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PRIIPS: the obstacle course

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The European PRIIPs regulation adopted in November 2014 has a clear aim: standardise pre-contractual information on packaged financial products offered to non-professional investors, as defined by MiFID II. This has proved more complicated than expected. CACEIS remains in dialogue with regulatory bodies to support its clients through this long process as best it can.

Eliane Meziani - Senior Advisor-Public AffairsThe PRIIPS (Packaged Retail Investment and Insurance-based Products) regulation requires the manufacturer of the product (investment fund, derivative, life-insurance-based investment product, etc.) to produce a standardised “Key Information Document” (KID) containing the basic information retail investors need in order to understand the product (whether a financial, banking or insurance product) and compare products.

PRIIPS therefore has two main aims: making products clearer, and easier to understand and compare “ultimately to help retail investors better understand their investment, and to promote this investment” says Eliane Méziani, Senior Advisor Public Affairs CACEIS.

Seven years on, where are we?

The regulatory saga continued in 2018 with the launch of a draft amendment and an initial public consultation with European Supervisory Authorities (ESAs).

Once this initial consultation was complete, the European Commission accepted the principle of exempting UCITS for another two years, giving ESAs time to arrange a new consultation between late 2019 and early 2020, this time on the regulation’s overhaul.

One year later, on 3rd February 2021, ESAs finally showed the Commission their draft amendments to the RTS (Regulatory Technical Standards), paving the way for an overhaul of the text.

Is the final version of PRIIPS nearly ready?

The procedure leading to revision of the PRIIPS regulation is now under way and will probably last at least until mid-2022.

According to the provisional timetable that we can expect, the Commission should adopt the RTS in summer 2021, starting a three-month no-objection stage during which the European Council and Parliament may object to the delegated text. Publication in the Official Journal of the European Union  will probably come no earlier than the end of Q3 2021, meaning that the measures would theoretically apply from early 2022,” Eliane explains.

In response to criticism over the complexity of certain aspects of the text, however, the Commission agreed in principle to a six-month delay after the formal adoption of the delegated act before it will require stakeholders to apply the reform, taking us to mid-2022.

This extra time will bring it into line with the entry into force of the RTS on 1st July 2022.

It also concerns a prorogation of the UCITS exemption until 30th June 2022.

It is worth noting that the European Commission has said it wants to avoid the publication of both PRIIPs KIDs and UCITS KIIDs (Key Investor Information Documents) for retail investors after this date.

It will introduce a technical “quick fix” to the legislation on PRIIPs (review of the regulation) and UCITS (review of the directive) to avoid duplication of the pre-contractual disclosures to retail investors through PRIIPs KIDs and UCITS KIIDs. Legislative proposals, which should not be an opportunity to revise the substance of texts, are expected in June 2021.

Is this enough?

CACEIS has used group action to call for a 12-month postponement – to the end of 2022 – that would enable affected stakeholders and service providers like CACEIS to optimise their handling of the thousands of documents to be revised, as well as the switchover from UCITS KIID to PRIIPs KID.

There remain other questions about how to handle institutional investors, who would still have the option of producing a UCITS KIID after July 2022: harmonisation in this regard would be ideal.

Florence Boix - Group Project ManagerCACEIS has also highlighted the need to relax the requirement to publish a PRIIPS KID from 1st July 2022 for funds that have published a PRIIPS KIID benefiting from the exemption within the last 12 months; this publication requirement could apply only from the date of the next KID review.

CACEIS’ position as an asset servicer is clear: there is still work to be done before we get an intelligible regulation.

Florence Boix, Group Product Manager at CACEIS, adds: “In the absence of final texts, most stakeholders in the financial sector that prepare KIIDs have taken a wait-and-see approach. CACEIS clients that manage UCITS ranges are only just starting to contemplate the technical and logistical changes needed to switch from UCITS KIID to the PRIIPs format.”

Aware of the impact that the documentation overhaul will have on management companies, their distributors and their clients, CACEIS is working to optimise its organisation and IT systems. “Our goal is to support our clients as best we can in outsourcing the preparation of their KIDs, and to facilitate their switchover plans to be compliant within the regulatory deadline,” Florence explains.

CACEIS offers modulable services, from calculating costs, fees and risk and performance indicators to producing the whole EPT file and PRIIPs KID in PDF format. These services will obviously evolve to ensure full compliance with the new RTS.

Another PRIIPs saga in the UK

In last October’s financial services bill, the UK government cited areas critical to the financial services industry’s competitiveness in a post-Brexit world. The PRIIPs regulation is one such example.

The UK Treasury has thus decided to extend the exemption for UCITS to produce a PRIIPS information document by five years, to 31 December 2026.

Will European UCITS still authorised for sale in the United Kingdom have to continue providing a UCITS KIID for UK investors, while  having to issue the new PRIIPs KID to EU investors? Would this give the Brits a competitive edge over the EU?” asks Florence.

To summarise, the PRIIPs saga is far from over. “The final chapter has not yet been written. The initial aim of making financial products more transparent and comparable for retail investors is not yet met,” says Eliane.