The Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation : a study of its impact on a small country

Abstract

The 2008 financial crisis has led investors to significantly lose their confidence in the financial industry. After this crisis, regulators have carried out reforms in regulations to rebuild consumer‟s confidence and enhance consumer protection. Regulators have introduced the Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation amongst others to meet these shortcomings. This study investigates the impact of the PRIIPs regulation on a small country, such as Malta. Research showed that the main impacts when a new regulation is introduced are harmonization, regulatory value, information technology, expertise, consumer education and product intervention powers of the regulator. To determine the impacts of the PRIIPs regulation, the study was carried out amongst local PRIIPs manufacturers who fall within scope of this regulation. A face-to-face structured interview was done with participants from within life insurance companies, credit institutions and fund managers.

Findings showed that expertise, consumer education and misconception are significant impacts in Malta. It implies that the local scenario found it difficult to implement this regulation due to lack of expertise available in this area. As a result financial institutions considered outsourcing this activity. Consumer education was also a significant impact whereby retail investors are reluctant to take on more financial education in this area. The retail investor still relies on the financial advisor‟s opinion to take an investment decision. Misconception also emerged as one of the themes from the interviews. It is suggested that effective communication and guidelines are consistent throughout.

This research adds to the absence of academic studies found in this area. Moreover it provides suggestions for further research to be carried out. These suggestions will aid the financial industry to understand and prevent such impacts on a small state.