While there are a few exclusions – cash deposits with interest only, direct investments and non-retail investors such as pension funds – the new rules basically cover all retail collective investment products – Ucits, unit-linked insurance products, structured notes and deposits.
They follow a review of packaged retail investments and insurance-based products (Priips) that was launched in 2008 by European regulators concerned by a perceived information gap between distributors, manufacturers and consumers.
Regulators believed this information gap made it difficult for would-be buyers to compare products, and that there was a potential for bad consumer outcomes.
The probe found a huge variation in the quantity, quality and availability of product information across EU markets. Even within individual markets, information differed depending on the legal form of the product and channel used to distribute it.
It discovered a patchwork of regulation largely put in place under the Markets in Financial Instruments Directive (Mifid) and Insurance Mediation Directive (IMD), that currently provide requirements for transparency and quality of sales advice. But also revealed gaps in regulation, with certain products such as structured deposits left unregulated.
In addition, the review confirmed that the patchwork approach to regulation meant it was difficult for consumers to compare the different types of investment products available, even though, in the view of the commission, the products were all quite similar.
Following the review, the EU has moved steadily towards introducing the Priips regulation from November 2014. It aims to create a horizontal, harmonised framework for disclosure and selling rules that covers all retail investment products regardless of legal form or distribution channel.
As the EU has opted to introduce Priips as a regulation, there is no requirement for this to be transposed into local law – Priips is now law across the whole of the EU, with an effective go-live date of 31 December 2016.
KID gloves
At the core of the Priips regulation is the key information document (KID). It is intended to be a simple, easy-to-understand document of no more than three pages, and was inspired by Ucits KII information sheet.
While the main areas of the Priips are outlined the devil is in the detail and much of that has yet to be worked out.
The European Supervisory Authorities (ESAs) are engaged in an ongoing public consultation on the contents of a regulatory technical standards (RTS) that will define much of this detail.
One concern is that the standards are not due to be finalised and published until the end of March 2016 – only nine months before the go-live date, leaving little time for product manufacturers to complete the work on the various KIDs.
The Priips regulation will outline the responsibilities of a manufacturer and distributor, and the new powers being given competent authorities in each member state.
