Bonds are one of the oldest debt instruments used to raise capital. In addition to plain vanilla bond, we are nowadays familiar with several other bond structures such as subordinated bonds, hybrid bonds and structured bonds. Such bonds are no longer considered a safe investment product, as many retail investors mistakenly believe.
As financial crisis seriously affected trust of retail investors in European capital markets, the recent changes in European financial legislation aim to strengthen investor protection. First, European Commission proposed changes to the prospectus regime that has often been criticized due to the expensive, complex and time-consuming drafting process of prospectus on one hand and ineffective investor protection due to the overload of information on the other hand. Second, the new PRIIPs Regulation will introduce an additional obligation for issuers of structured bonds to prepare a key information document for retail investors. The aim of this short and standardized document is to provide retail investor with all information needed to make an informed decision. Third, MiFID II will require issuers to comply with new product governance rules. To address retail investor protection concerns, MiFID II introduces independent investment advice, the already mentioned product governance rules and new intervention powers to national authorities and ESMA.
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