The European Fund and Asset Management Association (EFAMA) has called for 'urgent completion' of the European Supervisory Authority's (ESA) review into packaged retail investment and insurance products (PRIIPs) to ensure adequate protection for retail investors and support for wider economic recovery.
In advance of the ESAs' final report on technical changes to the PRIIP Key Information Document (KID), EFAMA has warned that the current PRIIP KIDs remain fundamentally flawed and provide retail investors with misleading information.
The industry body says it "strongly believes an urgent review addressing these flaws is now both overdue, and essential," and is calling for all relevant parties to work together to find a practical and common-sense way forward.
In times of unprecedented global economic uncertainty, it is imperative that all the relevant stakeholders work collaboratively to bring this to a positive conclusion... Time is now of the essence."
The EFAMA call comes at a time of controversy surrounding the effort to amend some of the shortcomings in the role of PRIIPs. Yesterday II reported on tensions between the European Commission and the European Securities and Markets Authority (ESMA) over proposed reforms to allow funds to publish historical scenarios based on past performance data instead of forecasting future returns.
AM industry will 'play its part'
The covid-19 crisis is resulting in unprecedented economic uncertainty and EFAMA says the asset management industry stands poised to play its part in assisting on the long road to economic recovery.
To achieve this, a PRIIP KID that provides retail investors with the right information becomes ever more crucial in helping them to make the most informed investment decisions, EFAMA said in a statement.
EFAMA says it has identified three core areas for improvement, including:
- Comparability at any cost is not the right solution - The fundamental problem stems from the PRIIP KID's inherent conflict to provide clear, fair and not misleading information and comparability between widely different investment products. The pursuit of theoretical comparability has come at the cost of misleading information, adversely impacting the end investor.
- Inclusion of past performance is paramount - Inclusion of past performance is paramount as investors need to know how a product has performed in the past. While it is not an indicator of future performance, historical data and standards allow for easy comparisons and show investors that a fund's value will fluctuate.
- Appropriate scenario planning - Performance scenarios should not be future-looking. They should instead provide information to retail investors on how a certain product will function given certain market conditions, based on historical observations.
Director-general of EFAMA, Tanguy van de Werve, commented: "While the last few years have clearly shown there are no quick fix solutions to PRIIP KID, we remain confident that most issues can be resolved successfully.
"In times of unprecedented global economic uncertainty, it is imperative that all the relevant stakeholders work collaboratively to bring this to a positive conclusion. We simply must avoid continued misinformation to retail investors and damaging the UCITS brand by extending the currently flawed PRIIP KID. Time is now of the essence."
A full copy of EFAMA's statement is available here.