors should be delayed for two years.
The most recent”Priips” (packaged retail investment and insurance-based products) regulations would force the providers of mutual funds to inform the retail investors on how a fund may perform in a series of market conditions, instead of simply providing their historic performance information.
However, the German Investment Funds Association (BVI) has stated that the new rules must be postponed until January 2022, as they are, in fact, “misleading” the investors.
In a statement, the BVI explained: “Investment funds are to set out three scenarios for an investment fund’s performance – however on the basis of past data this would give rise to distortions.”
It added: “For example after a bull run of several years on the stock market followed by plunging prices, the resulting scenarios will be too positive and take insufficient account of current negative developments.”
It also said the regulations make use of a “not customary” method of calculating the transaction costs, which can result in incorrect or even negative costs that reported to the investor.
The Investment Association of the United Kingdom has also raised similar concerns.
A spokesperson said: “From a positive starting point of trying to make different products comparable, the Key Investor Document (KID) now makes it almost impossible to compare similar products.”
The spokesperson added: “Performance scenarios and the way charges and transaction costs are presented are exceptionally difficult for customers to understand. Given the scheduled review, it is essential that regulators revisit these issues and ensure that the KID is not applied to investment funds in its current form.”
The European Securities and Markets Authority, the EU regulator, said that it maintained that its methodology was proved to sound in the absence of “concrete evidence.”