European Supervisory Authorities Recommend Further Risk Warnings for Retail Investors

The Joint Committee of European Supervisory Authorities has published a Final Report following their consultation on targeted amendments to the Key Information Document for Packaged Retail and Insurance-based Investment Products. Since January 1, 2018, the EU PRIIPs Regulation has required manufacturers of PRIIPs to prepare and publish a stand-alone, standardized Key Information Document for each of their PRIIPs. Those advising retail investors on PRIIPs, or selling PRIIPs to retail investors, must provide retail investors with a KID in good time before the transaction is concluded. The PRIIPs Regulation exempts, until December 31, 2019, management and investment companies and persons advising on or selling Undertakings for Collective Investment in Transferable Securities from the obligation to produce and provide a PRIIPs KID. This is because the UCITS Directive separately requires these entities to provide investors with a Key Investor Information Document, with different but broadly similar contents requirements. As a result, if there were no changes made to the EU legislation, UCITS would be subject to duplicative information requirements from January 1, 2020. To address this situation, the ESAs proposed amending the Regulatory Technical Standards under the PRIIPs Regulation by moving the UCITS KIID requirements to the PRIIPs RTS.

Since the ESAs published their proposals, the European Parliament Committee on Economic and Monetary Affairs adopted amendments to the PRIIPs Regulation, which proposed to: (i) extend the exemption for UCITS and relevant non-UCITS funds from December 31, 2019 to December 31, 2020; and (ii) change the date for the Commission's review of the PRIIPs Regulation from December 31, 2018 to December 31, 2019. The ESAs are therefore not pursuing their proposals in this regard, and are assuming that the ECON's proposals will be formally adopted early this year.

The ESAs also proposed certain other targeted amendments to the PRIIPs KID requirements. These changes include, among other things, requiring PRIIP manufacturers to include information on past performance in the KID, amending the narrative explanations for performance scenarios, requiring the use of the risk-free rate of return instead of historical prices and requiring the presentation of future performance scenarios as a range either in tabular or graphical format. In their Final Report, the ESAs note that the responses to their proposals indicate that, overall, stakeholders do not support the proposed targeted changes. As a result of this feedback and the steps taken by the EU legislators in the interim, the ESAs have decided not to propose substantive amendments at this stage. However, the ESA's view is that a supervisory response is needed on the expectations regarding the provision of performance scenarios to retail investors, and they have issued a joint Supervisory Statement setting out the factors that PRIIP manufacturers should take into account when presenting performance scenarios.

Finally, the ESAs set out the steps that they do intend to take, focusing on the review of the PRIIPs RTS. The ESAs intend to propose new RTS by the end of 2019, because they understand that the amendments to the PRIIPs RTS could be applied to existing PRIIPs during 2020, before the proposed end of the exemption for UCITS. Before proposing new RTS, the ESAs will consult again later this year on these and other issues.

View the Final Report.

View the Supervisory Statement.

View details of the ESA's consultation.

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