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Guindos Changes Risk Traffic Light Amidst Criticism From Banks

5 November 2015 – Cinco Días

The Ministry of the Economy is reforming the risk traffic light originally designed by the CNMV once again. It is reducing the number of colours and is resisting criticism from banks, brokers, insurance companies and pension fund managers with an avalanche of arguments. It is also reducing its robustness. The ministry led by Luis de Guindos has sent a letter to the State Council setting out his aim of approving the regulation before the general election.

The Ministry of the Economy picked up the gauntlet from the CNMV at the end of May. The supervisor, led by Elvira Rodríguez, responsible for ensuring the proper marketing of financial products, amongst other things, designed a first draft of the risk traffic light in September 2014. (Note, the CNMV is not responsible for the oversight of deposits, since they are looked after by the Bank of Spain, or pension funds and insurance products, since they are managed by the Department for Insurance and Pension Funds).

The draft circular was modified after it was subjected to public consultation. Initially, the standard comprised a five colour scale, in a style very similar to the labelling system used for the energy classification of household appliances in Europe. The colours corresponded to the letters A to D. The CNMV took into account most of the comments it received from the sector, such as increasing the number of risk categories from five to seven.

Several months passed and Elvira Rodríguez made a complaint in Congress on 27 May, flagging that the Ministry of the Economy had not yet sent the proposal to the State Council. The ministry of Luis de Guindos replied the following day, by publishing its own risk traffic light standard for consultation. As such, it withdrew the CNMV’s power to take responsibility for it. The ministry had updated the traffic light and added another risk level. (…).

Various consultations, discussions and criticism ensued, including reprobation from the sector that this standard was unnecessarily anticipating the European rules governing the fundamental data relating to retail investment products. Those rules, approved in 2014, will enter into force at the end of 2016. The Spanish Banking Association (AEB) for example, said that it is unreasonable “to bear the costs [..] of a domestic solution that will last for one year only, not to mention the considerable confusion that it may cause for consumers”.

The latest draft of the classification, which has now been sent to the State Council, has undergone a new metamorphosis. The number of colours has been reduced (from eight) to seven and a long introduction has been included to defend its legality in the context of the new European rules and to justify the powers of the Ministry of the Economy to design this regulation. The aim is for the standard to be ready during this parliament. (…).

Original story: Cinco Días (by Pablo Martín Simón)

Translation: Carmel Drake