From the start of this year, firms that create and market Packaged Retail and Insurance-based Investment Products (PRIIPs) have faced a new set of regulatory obligations courtesy of the EU’s PRIIPs Delegated Regulation. The Regulation was put in place to encourage more efficient markets in the EU by helping investors better understand the key features, rewards, risks and costs of the different PRIIPs available to them.
To facilitate the Regulation, firms offering PRIIPs products must now prepare and publish a stand-alone, standardized Key Information Document (KIDs) for each of their PRIIPs. These documents are intended to outline in a consumer-friendly fashion all the information a retail investor needs to make an informed decision around PRIIPs.
However, despite the Regulation having been in force for nearly a year, the situation with regards to KIDs is still in flux. This December, a consultation launched by the European Supervisory Authorities (ESAs) is due to close. The purpose of the consultation is to seek industry opinion on several proposed changes. These changes include, among others:
• Ending the requirement for companies selling Undertakings for Collective Investment in Transferable Securities to complete a separate Key Investor Information Document (as this will lead to a duplication of effort under the PRIIPs Regulation once their current exemption period ends in 2020).
• Requiring PRIIPs manufacturers to include information on past performance in KIDs.
• Demanding the risk-free rate of return is used instead of historical prices.
• Requiring the delivery of future performance scenarios as a range.
If these changes are approved following the consultation, they will apply from January 2020.
These latest developments are only a small part of a regulatory journey that has been beset by complexity. Ideally, firms in the PRIIPs market need certainty around their obligations under the regulation so they can plan ahead. In the absence of such certainty, however, firms should look at ways in which they can embed agility into their compliance efforts.
If firms can react quickly to any changes in their reporting requirements and regulatory obligations, they will be able to adapt to whatever the regulators throw at them, while ensuring the highest possible standards for investors. This is where managed data services come into their own. Firms that partner with data and RegTech experts like RIMES will be able to source, quality-control and distribute PRIIPs data in the manner demanded by the regulators. There is likely much more to come in the PRIIPs story, so watch this space for further updates.
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