2021 was again busy from a PRIIPs perspective: while the expected broader review of the regulation on key information documents (KIDs) for packaged retail and insurance-based investment products (PRIIPs) was initiated, ALFI’s advocacy efforts focused in particular on addressing concerns around the upcoming phasing out of UCITS key investor information documents (KIIDs) for retail investors. Further to the adoption of revised regulatory technical standards (RTS), version 5 of the ALFI PRIIPs KID Q&A document was published in November 2021. ALFI hosted a dedicated member briefing in January 2022, which was well attended.

PRIIPs quick fix

From the outset, the PRIIPs KID was meant to be the standard disclosure document, including for investors in UCITS. Therefore, Article 32 of the PRIIPs level 1 regulation included only a temporary exemption for UCITS management companies, and also for managers of alternative investment funds that offered UCITS KIID-like documents to retail investors based on national law. This exemption was meant to expire on 31 December 2019, but was postponed a first time to the end of 2021. However, in the course of last year, it became clear that the revised RTS at level 2 under PRIIPs would not be available in time. Therefore, the co-legislators agreed on another prolongation of the exemption until 31 December 2022. The 12-month delay was welcomed by the industry, because it leaves sufficient time to prepare implementation in terms of data gathering, changes to IT systems, tests, staff training, etc. Moreover, insurers which prepare PRIIPs KIDs based on information from UCITS management companies usually require tailored details several months before the application of new rules.

UCITS quick fix

In parallel to the PRIIPs quick fix, the EU authorities agreed to slightly modify the UCITS Directive. Action had to be taken to avoid that UCITS management companies were required to produce for the same product both a UCITS KIID and a PRIIPs KID. Such a situation would not only have caused double efforts and costs, but also confusion for retail investors, because the disclosure requirements of both documents are not identical (as an example, investors would have seen different cost figures, because the cost figure under PRIIPs includes transaction costs, which is not the case for UCITS KIIDs). As from 2023, PRIIPs KIDs will be considered to fulfil the disclosure requirements of the UCITS Directive. For professional investors, the co-legislators decided to offer optionality, i.e. managers will be able to decide whether they want to continue to produce UCITS KIIDs or also hand over PRIIPs KIDs to those investors. Although the second option is at odds with the scope of the PRIIPs Regulation, it was not possible to find a more adequate legal solution in the context of the quick fix procedure.

Broader PRIIPs review

The EU Commission embedded the broader review of the PRIIPs level 1 regulation, originally planned for the end of 2018 and later postponed to the end of 2019, into its “retail investment strategy for Europe”. Following the publication of a roadmap, a consultation was conducted from May to August 2021. ALFI responded to this consultation. The different PRIIPs working groups worked on the answers to the questions included in section 4 and 5 of the questionnaire. The consultation was followed by two calls for evidence by the European Supervisory Authorities and ESMA respectively, a more general one on retail investor protection and a targeted one on the PRIIPs Regulation.

It is expected that future changes will concern the use of digital media and layout of the PRIIPs KID, more consistency between PRIIPs and other disclosure requirements (like those under MiFID and the Insurance Distribution Directive with regard to cost disclosures), as well as for investment funds the inclusion of past performance in the KID itself.

Susanne Weismüller, Senior Legal Adviser