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EU demands crisis prognoses from asset managers

The European Commission will henceforth require that asset managers provide investors with prognoses for the funds' performance in case of a new financial crisis.

Asset managers now have to deliver estimates of their performance in case another financial crisis should befall the market.

This is the essence of a new rule presented by the European Commission last Wednesday after negotiations with the European Parliament. The main purpose of the legislation is to increase consumer protection, Financial Times reports.

According to the newspaper, asset managers will now need to make sure that that investor materials contain prognoses of the funds' expected performances in times of crisis. The legislation requires asset managers to forecast their performance based on three market scenarios ranging from "unfavorable" to "good".

However, they will not be required to include their past performances in the investor materials, as industry lobbyists had otherwise called for as an alternative to the uncertain crisis prognoses, but the Commission dismissed this.

Open to interpretation

The new rule is part of the consumer legislation Packaged retail investment and insurance products (Priips), which is supposed to make it easier for investors to compare investment products across asset classes.

The initiative delights German parliamentarian and member of the European Parliament committee for economic and monetary affairs, Sven Giegold:

"This is very good news for investors," he says to Financial Times.

However, not everyone is celebrating the new rule. Both investor rights union and asset managers have rung the alarm due to concerns over unnecessary complexity brought on by the rule, which could confuse consumers and ultimately put a damper on investments.

Martin Bamford, head of independent counseling firm Informed Choice, says to Financial Times that "broadening the contents of information documents by adding stress test data and a number of forecasts, it will only add to the amount of information that investors will ignore."

Along the same lines, Justin Bates, asset management analyst at Liberum, says that the rule invites to interpretation, and would as such be "impossible to model unambiguously".

English Edit: Marie Honoré

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