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February 20, 2019

While speaking in Brussels, at the Scrutiny Hearing of the ECON Committee of European Parliament, Gabriel Bernardino, the Chair of the Joint Committee of ESAs, provided an update on the work of ESAs in relation to the delegated acts on the key information documents (KIDs) for the packaged retail and insurance-based investment products (PRIIPs). He highlighted the importance of a KID in increasing the transparency and comparability of investment products through the issue of a standardized short form disclosure document.

He mentioned that ESAs are committed to supporting an effective and convergent implementation of the rules as a variety of different national approaches to the KID will not help PRIIP manufacturers, distributors, or most importantly, consumers, particularly in the context of cross-border business. ESAs are also committed to reviewing the existing rules, where this is needed, so they can apply equally well to all different types of PRIIPs. ESAs have been examining the issues raised by stakeholders and are considering what to do. In some cases, questions and answers have been published to clarify technical points. However, it had been decided last year that the best course of action on some issues was to propose targeted amendments to the PRIIPs Delegated Regulation. Hence, a public consultation was issued in November last year, which focused on changes to the performance scenarios. Mr. Bernardino summarized some of the main themes that emerged from the public consultation.

There is a consensus among stakeholders that the current performance scenarios in the KID should not be taken as best estimate forecasts, yet there is a risk that consumers read them that way. The proposals that ESAs made to strengthen the warnings in the KID were generally supported. However, it was stated that there are no “quick-fixes” that can be made to the performance scenario methodology and, therefore, it was suggested that ESAs should undertake a comprehensive analysis of alternative approaches. After taking into account the feedback received on the consultation it was concluded, as published in early February, that it was not appropriate to propose narrowly targeted amendments at this stage. However, immediate supervisory steps are needed to reduce the risk that the meaning of the current performance scenario figures is misinterpreted or there is undue reliance on them. Therefore, a joint ESA Supervisory Statement was issued to promote consistent approaches and improve the protection of retail investors prior to the conclusion of a fuller review.

Mr. Bernardino added that, in the statement, ESAs recommend PRIIP manufacturers to include a warning in the KID to ensure that retail investors are fully aware of the limitations of the figures provided. The February publication also stated that a more comprehensive review of the PRIIPs Delegated Regulation will be launched this year; this publication set out the main areas of the rules that are intended to be addressed and include the following:

  • Issues related to performance and cost disclosures should be addressed. This will include assessing whether the transaction cost methodology and reduction in yield approach should be adjusted. ESAs will also draw on the analysis of KIDs during the work started last year to report on an annual basis on the costs and past performance of investment products.
  • Focus will be on possible amendments to the PRIIPs Delegated Regulation. However, where changes to the PRIIPs Level 1 Regulation are needed to achieve the optimal outcomes at Level 2, ESAs also intend to recommend such changes.
  • Given the very wide scope of the PRIIPs Regulation and to ensure that the KID works equally well for all products, some further differentiation in approach for different types of PRIIPs may be needed, while still adhering to the aim of comparability between substitutable products.
  • ESAs intend to conduct consumer testing, including both the existing KID and alternatives.

Finally, he welcomed input from the Members of Parliament on how to improve the transparency and comparability of the KID, to make it work better for the consumers. He concluded, “…we welcome the confirmation that amendments to the PRIIPs Regulation will be made this year regarding the issue of the duplication of disclosures between PRIIPs and UCITS; some minor consequential adjustments to align the PRIIPs Delegated Regulation with the new deadline will also be needed. We now have the time to ensure the PRIIPs KID can work for all products, including UCITS… .”


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Keywords: Europe, EU, Banking, Insurance, Securities, PRIIPs, KID, PRIIPs Regulation, ESAs

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