Reaction from industry practitioners and trade associations has been swift to the news that The European Commission (EC) most likely will initiate a delay of up to two years on requirements for Ucits Key Investor Information Documents (Kiids) to operate in line with Priips Key Information Documents (Kids) from 1 January 2020.
The Kid for Priips is a mandatory, three-page A4 information document to be provided to consumers before purchasing packaged retail investment and insurance based products, such as funds, structured products, unit-linked and with-profits life insurance contracts, and structured deposits. The Priips Kid is defined by an EU Regulation (not a Directive), which specifies the presentation and contents, based on so-called Regulatory Technical Standards developed by the European Supervisory Authorities (ESAs – European Securities and Markets Authority, European Insurance and Occupational Pensions Authority and the European Banking Authority).
However, the Joint Committee of the ESAs wrote to the EC on 1 October that: “…we are not convinced that, from the perspective of the retail investor, the Ucits Kiid information can be effectively articulated together with the Priips Kid information.”
“The ESAs are, therefore, of the view that other solutions are needed including legislative changes to avoid a situation where there are duplicate information requirements from 1 January 2020.”
A consultation paper on proposed amendments to the Priips Kids has been put out jointly by the ESAs: https://eiopa.europa.eu/Publications/Consultations/Joint%20Consultation%20Paper%20on%20targeted%20amendments.pdf
Andre Nogueira, director of Trading Analytics, ITG, said: “Given the recent consultation on amendments to Priips, this development [a delay] comes as no surprise. With proposed changes being discussed on the calculations and methodologies, it wouldn’t make sense to enforce the regulations on Ucits until the changes are finalised. As a result, putting it aside for now and bringing Ucits in line when the Priips approach has been revised is a sensible move.”
“What’s interesting about this is the length of the delay – two years seems an awfully long time to simply iron out some creases. This could suggest that the changes to Priips are more complicated than expected.”
Alexander Dorfman, senior product Manager at SIX, said: “The consultation on proposed changes to the Priip Kid requirements to Ucits funds is yet another example of the need for firms to adopt a flexible approach to compliance in the face of regular modifications. In order to guarantee compliance, funds need to ensure that they are ahead of the game and have access to all the data and information necessary to comply.”
“2019 will be another year of multiple regulatory changes, challenges and enhancements both on European and national levels. Working closely with financial markets industry participants we appreciate every effort undertaken by organisations such as the European Supervisory Authorities to harmonise regulatory standards, specify a common framework and streamline the implementation efforts for the entire industry.”
Meanwhile, the Association of Investment Companies, the UK trade body for closed ended funds, has argued that key information documents should be suspended for all investment products. This reflects the ongoing ire that UK investment trusts have felt at the way their sector is being treated in regards to information document requirements.
Ian Sayers, chief executive, said: “The proposed delay lets the cat out of the bag. Though no doubt it will be dressed up rather differently, the real motivation for a delay is that Kids are so toxic for retail investors that regulators fear it will damage the Ucits brand itself. As the flagship of European funds regulation, this is understandable but where does that leave investors in other funds? They have been misled by Kids for nearly a year now. Don’t they deserve the same protection?”
“Recent proposals for reform will not resolve these fundamental problems. Investors in non-Ucits funds should not be treated as second-class citizens. The Kid should be suspended for all products to allow time to fix the problems once and for all. If Kids are not good enough for Ucits investors, then they are not good enough for purchasers of investment companies.”
Efama, the European Fund and Asset Management Association, notes that “it remains clear that Priips regulations are not fit for purpose and its flaws need to be corrected and resolved in an appropriate manner.”
Key faults with the Priips Kid, according to Efama, include the methodology used to calculate transaction costs and cost disclosures.
“Until the Priips Kid rules are appropriately designed to give accurate and clear information to help investors make informed investment decisions and compare products, Efama is convinced that consumers must continue benefitting from the well-functioning Ucits Kiid.”
“Efama is equally concerned that the four-week deadline for feedback does not provide sufficient time for a proper debate among all parties. For example, the short time-frame makes it difficult for consumer testing to be arranged, which is essential for the understanding of retail investors. In any case, Efama does not believe that the improvements that are required will be made in the given time frame in time for the European Parliament’s final plenary vote in April 2019.”
“Efama stresses that the Priips Regulation specifically requires the European Commission to assess the Ucits exemption at the time of overall review of the Regulation, which is now indefinitely delayed. Therefore, the proposal to phase out the Ucits exemptions without this assessment having taken place is legally questionable. Any proposal to change the current Ucits exemption would also necessitate substantial changes to the Ucits Directive, and considering the complex EU legislative process, and subsequent member state implementation, Efama does not believe this will be achievable in a timely and responsible manner. Indeed, the ESAs own analysis states that this process will be complex and technical, with at least 15 articles of the current Ucits Kiid Regulation to be transcribed into Priips Delegated acts for the proper function of funds under the Priips framework.”
“Efama will be responding comprehensively to the ESA’s Consultation Paper in due course. In the meantime, we implore the European Commission to conduct an urgent review, which must involve appropriate consumer testing, and the collection of robust data and evidence to properly analyse the Priips regulation.”
“In conclusion, and taking into account all of the circumstances, Efama again calls for the Ucits exemption to be prolonged by at least two years and supports proposed amendments in the ECON draft report on the proposal on cross-border fund distribution that go into this direction.”
