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Europe’s Bureaucrats Go Nuts

European Bureaucracy

New European rules that have just come into operation require providers of a range of investment and insurance-based products to provide information so retail investors can understand and compare their key features, risks, rewards and costs.

One requirement is that they publish a range of future returns that the investment may deliver, depending on different market conditions.

A good idea that, because the rules are so badly designed, produces ridiculous consequences:

· One example offered by the London asset manager ETF Securities is that annualized returns of more than 525 billion per cent could be delivered in a favourable investment scenario for a three times leveraged note linked to US natural gas prices;

· Less extreme but equally absurd projections of annual returns of more than one million per cent are appearing in promotional material starting to appear following implementation of the new regulatory requirements.

You understand… these projections are not the product of companies’ marketing hype, but are legally-required projections.

It’s what happens when some ultra-short-term investment products where the recommended holding period is a single day, such as leveraged exchange-traded notes, could achieve a return that is realistic over one day, but when compounded at the same rate over, say, several years, is just… absurd.

The main trade body representing issuers in Europe of structured investment products has asked regulators quickly to change the new rules. “We are keen that investors avoid taking any decision on the basis of information that obviously is nonsensical,” says ESIPA’s Thomas Wulf.

What is mind-blowing is that such incompetent people have been put in charge of “protecting” the public.

image by David Parkins

copyright: Martin Spring of OnTarget

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