5 - Disclosure

Summary

Disclosure and EC investor protection

The retail market disclosure regime

Disclosure, with its ‘self-help’ connotations, is strongly associated with the empowerment model. It forms a central element of current retail market policy internationally, reflecting the ingrained assumption that disclosure can support better decision-making and stronger market-based saving; this assumption is evident in the UK regime by the FSA's placing of clear information at the heart of its Treating Customers Fairly initiative and of its regulatory and supervisory strategies generally.

The post-FSAP EC retail market disclosure regime for the intermediated and product-based transactions which strongly characterize the EC retail market has two dimensions: investment products; and investment services. Product disclosure is primarily a function of the UCITS regime. But it is also addressed by MiFID's disclosure requirements for the ‘financial instruments’ in respect of which investment services are provided, and by the Prospectus Directive, particularly with respect to structured securities but also with respect to direct investments and execution-only sales generally. Services disclosure is governed by the Distance Marketing of Financial Services Directive and MiFID, which address marketing communications, pre-contractual and pre-service disclosure and best execution disclosure. Disclosure is, however, employed across MiFID; execution-only services, for example, can be offered only with respect to ‘non-complex’ products, which determination depends in part on whether ‘adequately comprehensive’ information is available such that the ‘average retail investor’ can make an informed judgment about the product (MiFID Level 2 Directive, Article 38(d)).