The European Commission (EC) said the extension until 1 January 2018, which was announced in late October, was to ensure a smooth implementation and ensure legal certainty for the sector.
New rules needed in early 2017
Chris Cummings, chief executive of the Investment Association, said: “The draft rules, that were rejected by the European parliament in September, would have led to extremely flawed and misleading retail investor disclosure.
“The additional time should mean that regulators and legislators are able to take a step back and design a Priip Kid that provides consumers with better disclosure than the current draft rules permit.
“It is now time to get it right, and for the Commission to amend the presentation of costs and charges and improve the performance disclosure by adding historic performance alongside future scenarios.
“It is essential that our industry not only has legal certainty as to what will be needed to produce a Priip Kid, but also sufficient time to put the necessary systems in place. Therefore, we urge the Commission to come back with final rules in early 2017,” Cummings said.
Develop workable standards
Amanda Rowland, asset and wealth management partner at PwC, said firms and investors will welcome the delay “until workable standards are developed”.
“The European parliament’s historic vote in September demonstrated that the rejected standards failed to strike the right balance between succinctness and comprehensiveness. The European Supervisory Authorities (ESA) will soon be given more detail regarding the scope of Level 2 revisions, and will have the opportunity to address concerns around labelling of complex products, treatment of Ucits and insurance cost disclosure.”
Common sense
Ian Sayers, chief executive of the Association of Investment Companies, said: “The delay to the implementation of Priips is a victory for common sense. It’s far better for the EU to take some extra time to get the detailed rules right on Kids rather than sticking rigidly to the original timetable.”
1 January 2018
The Priips regulation aims to improve the quality of information provided to consumers. It introduces a Kid, a standardised factsheet designed to present the main features of an investment product in a simple and accessible manner.
EU consumers should, for the first time, be able to easily compare the potential risks and rewards of investment products, funds, and investment-linked insurance policies.
After the European parliament rejected the regulatory technical standards (RTS) that underpin the format and methodology used to compile the Kid, both the parliament and a majority of member states also called for a postponement in the entry into application of the regulation.
While the EC believes that the Priips regulation is sufficiently clear as well as directly applicable on its own, its objectives would be better served by having the RTS on Kids already in place.
In particular, the RTS will be important in offering consumers the benefit of having Kids that are more easily comparable and standardised.
The delay gives issuers and distributors of Priips products until 1 January 2018 to put the provisions in place.
Next steps
The EC is now working with the three ESAs to resubmit the revised RTS. The aim is to meet some of the concerns raised by the European parliament, while not compromising the balance previously achieved.
In particular the EC has now asked the ESAs to make targeted changes in certain areas (i.e. multi-option products, performance scenarios, comprehension alert and presentation of insurance related costs).
In addition, to ensure greater clarity for insurance companies, the EC is inviting the ESAs to develop guidance on the practical application of credit risk mitigation factors under the RTS for insurers.
The ESAs have six weeks to resubmit the revised RTS to the EC.
It will have to be adopted by the EC and then be subject to scrutiny by the European parliament and the council.
The revised Priips framework should be in place during the first half of 2017 and apply as of 1 January 2018.
