After multiple critics expressed during the last months by all responsible parties concerning the application of PRIIPS regulation, I was personally relieved to learn that the Commission eventually proposed significant changes in this new piece of regulation.
As a reminder, the strongest opposition against the initial position of the Commission was echoed by the European Parliament last September by a sort of „ totalitarian „ negative vote with respect to the proposed technical standards (RTS).
The Commission's new proposal was therefore critical in view of the strong negative vote of the Parliament; as far as I can read it now, it could lead to real improvement in PRIIPS products offerings.
First, the implementation date will be removed by one year till 1st January 2018.
Secondly, the Commission agreed to modify three controversial issues in the last draft for KIDs, including the publication of future performance scenarii. The new version will be submitted to the three European regulators and will then be submitted again to the European Parliament and the Council.
My reaction to the proposed changes is twofold; on the one hand, I applaud vigorously the change of application date, which will allow all actors of the industry to review quietly the revised rules and implement appropriate technical solutions; at the same time, they will have sufficient time to update, whenever necessary, their internal systems.
On the other hand, I would like to insist on two issues brought by the amended provisions of KIDs RTS. The first relates to the fourth so called “stress scenario“ linked to prospective performances, which is the concept now put forward by the Commission. I consider that this concept may only be acceptable, under the condition that appropriate explanatory wording accompanies it - which will be a very difficult exercise. Indeed, the presence of an extreme one way only scenario could wrongly give potential investors a biased message which would deter them to buy some PRIIPS products that are perfectly suitable for them.
The second issue I would insist on is the publication of past performance; I still consider this to be an essential piece of information for potential investors; it is also indispensable in giving the investor the possibility to compare investment performances with those of similar PRIIPS products.
A last remark on the timing: I welcome the Commission’s expectation that the application date of PRIIPS regulation being fixed on 1st January 2018 instead of 31st December 2017 as previously contemplated. This proposal would indeed align with the date of application of MIFID II / MIFIR. This alignment would avoid any time overlap between these two new essential pieces of European financial legislation
Marc Bayot, Chairman of PRIIPSHub
Marc serves and has served as independent Director of several leading asset managers.
Furthermore, Marc is honorary Chairman of EFAMA and emeritus Professor of Finance at the Free University of Brussels
The European Commission sent a letter to the European Supervisory Authorities (ESAs), mentioning the proposed amendments to the draft Regulatory Technical Standards (RTS) rejected by the European Parliament.
The parts rejected by the European Parliament concern the following areas: Multi-option PRIIPs, 4th performance scenario and Comprehension Alert.
Read the proposed changes to the regulation.
The 9th of November the EC announced PRIIPs implementation date to be moved to the 1st of January 2018. The delay will give the industry some time to adapt to the changes. The legislators will have time to fix the issues expressed by ECON, the parliament, and the industry.
The Commissioners were pleased to see the regulation delayed:
"PRIIPS is an important piece of legislation that will provide consumers with accessible and transparent information on complex investment products. To ensure legal certainty and a smooth implementation for consumers we are today proposing to extend the date of application by one year, the extension should be limited to one year only and we are glad that the European Parliament and the Council are supportive of the view that the substance of the rules should not be re-opened." - said Valdis Dombrovskis Vice-President for the Euro and Social Dialogue, also in charge of Financial Stability, Financial Services, and the Capital Markets Union.
"The objective of PRIIPs is to increase protection of retail investors and restore consumer trust in the financial services industry. Furthermore, greater transparency and harmonisation will benefit the internal market in financial services by creating a level playing field among different products and distribution channels. However, we have taken note of the concerns of the European Parliament and the Council and are therefore proposing to postpone the date of application." said Vice-President Jyrki Katainen, responsible for Jobs, Growth, Investment and Competitiveness.
The European Commission will work closely with the European Supervisory Authorities (ESAs), to amend the issues of the RTS. Both organisations aim to have an updated draft in the first half of 2017.
Read the official press release
In a discussion hosted by the Greens and the European Free Alliance at the European Parliament on the 19th of October, Ugo Bassi (DG FISMA) mentioned a 6/9/12 month legislation delay, and a draft of new Regulatory Technical Standards (RTS).
The idea behind the legislation is to provide enable clear comparability between Investment Options. Ugo Bassi expressed hopes of bridging the above concerns with the idea and having a new, improved draft ready “By February”.
On November 9th the European Commission will discuss the exact delay time, and whether the level 1 legislation should come into force within the current deadline the 31/12/2016.