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16th March 2017

PRIIPS KID: New Regulatory Technical Standards published by the EC

Last week the European Commission published a new delegated regulation supplementing the Packaged Retail Insurance-based Investment Products Regulation (PRIIPs Regulation).

This new delegated regulation, published on 8 March 2017, sets out the new regulatory technical standards (New RTS) for the Key Information Document (KID).

The New RTS now replaces the previously published RTS that had been issued by the EC back in June last year, but was rejected by the European Parliament on 14 September 2016.

A spokesperson for the European Commission, Vanessa Mock, informed that the PRIIPs commission-delegated regulation is intended to address concerns around “reducing red tape, while preserving high standards of consumer protection”.

Changes in the New RTS: Performance Scenarios

Amongst other changes, the New RTS now requires a fourth performance chart to take position alongside the much debated three ‘future projection scenarios’. This means that in KIDs, investors will now see future projections based upon ‘Unfavourable’, ‘Moderate’ and ‘Favourable’ circumstances with an additional ‘Stress’ scenario.

This revision is aimed at providing potential investors with a clearer and more complete picture on the future potential performance of an investment.

Whilst the number of future projection models has changed, the methodology that is to be used to calculate these projections has not been altered from previous, despite receiving criticism from European Parliamentarians.

Other changes addressed within the New RTS concern the rules around comprehension alerts, multi-option products and benefits and costs.

Comprehension Alert Notices:

For any product considered ‘complex’ under the revised Markets in Financial Instruments Directive (MiFID II) or the Insurance Distribution Directive, a comprehension alert should be included in the PRIIPs KID.

However, the New RTS advises that this disclaimer (in the initial section of KID that relates to the complexity of the product) may be omitted in the case of simply-understandable financial products.

Multi-option PRIIPs:

If the range of investment options includes UCITS or non-UCITS funds, then the European Commission has clarified that the relevant PRIIP manufacturer shall partly use the existing Key Investor Information Document (KIID) of such a fund to draft the generic KID required under PRIIPs Regulation.

Additionally, some information that is included within the KIID can be used by the relevant multi-option PRIIP manufacturer to draft the specific KID that relates to the single underlying investment option.

Benefits & Costs:

Within the KID Section that addresses ‘What are the risks ad what could I get in return’, manufacturers of PRIIPs must now fully disclose the benefits and costs of insurance products, including:

The impact of the biometric risk premium on the investment return
The impact of the cost of the biometric risk premium in the "Cost over time" table

Sven Giegold, a Green European Parliamentarian who was at the forefront of the group that rejected last year’s proposals informed that he thought the New RTS would receive a warmer welcome than the previous.

Next Steps:

The New RTS must now be approved by the European Council and Parliament, hopefully in swift time to ensure the industry can fully prepare for the PRIIPs KID regulations to take effect from 1st January 2018.

Whilst the PRIIPs Rules will come into effect from 1st January 2018, it should be noted that they will not apply to UCITS products until two years afterwards.