European Union: PRIIPS Delay Looking More Likely But Implementation Timeline Still Challenging

On 14 September, the EU Parliament voted to reject the EU Commission's Delegated Regulation on the Packaged Retail and Insurance-based Investment Products Regulation (PRIIPs). This is the first time that the EU Parliament has formally rejected technical rules on financial services legislation. The Delegated Regulation, based on the final draft Regulatory Technical Standards (RTS) prepared by the European Supervisory Authorities (ESAs), dated 31 March 2016, was rejected as "so flawed and misleading that it could actually lose [retail investors] money". MEPs overwhelmingly passed the resolution rejecting the RTS (by 602 votes to 4, with 12 abstentions), calling for the EU Commission to submit a new RTS taking into account the EU Parliament's concerns about the text. The Parliament also called on the EU Commission to postpone the application date of PRIIPs.

The PRIIPs Regulation requires that firms who manufacture, sell or advise on PRIIPs products (including investment funds, life insurance policies with an investment element, derivatives, structured products and structured deposits) must provide retail investors with a Key Information Document (KID). As such, the Regulation will apply to a wide range of firms, including banks, insurers, and investment managers. The RTS covers the presentation, content, review and provision of the KID, including the methodologies for risk and reward and cost calculations.

Will PRIIPs be delayed?

  • PRIIPs is currently scheduled to apply to firms from 31 December 2016. It is possible that the RTS could be redrafted and agreed on an accelerated timescale e.g. in a matter of weeks, rather than months.However, this is unlikely given the process involved in finalising the RTS (discussed below).
  • Consequently, the EU Parliament called on the EU Commission to consider a proposal postponing the application date of PRIIPs (without changing any other provisions in the level 1 text and therefore not opening any fundamental debates on the text) in order to ensure smooth implementation of the requirements and to avoid firms having to comply with the Regulation without the technical standards being in force in advance.
  • The EU Parliament's vote does not formally delay the Regulation. A delay to PRIIPs would require the EU Commission to bring forward a new legislative proposal in order to change the level 1 text. The EU Commission is not obliged to do this and has previously expressed reluctance to bring forward any delay to PRIIPs. However, it will come under increasing pressure to do so, making a delay to PRIIPs a likely outcome in the event that the EU Commission cannot quickly satisfy the EU Parliament's expectations.
  • During the Eurofi Financial Forum conference on 8 September, the Chair of the European Insurance and Occupational Pensions Authority (EIOPA), Gabriel Bernardino, stipulated that he would like a nine month delay to the introduction of the Regulation. Another possible option would be to align the PRIIPs application date with that of MiFID II (i.e. 3 January 2018). This would be welcomed by firms, given the level of cross-overs there are between the two pieces of legislation.

What areas has the EU Parliament requested the EU Commission address in a revised RTS?

  • Comparable products: consumer information on investment products should be comparable to promote a level playing field in the market, regardless of the type of financial intermediary which manufactures or markets them.
  • Calculation of risk: it is misleading to investors to remove credit risk from the calculation of risk categorisation of insurance products.
  • Multi-option products: the treatment of multi-option products should be clarified, particularly in relation to the explicit exemption granted to UCITS funds under the PRIIPs Regulation.
  • Calculation of future performance scenarios: flaws in the methodology for the calculation of future performance scenarios do not fulfil the requirement under PRIIPs for information that is "accurate, fair, clear and not misleading". In particular, it does not show for some PRIIPs, even in the adverse scenario, and even for products which have regularly led to losses over the recommended minimum holding period, that investors could lose money.
  • Comprehension alert: the lack of detailed guidance on the "comprehension alert" creates a serious risk of inconsistent implementation of this element in the KID across the Single Market. Therefore, further standardisation of when the comprehension alert will be used should be introduced.
  • Spirit of PRIIPs: left unchanged, the rules in the RTS risk going against the spirit and aim of the legislation, which is to provide clear, comparable, understandable and non-misleading information on PRIIPs to retail investors.

What does this mean for firms?

The fundamental requirements of the Regulation will not change. Firms should not pause in their PRIIPs implementation as, at this stage, it is not certain that there will be a delay and so continuing implementation is the conservative course of action. Firms will still need to produce KIDs and invest resources into ensuring compliance with these requirements. In the event that a delay is agreed, this will only provide a short breathing space, given the complexities involved in PRIIPs implementation and the fact that firms must also implement product governance requirements under MiFID II by 2018.

Currently, it is not yet clear precisely how the EU Commission may choose to redraft the RTS to take into account the EU Parliament's concerns. However, in this uncertain environment, firms can still take "no regrets" actions in all other areas related to PRIIP compliance and preparation – template creation, product scripting, risk methodologies, costs, credit risk, technology infrastructure and software development, market data orchestration, KID production operating model and sales cycle delivery and customer journey.

Next steps:

  • The EU Parliament has called on the Commission to redraft the RTS. The Commission will send the RTS back to the ESAs for revision, who will then send the redrafted RTS back to the Commission for endorsement. In theory, the Commission then has three months to decide whether or not to adopt the RTS. Upon adoption, the scrutiny for the Parliament and the Council starts anew. This will be one month if no substantial changes have been made by the Commission, or three months if the RTS have been changed. However, as this is the first time that the EU Parliament has formally rejected technical rules on financial services legislation, this is unchartered territory. Therefore, it is possible that the institutions could agree an accelerated timetable informally.
  • The Council of the EU held a silence procedure on the RTS on 15 September, during which 19 delegations (accounting for 59.49% of the total population of the EU) indicated their intention to object to the RTS. This fell short of the qualified majority. Therefore, it was suggested that Coreper invites the Council to confirm that it has no intention to object to the RTS.
  • If the Commission does determine that a delay of the PRIIPs package is necessary, it will need to prepare a legislative proposal which sets this out. The text of the proposal would then need to be agreed by the EU Parliament and Council separately and then as part of trialogue negotiations, before entering into force before the end of the year (i.e. the date on which the PRIIPs Regulation is currently due to apply to firms).

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.