By Huw Jones
LONDON (Reuters) - The European Parliament has slammed the brakes on a reform aimed at helping investors to compare financial products, saying it should be changed to avoid misleading people and that the start date should be pushed back.
It is the first time the assembly has rejected rules written by the bloc's executive, the European Commission, and will come as a warning to officials and regulators to work pre-emptively with lawmakers in future.
The rules flesh out a new EU law that will cover a 10 trillion euro ($11.25 trillion) market. The law on packaged retail and insurance-based investment products, or PRIIPs, has already been approved and is due to come into force in January.
The Commission had sought to win over parliament with last-minute amendments but the assembly voted on Wednesday by 602 to 4 to send the rules back for changes and asked that it consider postponing the start date.
"The European Commission will now have to go back to the drawing board and come up with something that will actually deliver," said Syed Kamall, a British centre-right lawmaker.
The rules will force banks and insurers to use a standard "key information document", or KID, to help consumers to compare products in what are often national markets dominated by mutual funds.
The KID must accompany each savings product, derivatives and life insurance policy. It must be no more than three sides long and use jargon-free language to show potential future performance and total costs.
The new KID will replace a patchwork of documents given to customers for financial products including life insurance, mutual funds and other instruments, but the lawmakers said that the proposed adverse scenario to be used to indicate the potential performance of a product was too optimistic.
EFAMA, which represents the mutual funds industry, and Insurance Europe, which represents insurers, both called for a postponement in the application date but not in the underlying law.
"Traditionally, national authorities and stakeholders had two full years to implement European legislation," said Insurance Europe's director general, Michaela Koller.
The German investment funds association BVI called for the start date to be pushed back to January 2018, saying it would be "absurd" for the PRIIPs law to come into force without the implementing rules.
Britain's Investment Association trade body, meanwhile, urged the Commission to amend the presentation of costs and charges and to improve the performance disclosure by adding historic performance alongside future scenarios.
European Commission spokeswoman Vanessa Mock said that the PRIIPs law is a self-standing piece of legislation that can still be implemented from Jan. 1.
"We still want the KID to be applied in time for the sake of consumer protection," she said.
($1 = 0.8888 euros)
(Additional reporting by Simon Jessop; Editing by David Goodman)