New PRIIPS rules will ‘confuse and mislead’ investors: EFAMA

EFAMA, the Brussels-based funds industry association, says it believes that the new PRIIPS rules will “confuse and mislead” investors.

The European Fund and Asset Management Association fired its end-of-year warning shot at the proposed changes less than two weeks before the new rules are set to come into force, on 3 January.

The Packaged Retail and Insurance-based Investment Products (PRIIPs) rules were drawn up with the aim of helping investors to better understand the investment products on offer to them, whether bank-, insurance- or funds-based. They do so by adapting existing UCITS disclosure rules (the UCITS Key Investor Information Document, or KIID) into a PRIIP Key Information Document, or KID.

Like the UCITS KIID, the PRIIP KID is intended to provide “meaningful, comprehensible and comparable information in order to make investors feel confident in their investment decisions”, EFAMA said.

EFAMA said that it continues to fully support the initiative to provide to investors with transparent, comparable and understandable information through a PRIIP KID.

‘Principles breach’

In a statement issued today, EFAMA said: “As firms apply the new EU rules in practice, that they will not achieve the desired objective. Instead, the new rules are threatening to cause serious investor detriment by mandating figures, particularly in relation to performance and costs, that will at best confuse investors and at worst mislead them.

“In short, the PRIIP KID risks forcing manufacturers to make claims for products that breach the fundamental principle that investor communication must be ‘clear, fair and not misleading’. The new methodology for calculating transaction costs will also produce confusing and unreliable figures.

“Over the past years, the European asset management industry systematically alerted EU policymakers throughout the rule-making process of these risks. EFAMA communicated repeatedly on the likelihood that the proposed rules would prove to be badly calibrated and on the negative consequences that they would have on PRIIPS investors.

“We did this jointly with investor representative associations. The industry also remodelled calculation methodologies and provided practical solutions to get the rules right for investors.”


EFAMA added that it has concerns that proposals were ignored in the final rules.

This is clearly a problem for PRIIPS investors who will be presented with misleading PRIIPS KIDS from 3 January 2018. However it is also a problem for UCITS investors because commission may choose to scrap the UCITS KID for the PRIIP KID in 2019.

EFAMA said that it considers this a serious retrograde step – indeed, a step back from the clarity of UCITS disclosure to the misleading obfuscation of PRIIPS. Asset managers are already committed to complying with the PRIIPS rules either as managers of AIFs or in the service of PRIIPS manufacturers invested into their UCITS.

“As firms are putting systems in place and calculating figures to produce or contribute to PRIIPS KIDS, real data will evidence that our concerns with some of the new disclosure rules and their negative effects on investors will materialise.

“he methodology for calculating transaction costs and the new rules around future performance scenarios are fundamentally flawed. This in turn drastically challenges the ability of the PRIIP KID to assist investors in making good investment decisions – given both the value proposition (the fund’s projected performance) and the cost proposition are seriously skewed.

“Cost calculations are based on partly inappropriate methodologies resulting in misleading information for the investors. Past performance will no longer be disclosed in the PRIIP KID. Looking at future performance scenarios without further context will not help investors make investment decisions.

“Meaningful comparisons between similar investment products will become impossible,” the statement concluded.

Ridhima Sharma
Ridhima Sharma is Correspondent for InternationaInvestment. She speaks German and is also DACH Correspondent for InvestmentEurope. She has more than 8 years of experience in the media industry. Before joining us, she was working in India and covering automotive and lifestyle sectors. Over the years many of her stories have been published in various magazines across India.

Read more from Ridhima Sharma

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