The European Commission has kicked off its long-awaited review of the PRIIPs Regulation. Our Regulations Manager Mikkel Bates takes a look at what this could mean for fund groups.
The original Regulation, back in 2014, said that it should be reviewed by the end of 2018 and then, when asked to submit revised Regulatory Technical Standards (RTS) last summer, the board of the insurance regulator EIOPA said the Level 1 Regulation needed to be reviewed instead of tinkering around with the Level 2 RTS.
In January this year, the Commission conceded EIOPA’s point to some extent, accepting that “this review is a priority for the Commission, and it will take place as soon as possible”, but not until the results of a cross-sectoral study on disclosure for retail investors, due by the end of 2021, could be incorporated in it.
When I say it has kicked off the review, what it has really done is book the pitch for a fixture with a kick-off time some way off, as it has asked the European Supervisory Authorities (ESAs) to go away and find a load of information the Commission thinks it will need for its review and come back by 30 April 2022.
The advice the Commission is seeking is as follows:
1) Information on the use of PRIIPs KIDs, including:
- the number and type of products and their market share;
- developments and trends in the market for PRIIPs;
- the extent to which PRIIPs KIDs are used by advisors to choose the products they offer;
- the extent to which marketing information aligns with or differs from PRIIPs KIDs.
2) Information on the comprehension alert, and whether investors and advisors consider it.
3) The practical application of the PRIIPs Regulation, including:
- the costs per PRIIP of complying with the Regulation, including manufacturing, reviewing, revising, and publishing PRIIPs KIDs;
- the extent to which the PRIIPs Regulation is applied in a consistent manner across the EU;
- the supervision of PRIIPs KIDs, such as the percentage of cases where inaccurate PRIIPs KIDs were identified by regulators;
- the number of relevant mis-selling events before and after the introduction of the PRIIPs KID.
4) An assessment of the effectiveness of sanctions for infringements of the PRIIPs Regulation.
5) An assessment of the extent to which the PRIIPs regulation is adapted to digital media, including:
- the use of physical and digital media for delivering or displaying PRIIPs KIDs;
- the preferred digital or physical media for retail investors to access and read PRIIPs KIDs;
- whether the approach taken on digital media in the Pan-European Personal Pension (PEPP) Regulation is appropriate for PRIIPs KIDs.
6) An examination of the scope of the PRIIPs Regulation:
- whether the exemption for pension products, sovereign and public body issues and specialist mortgage-related and small credit institution products should be maintained;
- whether the scope of PRIIPs should be extended to other financial products.
So it looks like pretty much every aspect of the original Regulation is up for review, except there is no call for advice on the extent to which retail investors use past performance when assessing products. The ESAs were bold enough to suggest this in their latest RTS, but acknowledged that the Regulation didn’t allow for its inclusion, so compromised by putting it on a separate document and signposting that from the KID.
The current plan is for the new RTS to go live and for PRIIPs KIDs to replace UCITS KIIDs in the EU on 1 July 2022. If the Commission then starts its review of the Regulation shortly after next April, it looks like there could be PRIIPs II sometime in late 2022 or early 2023; allowing for a year’s lead time, that means further changes to PRIIPs KIDs at the end of 2023 or sometime in 2024.
Of course, this changes nothing in the UK, where the FCA is currently consulting on its own changes to PRIIPs KIDs, as we wrote about here, including the removal of the future performance scenarios, but without replacing them with anything on past performance. It has, however, included, in square brackets, a section in its proposed RTS “to illustrate what a requirement to display past performance information could entail”.