Since the Packaged Retail Investment and Insurance-based Products (PRIIPs) Regulation came into force in January 2018, various concerns have been raised in the market about the practical aspects of the obligation to produce a standardised Key Information Document (KID), in particular the issue of costs and comparability across products.
By way of reminder, this legislation requires those who produce, advise on or sell PRIIPs – including investment funds – to retail investors in the European Economic Area (EEA) to prepare and provide investors with a KID (even if there is no other EEA connection). And retail investors is defined for these purposes in MiFID in such a way as to include many high net worth individuals who would not classically be regarded as retail (Richard Branson would famously be classified as a retail investor in this context).
These concerns have prompted regulators (such as the FCA), firms, and trade associations across the EU to take action:
- In July 2018, the FCA launched a ‘Call for Input’ inviting firms and consumers to provide input on their initial experiences of the requirements introduced by the PRIIPs Regulation. The deadline for responses was 28 September 2018. Osborne Clarke contributed to the industry response submitted by the British Private Equity & Venture Capital Association.
- In September 2018, The Association of Investment Companies (AIC) published its response to the FCA’s Call for Input. Whilst welcoming the initiative, the AIC set out both in its response and a recently published report – “Burn before reading”, its concerns around the key failures of KIDs. It has also calls for the Treasury Select Committee to launch an enquiry into KIDs “so that action is taken sooner rather than later and consumers can get the protection they deserve.”
- On 1 October 2018, the Joint Committee of the European Supervisory Authorities (ESAs) (that is, the EBA, EIOPA and ESMA) wrote a letter to the European Commission expressing their concerns regarding the possibility of duplicating information requirements for investment funds from 1 January 2020 under the PRIIPs Regulation and the UCITS Directive 2009/65. The ESAs intend to launch a public consultation in Q4 2018 as part of a review of the PRIIPs regulatory technical standards set out in Commission Delegated Regulation (EU) 2017/653. Among other things, the ESAs expect to examine performance scenarios and aim to submit proposed amendments to the European Commission in Q1 2019.
- The European Commission is due to review the PRIIPs Regulation by 31 December 2018, although there are indications that this may be delayed by at least a year. As part of that review, the Commission will consider whether the exemption for UCITS should be prolonged or whether the requirement to produce a KID under the UCITS Directive should be replaced by, or considered equivalent to, the KID under the PRIIPs Regulation.
How can we help?
Osborne Clarke can assist firms in determining whether or not they may have to produce a KID, or to assist in its preparation. For managers of AIFs who do not have retail investors and wish to exclude retail investors from their potential target market, we can also assist in preparing appropriate amendments to the offering and related documentation.