On 1 January 2018, the PRIIPs Regulation became applicable. It introduces the requirement for product manufacturers - before making a packaged retail and insurance-based investment product (PRIIPs) available to retail investors - to draw up a Key Information Document (KID) and publish it on their website. Distributors (persons selling or advising) of PRIIPs have to hand over this KID to retail investors. The KID is intended to provide precontractual information on the nature, risks, costs, potential gains and losses of the product; it should facilitate comparison between different products and can be a maximum of 3 pages.
Review of PRIIPs and KID
The European Supervisory Authorities (EIOPA, ESMA and EBA) launched a public consultation setting out proposed amendments (technical standards) to the PRIIPs KID in the first quarter of 2020, to which BIPAR responded. BIPAR believes that the legislators and supervisors should take the time to carry out a proper review of the elements which have shown to be incorrect. The insurance sector (also BIPAR) has some issues with the current KID because it does focus on returns and costs but does not allow for a clear comparison of “qualitative” aspects such as “guarantees”. This makes KIDs of IBIPs, with an "insurance/guarantee" element, difficult to compare with a KID for a pure packaged investment product.
In July 2020, the 3 ESAs told the European Commission that the amendments to the PRIIPs KID, which they developed following the public consultation, could not be adopted by all 3 ESA Boards. The European Commission then urged the ESAs for a kind of “second opinion”, which was finally adopted and sent in early February 2021 to the European Commission.If adopted by the European Commission, the changed rules would be subject to “non-objection” scrutiny by the European Parliament and the Council of the European Union (meaning they can say “yes” or “no” but not to amend the text).
In April 2021, Commissioner for Financial services, financial stability and Capital Markets Union, Mairead McGuinness, addressed the ongoing PRIIPs review, and, in particular, the state of play of the new technical standards on the PRIIPs KID.She recalled that currently, a retail investor can receive two different types of retail investment information sheets, depending on whether they are buying a fund product or another type of retail investment, such as life insurance. She added that this “makes it harder for investors to compare products, especially about risks or costs. Thanks to the new technical standards adopted by the European Supervisory Authorities in February, the Commission is planning to replace today’s UCITS KID and PRIIPs KID with one revised PRIIPs KID.”She continued that: “We know that the adoption of the technical standards and the political scrutiny of these new rules by the European Parliament and the Council will take some time. This would leave a short period of time for the implementation of these new rules (initially planned in January 2022) by product manufacturers and advisers. That’s why we are considering the merits in in a short extension of the current temporary exemption for retail investment funds from PRIIPs. We should propose to give providers of UCITS funds six additional months (until July 2022) to prepare for the switch to the PRIIPs KID. The broader review of the PRIIPs Regulation will be included in our retail investment strategy.”
Indeed, the European Commission is to carry out a wider review of the PRIIPs Regulation (level 1), also looking at the interaction with other recent new information requirements such as in IDD and MiFID II, how they work together and if the interplay can be improved. The Commission is working on a “retail investment strategy” to bring all of this together (see article on CMU and retail investment strategy).
The final RTS for the PRIIP KID are expected to be published by July 2021. Co-legislators are then expected to reach an agreement before the end of the year.