The European Union plans to introduce the Key Information Document, a shortform document that will make investing in structured products easier.
The European Union has spent the last year in discussions with bankers, lawyers and trade associations about the introduction of the Key Information Document (Kid), a short form summary of the terms and conditions and risks and rewards on offer from each structured product that is offered to investors.
The roundtable panel includes those who have played an important role in the negotiations with the European Union, and they are:
- Tim Hailes, head of the joint associations committee and associate general council, structured products, at JP Morgan;
- Richard Metcalfe, senior policy director at Isda;
- Adriaan Goosen, director, legal, at Deutsche Bank;
- Andrew Sulston, partner, ICM, derivatives and structured finance at Allen and Overy; and
- Simon Bladon, director, legal, at Barclays Capital.
The panel was moderated by Richard Jory, Editor of Structured products magazine and was conducted on April, 6, 2010 at the Incisive Media studios in Broadwick Street, London.
Looking for the Crib Sheet
If someone could create a short form document of, say, three or four pages that could alert retail investors to the proceeds and pitfalls of a structured product, then regulators could relax, investors could do their own simple risk-reward analysis and then sleep at night, while product manufacturers could learn to deal in plain English.
Can one size fit all?
It would be a mistake to say one size should fit all, a fact that the European Commission has acknowledged. The EU’s approach has been to acknowledge that there will be some level of prescribed text, prescribed format, but balanced to some extent with principles-based rules – that is reassuring.
How to Trigger the Kid
The European Commission has moved away from its previously held position, which was that it’s really the product manufacturer’s responsibility. Then, they have said there is an alternative approach that is more flexible, which could envisage producers, product manufacturers, agreeing among themselves who will do it.
Interaction between the Kid & online technology
Retail investors increasingly access information online. Secondly, web-based technology is permissive – it allows for a higher degree of investor engagement and understanding than your traditional hard copy, two-dimensional documentation.
Will past performance get a look in?
You can helpfully illustrate how an investment operates as compared with just buying a barrel of oil or a basket of shares or whatever it may be, by using past performance data and marching it through time. This sort of information is very useful and there was a slightly puzzling trend at one stage in the European debate to try and say that sort of information is useful for traditional investments but not for structured products.