The European Securities and Markets Authority (ESMA), the European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA) have submitted draft regulatory technical standards (RTS) on amendments to the key information document (KID) for PRIIPs.
The aim of the Packaged Retail and Insurance-based Investment Products (PRIIPs) EU regulation, introduced in 2018, is to standardise pre-contractual information regarding packaged financial products offered to non-professional investors.
The regulation requires every product manufacturer and distributor to provide retail investors with a KID in order to strengthen investor protection and improve the investment decision and selection process.
The European Supervisory Authorities' (ESAs) draft RTS submission was made on 3 February after a request from the European Commission in December last year for EIOPA's board of supervisors to further analyse the draft RTS.
The commission provided the ESAs with a six-week period to submit an RTS to amend the KID.
While some national competent authorities (NCAs) at EIOPA’s board continued to express reservations on the draft RTS, they supported the proposal based on the further details provided by the commission on their approach to the broader review of PRIIPs Regulation.
In a letter to EIOPA, the EC said: “This review is a priority for the commission, and will take place as soon as possible, taking into account the results from the cross-sectoral study on Disclosure, Inducements and Suitability Rules for Retail Investors launched in September 2020 and due by end 2021.”
The review will thoroughly examine the application of the PRIIPs framework, including how to achieve better alignment between PRIIPs, Insurance Distribution Directive and the second Markets in Financial Instruments Directive (MiFID II) regarding provisions on costs disclosure as well as the scope of products as foreseen by the PRIIPs regulation.
It will also review how to ensure that the KID contains the key information necessary for retail investors while avoiding too much or too complex information for these investors; and how to allow the creation of a digitalised KID allowing layered information and reviewing the default paper basis of the KID, taking into account the specific challenges for different types of products.
In addition, the EC says it will look at the need for a more tailored approach, such as for multi-option products, in order to maximise understanding and use of the information, while continuing to allow for comparability of similar products.
The commission also highlights that it wants to ensure that the different rules in terms of disclosure and overall distribution requirements are coherent and work for manufacturers and persons advising on, or selling, PRIIPs as well as retail investors.
As explained by the commissioner in a letter on 20 December, the EC envisages a holistic assessment as part of the new Capital Markets Union action plan.
The Retail Investment Strategy, which is due in H1 2022, will aim to identify existing shortcomings and to propose remedying measures so that retail investors can take full advantage of capital markets and that rules are coherent across legal instruments.
The new Capital Markets Union action plan announced that in the area of disclosure, particular attention will be paid to improving consumer engagement, digital delivery and interaction with key information that allows comparisons, interaction and customisation.
The commission will complete the assessment by Q1 2022.
Based on the outcome of the assessment, the EC says it intends to then table the necessary legislative amendments, supported by a positive impact assessment, to improve the current disclosure framework, notably to seek better alignment of IDD, MiFID II and PRIIPs.
The commission explains that in order to achieve this, the Retail Investment Strategy will be based on evidence from the study, which will include robust consumer testing to assess the combined effect of the retail policy framework from the retail consumer’s perspective.
Following the submission to the commission, the ESAs draft RTS is now subject to adoption.
If adopted by the EC, the RTS would be subject to non-objection by the European Parliament and the Council of the European Union.
In July, ESAs said they were “not in a position to formally submit draft RTS” after it did not receive the support of a qualified majority.
The draft RTS was adopted at the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) boards on the basis of qualified majority voting.
However, at the EIOPA board, although a large number of members agreed with the draft RTS, it did not receive the support of a qualified majority.
Those that did not support the draft RTS argued that a partial revision of the PRIIPs Delegated Regulation is not appropriate at this stage, prior to a comprehensive review of the regulation as stated in Article 33.
It also found that a number of board members indicated that for investment funds, they would prefer the past performance graph from the UCITS key investor information document to be included in the PRIIPs KID itself, rather than in a separate publication.
The aims of the review were to address the main regulatory issues that have been identified since the implementation of the KID, in particular regarding the information on performance and costs, and to allow the appropriate application of the KID by UCITS.
The July review followed the launch of the consultation paper which was published on 16 October last year on the draft RTS to amend PRIIPs Delegated Regulation.
A draft final report following the public consultation was submitted to the three boards of supervisors of the ESAs for their approval in June.
