In this article, we analyse the Final Report of the European Supervisory Authorities (ESAs) concerning amendments to the PRIIPs KID and summarise next steps.
Final Report on amendments to the PRIIPs Key Information Document (KID)
The ESA's final report on PRIIPs KID amendments (Final Report) was published on 08 February 2019. The Final Report follows up on the November 2018 consultation, which considered possible amendments to the PRIIPs KID following its introduction in January 2018. (For a detailed summary of the current PRIIPs KID requirements, see our previous elexica article, “The Key Information Document”.)
The consultation sought feedback from stakeholders on possible amendments to the PRIIPs Delegated Regulation (which sets out the detailed PRIIPs KID requirements). The following three areas were covered:
- performance scenario changes
- general changes, and
- extended exemption for UCITS from PRIIPs KIDs.
This article briefly considers each of the above areas and sets out some of the initial industry reactions.
Performance scenario changes
The inclusion of forward-looking performance scenarios has caused much discussion in the investment funds industry, which traditionally discloses past performance. The consultation proposed changing the methodology used to calculate performance scenarios, changing the presentation of performance scenarios and the inclusion of past performance where this is available. The final report explains that the ESAs have decided:
- not to propose introducing past performance for now
- to issue a supervisory statement recommending that an additional warning be included in the KID regarding the limitation of performance figures due to them being based on simulations, and
- to use respondents’ comments on other possible ways to change the performance scenarios to inform their further work in this area.
This additional warning on performance scenarios is set out in a supervisory statement in the Annex to the final report and should now be included in updated PRIIPs KIDs as appropriate.
We expect that debate in this area will continue given that the methodology to calculate the performance scenarios which was the subject of such industry opposition (including from some regulators) will not change. Whilst including such a disclaimer is not unhelpful, it may prove to be of limited assistance given that many PRIIPs manufacturers consider the scenarios themselves to be misleading to investors.
The ESAs were tasked with considering what targeted amendments they believe should be made to the PRIIPs Delegated Regulation. The consultation was used to request feedback from stakeholders on the possible changes that the ESAs had considered so far although no actual proposals were made as part of the consultation. The final report provided brief details on the views of respondents on: the market risk measure for products that allow regular premiums/investments, PRIIPs products that have an "autocallable" feature, changes to SRI narratives, changes to the performance fee narrative, and changes to the RIY calculation.
The European Parliament ECON Committee has adopted amendments that will lead to a review of PRIIPs by 31 December 2019. The ESAs will continue their work in this area and propose amendments to the existing requirements. In the meantime, given that there will be some delay in introducing future changes to the Delegated Regulation, the ESAs will also consider making clarifications via level 3 measures if they feel these are necessary.
Extended exemption for UCITS from PRIIPs KIDs - extension to 31 December 2021
The European Parliament ECON committee recently adopted an amendment extending the exemption from PRIIPs KIDs for UCITS (and certain relevant non-UCITS funds) until 31 December 2021. The final report noted that this amendment failed to extend the derogation available to insurance-based so-called multi-option products, which allows for production of a generic PRIIPs KID for the overall product and to simply "pass through" the existing UCITS KIIDs of the underlying funds. Without this derogation being extended, there was a lack of clarity as to whether UCITS would have had to produce PRIIPs KIDs for onward provision to institutional investors, as well as having to produce UCITS KIIDs. The ESAs announced in the final report that they will propose an amendment providing for this additional extension.
This proposed extension is very welcome, although EFAMA and Insurance Europe have already written to EIOPA requesting that this proposal be made urgently to allow the amendment to be approved in time given the upcoming European Parliament elections. Progress on this matter must therefore be kept under review.
ESAs’ next steps
The Final Report also sets out the ESA’ next steps:
- propose new RTS by the end of 2019
- conduct consumer testing on the existing KID approaches and new proposals (to be done with the Commission)
- publish a further consultation on proposed legislative changes - expected during 2019, and
- publish any level 3 measures believed appropriate (which may be in the form of Q&As) as part of the ongoing monitoring of the implementation of the current PRIIPs rules.
This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.