EC unveils PRIIPs RTS amendments
09 March 2017 Brussels
Image: Shutterstock
The European Commission has released the updated regulatory technical standards (RTS) for the Regulation on Packaged Retail and Insurance-based Investment Products (PRIIPs), responding to concerns from the European Parliament.
According to European Commission spokesperson Vanessa Mock, the PRIIPs commission-delegated regulation is intended to address concerns around “reducing red tape, while preserving high standards of consumer protection”.
Changes to the RTS address the rules around multi-option products (MOPs), performance scenarios, comprehension alert, and benefits and costs.
For MOPs, there is no longer a need to provide PRIIPs-like information for underlying options on UCITS. Rather, MOPs will be allowed to use UCITS KIDs to inform about their UCITS investment options.
Further, Mock said: “We grant explicit concessions to hybrid MOPs to ease the aggregation of information stemming from different methodologies.”
The commission has maintained the methodology of its three performance stress scenarios that was initially rejected, however it has added an additional mandatory scenario to reflect stressed market conditions.
With regards to comprehension alert notices, the commission proposed that, for any product considered ‘complex’ under the second Markets in Financial Instruments Directive (MiFID II) or the Insurance Distribution Directive, a comprehension alert should be included in the PRIIPs KID.
Finally, the benefits and costs of insurance products will be fully disclosed in the ‘What is the product?’ section of the KID.
The revisions follow the European Parliament’s economic and monetary committee’s rejection of the PRIIPs KID proposal in September, as it voted to send the proposals back to the commission for revision.
Members of the European Parliament on the committee cited concerns around the method of creating the KID. Committee member Sven Giegold suggested at the time that the original formula proposed for the KID could potentially make products seem like they would perform better than they are actually likely to.
He said: “People must know when they take a risk, but this information is misleading.”
The European Commission subsequently bowed to pressure and agreed to delay implementation of PRIIPs for 12 months, following recommendation from the European Council. The delay means issuers and distributors of of PRIIPs products now have until 1 January 2018 to comply with the regulation.
Mock said: “With these changes, the commission is able to meet our goal of ensuring that consumers will easily be able to compare different PRIIPs. We have also sought to maintain a level-playing field between different sectors of the financial industry.”
She added: “The commission has done its utmost to speed up the process so as to provide our stakeholders with as much legal certainty and time as possible. We trust that the European Parliament and the Council can now rapidly finalise the legislative process.”
Regulatory data exchange platform Silverfinch has welcomed the announcement. Managing director John Dowdall, said: “The new PRIIPs template will allow transfer of UCITS Key Investor Information Document data in the same format as PRIIPs. Insurers can now easily signpost any UCITS-compliant fund that is sold through a PRIIPs-relevant wrapper using the same data fields as for PRIIPs products. This simultaneous data exchange cuts the need for a two-stage implementation that had previously been envisaged.”
Dowdall added: “The onus now lies with those selling PRIIPs products to reach out to their asset managers and ask to receive the relevant data in the European PRIIPs Template format now to allow adequate time for system tests before the January 2018 introduction.”
Phil Lynch, global head of markets, products and strategy at SIX Financial Information, also welcomed the clarity on the "pressing issues" of how performance scenarios should be calculated and the use of comprehension alerts.
However he added: “While this revised RTS may ease previous concerns about investor protection, some heavy regulatory lifting will be required to implement the changes."
Lynch said: "Most importantly, the commission’s announcement underlines the extent to which PRIIPs overlaps with MiFID II and should prompt firms to consider how to align their investor protection compliance projects."
“On the one hand, the European Commission has established a common definition around instrument complexity, a step towards aligning PRIIPs with MiFID II. On the other, question marks still remain over the issue of updating frequency, which is critical to MiFID II target market assessment as well as to PRIIPs KID generation and distribution. Firms that embrace a strategic approach to investor protection and align their compliance efforts will therefore be well placed to react to further updates on these topics.”
According to European Commission spokesperson Vanessa Mock, the PRIIPs commission-delegated regulation is intended to address concerns around “reducing red tape, while preserving high standards of consumer protection”.
Changes to the RTS address the rules around multi-option products (MOPs), performance scenarios, comprehension alert, and benefits and costs.
For MOPs, there is no longer a need to provide PRIIPs-like information for underlying options on UCITS. Rather, MOPs will be allowed to use UCITS KIDs to inform about their UCITS investment options.
Further, Mock said: “We grant explicit concessions to hybrid MOPs to ease the aggregation of information stemming from different methodologies.”
The commission has maintained the methodology of its three performance stress scenarios that was initially rejected, however it has added an additional mandatory scenario to reflect stressed market conditions.
With regards to comprehension alert notices, the commission proposed that, for any product considered ‘complex’ under the second Markets in Financial Instruments Directive (MiFID II) or the Insurance Distribution Directive, a comprehension alert should be included in the PRIIPs KID.
Finally, the benefits and costs of insurance products will be fully disclosed in the ‘What is the product?’ section of the KID.
The revisions follow the European Parliament’s economic and monetary committee’s rejection of the PRIIPs KID proposal in September, as it voted to send the proposals back to the commission for revision.
Members of the European Parliament on the committee cited concerns around the method of creating the KID. Committee member Sven Giegold suggested at the time that the original formula proposed for the KID could potentially make products seem like they would perform better than they are actually likely to.
He said: “People must know when they take a risk, but this information is misleading.”
The European Commission subsequently bowed to pressure and agreed to delay implementation of PRIIPs for 12 months, following recommendation from the European Council. The delay means issuers and distributors of of PRIIPs products now have until 1 January 2018 to comply with the regulation.
Mock said: “With these changes, the commission is able to meet our goal of ensuring that consumers will easily be able to compare different PRIIPs. We have also sought to maintain a level-playing field between different sectors of the financial industry.”
She added: “The commission has done its utmost to speed up the process so as to provide our stakeholders with as much legal certainty and time as possible. We trust that the European Parliament and the Council can now rapidly finalise the legislative process.”
Regulatory data exchange platform Silverfinch has welcomed the announcement. Managing director John Dowdall, said: “The new PRIIPs template will allow transfer of UCITS Key Investor Information Document data in the same format as PRIIPs. Insurers can now easily signpost any UCITS-compliant fund that is sold through a PRIIPs-relevant wrapper using the same data fields as for PRIIPs products. This simultaneous data exchange cuts the need for a two-stage implementation that had previously been envisaged.”
Dowdall added: “The onus now lies with those selling PRIIPs products to reach out to their asset managers and ask to receive the relevant data in the European PRIIPs Template format now to allow adequate time for system tests before the January 2018 introduction.”
Phil Lynch, global head of markets, products and strategy at SIX Financial Information, also welcomed the clarity on the "pressing issues" of how performance scenarios should be calculated and the use of comprehension alerts.
However he added: “While this revised RTS may ease previous concerns about investor protection, some heavy regulatory lifting will be required to implement the changes."
Lynch said: "Most importantly, the commission’s announcement underlines the extent to which PRIIPs overlaps with MiFID II and should prompt firms to consider how to align their investor protection compliance projects."
“On the one hand, the European Commission has established a common definition around instrument complexity, a step towards aligning PRIIPs with MiFID II. On the other, question marks still remain over the issue of updating frequency, which is critical to MiFID II target market assessment as well as to PRIIPs KID generation and distribution. Firms that embrace a strategic approach to investor protection and align their compliance efforts will therefore be well placed to react to further updates on these topics.”
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