Shearman & Sterling LLP | FinReg | UK Announces Extension of Exemption for UCITS from PRIIPs Disclosure Requirements
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  • UK Announces Extension of Exemption for UCITS from PRIIPs Disclosure Requirements

    HM Treasury has announced that the current exemption for Undertakings for Collective Investment in Transferable Securities funds from the requirements of the U.K. Packaged Retail Investment and Insurance-based Products Regulation will be extended by five years to December 31, 2026.

    The U.K. PRIIPs Regulation, which was on-shored in the U.K. after Brexit and is based upon the corresponding and much-criticized EU regulation, requires "manufacturers" of PRIIPs to produce a standardized "key information document," designed to improve U.K. retail investors' understanding of the financial products they are purchasing. Technical Standards govern the presentation, content, review and revision of KIDs and the conditions for fulfilling the requirement to provide a KID. Under the U.K. PRIIPS Regulation, management companies, investment companies and persons advising on, or selling, units in UCITS are exempt from the requirements of the PRIIPs Regulation until December 31, 2021. UCITS funds still need to prepare a key investor information document (KIID) as required by the UCITS Directive, with different but broadly similar content requirements. The EU PRIIPs regime, which the U.K. has now adopted without material modifications, was intended to improve investor disclosures for more complex retail products such as index-tracking investments and insurance-wrapped products. However, it has resulted in deleterious impacts in other industries and has been widely criticized for its vagueness of scope and wide application, with particularly difficult consequences for bond issuers, listed derivatives and funds. The U.K. has announced that it is undertaking a broader review.

    The extension for UCITS funds will be made using a power the Treasury was granted in the Financial Services Act 2021. According to the announcement, depending on the outcome of HMT's wholesale review of the U.K. retail disclosure regimes, changes to the U.K. PRIIPS Regulation may be made before 2026. However, any changes would provide for a transition period.

    The EU PRIIPS Regulation exemption for UCITS is due to expire on December 31, 2021. Commissioner Mairead McGuiness has stated that the Commission is considering a short extension to July 2022 of the exemption for UCITS and that a broader review of the EU PRIIPS Regulation will also happen in 2022. The Commission is already consulting on a Retail Investment Strategy, which it intends to formalize by early 2022. HM Treasury's announcement therefore appears to be a step in a different direction, albeit a welcome one.

    The recent Financial Services Act 2021 made amendments to the U.K. PRIIPs Regulation so that: (i) the Financial Conduct Authority is empowered to clarify the scope of the rules on whether a product or category of product falls within the Regulation; and (ii) the requirement for KIDs to give a brief description of performance scenarios will be replaced with a brief description of information on performance and the assumptions made to produce them.

    View HM Treasury's announcement.

    View details of the Financial Services Act 2021.

    You may like to see our client note, "PRIIPs and Capital Markets Transactions: a Better Way Forward?" in which we discuss the scoping issues, restrictions on access and costs that the PRIIPS regime has caused for relatively simple products.

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