In light of the recent vote by Members of the European Parliament (MEPs) to reject the Level 2 rules in the regulatory technical standards (RTS), we examine what this might mean for their impending implementation.
The MEPs on the Economic and Monetary Affairs Committee voted almost unanimously recently (55-0 with 3 abstentions) to reject the proposed Level 2 rules in the RTS submitted by the Joint Committee of the European Supervisory Authorities which had already been approved by the European Commission.
Why were the RTS rejected?
The reports on the debate say that the main stumbling block was the calculation methodology for return scenarios, as it was claimed this could imply a positive return in the unfavourable scenario, even when actual experience may have been different. There is a distinct lack of consumer protection if this is the case.
Other concerns included how insurance costs are included and the treatment of Multiple Investment Option PRIIPs (MOPs).
The issue with MOPs is that the PRIIPS Regulation requires all content to be delivered for the main product (wrapper) and each of the underlying investment options. It is therefore impractical for the product manufacturer to include all the required content in the proposed single three-page document. In acknowledging the difficulties, the recently released RTS has provided product manufacturers with two distinct options to provide generic pre-sale disclosure to its retail investors:
- Combined PRIIPs KID covering each product and fund combination.
- Generic product-level KID with additional fund level-level information in a separate document.
So what will happen next?
Rapporteur Pervenche Berès accused the Commission of ignoring the concerns of Parliament and publishing the RTS without Parliamentary consultation. Gabriel Bernardino, Chairman of EIOPA, said the proposals were a “balanced technical compromise”, but this was dismissed by the chairman of the Economics Committee, Roberto Gualtieri, who said it wasn’t a workable compromise.
John Berrigan of the Commission said the ideal solution would be to introduce both the level one legislation and the Level 2 RTS at the same time, but the Commission was prepared to allow the introduction of the main legislation without the Level 2 in place. However, MEPs doubted how that might work and MEP Markus Ferber won backing for his proposal to delay the introduction of the regulation until the RTS is agreed.
With this in mind, there now seem to be two feasible outcomes:
– Compromise on the RTS and an even tighter launch schedule
– Delay the implementation of the level one legislation
There is undoubtedly a strong political will to go live at the end of this year, but MEPs could arguably justify a delay if they blame it on the Commission and regulators.
There is a lot of work to be done if PRIIPs KIDs are to be introduced from 31 December 2016.
However, regardless of whether there is a delay, we recommend that firms should have already begun thinking about their implementation process as the regulation is inevitable one way or another.
PRIIPs KIDs - what happens now?
If you require anymore information about PRIIPs KIDs please do get in touch with us on 02073372291 or email at fe-kiihub@financialexpress.net.