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    ESAs Respond to EC on Exclusion of Options in PRIIPs Consumer Testing

    August 07, 2019

    ESAs responded to EC about the exclusion of a few proposed options for presenting information on performance scenarios to be tested during a consumer testing exercise by EC under the Level 2 Review of the Regulation on key information document (KID) for Packaged Retail and Insurance-Based Investment Products (PRIIPs Delegated Regulation 2017/653). ESAs proposed the options on May 23, 2019 while EC informed ESAs, on July 19, 2019, that three of the proposed options will be excluded.

    ESAs consider that consumer testing can bring the best insights if a wide range of different approaches and options are first put on the table. The key points covered in the response include the following:

    • In relation to Option 4 for the structured product, ESAs disagree with the assessment that this option should not be included because it overlaps with Option 3. While the information is included as well in Option 3, the aim of Option 4 is to assess the effectiveness of showing only one set of performance information. Such an approach will be taken for other options that will be part of the testing. In addition, the discussions on developing the methodologies that would underlie the different performance scenario presentations are still ongoing. Therefore, ESAs think it is premature to reject this option at this stage on the basis that it is unclear who would define “what if” scenarios and is not consistent with the approach taken for other options that will be tested.
    • In relation to Option 5 for insurance-based investment products (IBIPs), ESAs recognize it will be important to further streamline options before finalizing proposals for the technical standards. However, this can be done better on the basis of the results from the consumer testing, rather than preemptively.
    • In relation to Option 6 for IBIPs, ESAs disagree that it does not give the right information and that it is not transparent to show an average past performance at different time periods rather than annually. For shorter-term liquid PRIIPs, communicating volatility can be most relevant. However, for longer-term products, the evidence is that investors do not respond to volatility and interim losses in a way that is in their best interests. This is a well-known issue of poor market timing by consumers and has long been a specific challenge in the context of retirement savings vehicles, where short-term volatility can lead to investors stopping their contributions prematurely or worse.

    Since ESAs continue to regard these as relevant options, the authorities are considering whether to include these options in an upcoming consultation paper, even if they are not part of the consumer testing, with the aim to receive feedback from external stakeholders, including consumer associations and their representatives. 


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    Keywords: Europe, EU, Banking, Insurance, Securities, PRIIPs, KID, Consumer Testing Exercise, PRIIPs Regulation, IBIPs, Structured Products, ESAs, EC

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