The controversial Packaged Retail and Insurance-based Investment Product (PRIIPS) regulation which some have dubbed the ‘elephant gun’ of directives given the sheer amount of industries it touches, has attracted further criticism.
The European Fund and Asset Management Assocation (EFAMA) have called for the regulation to be delayed further. The reason, according to the industry lobbying group, centres around the following question: : How can you create a fully homogenised retail investor document involving hugely diverging investment and insurance products while, at the same time, keeping the information both meaningful and not misleading?
The above is in reference to the PRIIPS key investor document (KID) which has been revised multiple times due partly to the use of ‘future scenarios’ which replace past performance. The Association of Investment Companies (AIC) has already complained that the scenarios often give unrealistic outcomes even when they’re supposed to reflect difficult markets and PRIIPS is due to hit UCITS funds soon.
EFAMA said in a statement “both goals [meaningful and not misleading] cannot be fully achieved simultaneously and some trade-off will have to be found between meaningful and comparable information. This conundrum cannot be solved only by making technical changes at RTS [regulatory technical standards] level – despite the ESAs’ ongoing best efforts. We, therefore, understand and support industry associations and consumer representatives voicing their frustration that this issue is not tackled head-on through a Level 1 review.”
EFAMA, therefore, insists that another extension of the UCITS exemption for twelve months (after the publication of the revised RTS in the EU Official Journal) is necessary to ensure proper implementation. In considering this request, it is important to bear in mind that the PRIIP KID is one of the most visible documents to retail investors, meant to empower them to make the right investment decisions. If these documents are not implemented correctly, an essential tool will be missing to achieve the Capital Market Union’s goal of increased retail participation in the EU capital markets.
EFAMA also stated that switching from the UCITS KIID (key investor information document) to the PRIIP KID is a massive operational undertaking as there are a huge number of KIDS.
It also pointed out that there is no clarity on the future requirements. Fund managers cannot start implementation until the new RTS are finalised. The European Supervisory Agencies (ESA) have not approved the draft RTS presented in June last year adding to the problems.
EFAMA stated that the UCITS KIID has always been a retail-investor document that is of little to no use for professional investors. It is also no longer fully MiFID-compliant and would require extensive revisions in the near future. Having two diverging different key information documents would also be a ‘recipe for disaster’.
For these reasons and many others, EFAMA concluded that another extension of the UCITS exemption of twelve months is necessary to ensure proper implementation.
