The European Parliament (EP), in its plenary last Wednesday, voted in favour of its ECON Committee's1 'Motion for a Resolution.' In other words, the EP rejected the regulatory technical standards (RTS) of the PRIIPs Regulation,2 following the advice of the ECON Committee in doing so. The RTS were meant to further define the presentation and content of the PRIIPs Key Information Document (KID).

The EP's reason for rejecting the RTS is that they believe the European Commission (EC) has not taken into consideration the EP's concerns on several points of the RTS (the flaws in the methodology for the calculation of future performance scenarios and the approach on multi-option products, for example).

Besides rejecting certain aspects of the RTS content, the EP has also requested the EC to consider a delay in the application of the PRIIPs Regulation itself, since the legislative body is of the opinion that level 1 should be implemented at the same time as the RTS to avoid uncertainty in the industry's implementation—uncertainty that would threaten 28 different implementations of the same regulation. In addition, the European Supervisory Authorities (ESAs) are currently preparing the third level of the regulatory framework, the guidelines or questions-and-answers document (Q&As), aimed at providing further guidance for those implementing the PRIIPs Regulation.

At present, the question posed by the industry is: but what happens next? On this topic, Insurance Europe (the European insurance federation) has helped shed some light on the challenging approval process of the RTS and the debated delay of the PRIIPs Regulation.

According to Insurance Europe, the EC will now need to call on the ESAs to redraft the RTS. Once the ESAs have the new RTS ready, they will send them to the EC, which will have to carry out an internal consultation procedure before adopting the new RTS. The EP and Council will then begin a scrutiny period which can be undertaken following one of the timelines below:

  • 2 months with the possibility to request an additional month (2+1); or
  • 3 months with the possibility to request an additional 3 months if the EC makes changes to the version of the RTS submitted by the ESAs (3+3).

If, following the timelines above, the amended RTS are not available on 31 December 2016, two scenarios will be possible:

  • the PRIIPs Regulation will have to be implemented without RTS, making it nearly impossible to be applied in a coherent and efficient manner across Europe and across sectors; or
  • the implementation date of the PRIIPs Regulation will have to be extended in order for the RTS process to happen in a normal fashion. In this case, the EC would have to submit a proposal to delay the application. This amendment would be adopted following an accelerated ordinary legislative procedure.

But what about level 3? The publication of guidelines or Q&As is independent from the two texts mentioned above, since they are published by the ESAs unilaterally without any input from the EP, the EC, or the Council. It is, however, unlikely that the ESAs would issue these guidelines before there is full clarity on the new RTS, so as to ensure that the guidelines are aligned to new RTS. The EC and the ESAs' priority is now to provide new information to the industry as soon as possible.

Footnotes

1.European Parliament's Committee on Economic and Monetary Affairs (ECON)

2.Regulation (EU) No 1286/2014 of the European Parliament and of the Council of 26 November 2014 on key information documents for packaged retail and insurance-based investment products (PRIIPs)

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