Most Read Contributor in Luxembourg, February 2017
PRIIPs Regulation's implementation date
approaching—31 December 2016—there are still some
questions unanswered for the insurance industry. Specifically,
doubts have arisen regarding the
existing portfolio of contracts that will be still in force on 1
January 2017. In this article, we will aim to shed some light on
the debate surrounding this issue.
The main question posed by the market players affected by PRIIPs
is very often linked to legacy: do manufacturers need to
provide a KID to investors who signed contracts before 1 January
2017 that are still in force? Considering the pre-contractual
nature of the KID, would it be reasonable to assume they do? Taking
into account the considerable number of existing contracts held by
many stakeholders (more than 20,000 in some cases), these seem to
be very pertinent questions.
The PRIIPs Regulation does not contain a clause on
grandfathering, and the draft RTS admits to multiple
interpretations of how to approach these existing contracts. This
ambiguity raises debate on which path the industry should take to
be fully compliant and, more importantly, to have the means and
resources to even be able to be fully compliant.
At the ESAs Public Hearing on PRIIPs on 9 December 2015, EIOPA
mentioned that the Regulation did not make any reference to
grandfathering, and therefore they could not confirm that older
contracts were excluded. At the same conference, the ESAs asked
market players to collaborate in providing information on the
impact that the absence of grandfathering provisions would have on
their business. Therefore, the existence (or not) of grandfathering
rules is still under the ESAs' consideration, and, we hope,
will be included in the texts the industry is currently expecting
(which, at the time of this present article's publication, are
Amidst such uncertainty, the industry did receive a
clarification on the treatment of PRIIPs traded on secondary
markets. In a letter sent by the European Commission to several
industry groups on 17 February 2016, the European Commission
expressly stated that, with regards to PRIIPs offered prior to 1
January 2017 that are traded on secondary markets, the PRIIPs
Regulation does not provide any grandfathering provisions and
therefore all PRIIPs in this category are under scope regardless of
whether they are new or previously existing.
When the ESAs were asked (at the aforementioned conference)
about their approach in cases where the manufacturer was in run-off
(i.e. where it does not sell new products but manages the existing
book only), they answered that PRIIPs Regulation would not apply in
such cases. This approach mirrors the UCITS KIID regime for
companies in liquidation established in the ESMA Q&A of
September 2012. Nevertheless, a case-by-case analysis would be
The above clarification may be useful to a certain extent: the
debate on the existing PRIIPs not traded on secondary markets is
still open and the coverage of such products by the Regulation
Industry members weigh in
The ambiguity of the Regulation makes the industry wonder: how
should I approach my existing business? PRIIPs manufacturers claim
that a grandfathering clause would release them from producing the
KIDs for a considerably large number of contracts, and that this
would entail a wide range of advantages:
lower costs and less time to implement the Regulation
more certainty that the application deadline will be met (which
is another controversial topic surrounding PRIIPs)
fewer human and technical resources dedicated to the KID
fewer legacy issues, as non-digitalised contracts are difficult
to adapt for the new framework
easier and cleaner communication mechanisms possible with
clients, since a specific PRIIPs-compliant selling/distribution
process could be set up for new business from 1 January 2017
stricter compliance with the pre-contractual nature of the KID
under the PRIIPs Regulation: since the investors in the contracts
forming part of the existing portfolio will already have taken a
decision on which product to buy, the pre-contractual objective
cannot be achieved.
Nevertheless, several stakeholders also argue that the PRIIPs
Regulation's consumer protection objectives would not be
achieved by the addition of a grandfathering clause, in the sense
that the documentation consumers will get would be less detailed
with regards to the product they bought.
Understanding how the PRIIPs Regulation applies to legacy
contracts is a key milestone in the application of the Regulation
and a key challenge facing industry players in the absence of
clearer indications from the ESAs.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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