On November 22, 2018, HM Treasury published a draft version of the Packaged Retail and Insurance-based Investment Products (Amendment) (EU Exit) Regulations 2019. The EU PRIIPS Regulation requires a standardized disclosure document (called a Key Information Document or KID) to be provided when packaged investment or insurance-based investment products are sold to retail investors.

The draft Regulations correct deficiencies in the U.K. Packaged Retail and Insurance-based Investment Products Regulations 2017 and in the directly applicable EU PRIIPS Regulation (and its secondary legislation) to be retained on Brexit. The draft Regulations will primarily be relevant for firms that manufacture, sell or advise on retail investment products that fall within the scope of the PRIIPs Regulation. This includes, but is not limited to, asset managers, insurers and investment advisors.

The draft Regulations narrow the scope of the U.K. PRIIPs Regulation so that it applies only to those U.K. or third-country firms that manufacture, advise on or sell PRIIPs to investors in the U.K. Post-Brexit, U.K. firms, that manufacture, advise on or sell PRIIPs to investors in the EU or another third-country will not be subject to the U.K. regime but will be subject to the EU PRIIPs Regulation or third-county regulation.

The draft Regulations ensure that no new products will fall within scope of the U.K. PRIIPs regime on exit day, by excluding from the scope of the U.K. PRIIPs regime any products that are outside the scope of the EU PRIIPs Regulation. The draft Regulations also ensure that, after exit, the U.K. treats EEA countries in the same way as other third countries in relation to the existing EU PRIIPs exemption from the requirement to produce a KID for certain products that are outside the scope of the Prospectus Directive. This exemption will also be extended to include non-EEA third countries. This means that products such as non-equity securities issued or guaranteed by sovereigns and certain public-sector entities or shares issued by central banks in any non- U.K. jurisdiction will be exempt from the KID requirement under the U.K. PRIIPs regime.

A further EU PRIIPs exemption that will be carried through into the U.K. PRIIPs regime is the exemption (expiring December 31, 2019) from the requirement to produce a KID for UCITS. Under the U.K. PRIIPs regime, both U.K. and EEA UCITS will be permitted to continue to produce the UCITS Key Investor Information Document (the UCITS KIID) instead of a KID. Separate onshoring legislation was published for onshoring the UCITS regime.

Functions currently carried out by ESMA and the European Insurance and Occupational Pensions Authority under the EU PRIIPs Regulation will be carried out by the FCA under the U.K. PRIIPs regime. Functions carried out by the European Commission will be transferred to HM Treasury.

HM Treasury intends to lay the draft Regulations before Parliament before exit day. The draft Regulations will enter into force on exit day in a no deal scenario.

Despite the extraordinary difficulties that the PRIIPS regulations have caused for industries that the PRIIPS regulation was not intended to regulate, such as security issuances and exchange-traded derivatives, and the many difficulties created by its prescriptive disclosure regime in terms of under-representing investment risks, there are no current proposals to reform the PRIIPS regime within this present legislation package, which purely implements Brexit. However, this area may be a prime candidate for any future "better regulation" agenda that arises in the U.K.

The draft Regulations are available at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/757998/PRIIPS_Draft_SI_Text.pdf, the explanatory information is available at: https://www.gov.uk/government/publications/draft-packaged-retail-and-insurance-based-investment-products-amendment-eu-exit-regulations-2019/packaged-retail-and-insurance-based-investment-products-amendment-eu-exit-regulations-2019-explanatory-information and details of the onshoring legislation for UCITS are available at: https://finreg.shearman.com/draft-uk-post-brexit-legislation-to-onshore-eu-uc.

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