Brussels, 18th April 2017 - For immediate release
PRIIPs: a good framework which suffers from flawed technical implementation measures
Brussels, 18th April 2017: On 12 April, the PRIIPs KID’s (Key Information Document for Packaged Retail and Insurance-based Investment products) Level-2 implementing measures were published in the Official Journal of the European Union, marking the end of a long and complicated legislative debate.
EFAMA believes that PRIIPs’ ambitions were excellent and that, from the outset this proposal has seen the strongest show of support from European asset managers. A KID for PRIIPs is a powerful instrument to ensure that consumers receive the right information before making their investment choices, when it comes to this type of packaged investment products.
To put it simply, a KID should give meaningful, comprehensible and comparable information for investors to feel confident and make better investment decisions. The PRIIPs Regulation has, by and large, set up a good framework to achieve this objective.
When it comes to the KID Regulatory Technical Standards, many of their provisions fulfil the purpose of allowing a practical implementation, but we are discouraged to see that other important provisions simply go against the Level 1 objectives.
We acknowledge that the EU institutions have made efforts to reconcile various views and find workable compromises.
Throughout the two-year technical process, the final RTSs have benefited from a number of improvements. Unfortunately, these fall short of what the asset management industry would have expected, to the extent that the PRIIPs Regulation will not fully deliver on its original promises to retail investors and could end up being harmful to them.
In spite of repeated requests, EU co-legislators and regulators decided to discard some of the major concerns voiced by both European asset managers and consumer representative organisations. In this context, EFAMA particularly regrets that:
- Historic performances will not be shown in the PRIIPs KID. Even if past performances are not necessarily an indication of future performances, they are based on (historical) facts presented in a standardised way, which shows how an investment product was able to meet or exceed its objectives and deliver value to its clients. This is a clear step back from the UCITS KIID.
- The methodology for the calculation of the transaction costs is based on erroneous assumptions, which can mislead investors into believing that a product is more, or less, expensive than it is in reality.
- Cost disclosure. Costs are now averaged over a product’s recommended holding period. Retail investors will no longer be able to compare costs of the same products if these have different holding periods.
As a result of this, meaningful comparisons between different products will be made more difficult, if not impossible.
Peter De Proft, Director General of EFAMA commented: “EFAMA has been systematically alerting EU policymakers, throughout the legislative process, of the potentially negative consequences of part of the PRIIPs rules on investors. We have repeatedly suggested practical solutions to address these concerns without undermining the policy objectives of the Regulation. We are deeply disappointed that insufficient attention was paid to these concerns, which EFAMA, Better Finance and the CFA Institute defended in a unique alliance. When rules are proposed to protect and benefit investors, their concerns should certainly not be dismissed.”
Alexander Schindler, President of EFAMA, commented: “Providing the right information to our clients is paramount. The PRIIPs RTSs make asset managers provide investors with incorrect information about the key characteristics of an investment product. This is against our duty to act in the best interest of our clients, the end-investors, and the overarching objectives of the PRIIPs Regulation”.
The Regulation will apply from 1 January 2018. European asset managers are continuing their work on this complex and costly implementation project, faced with an extremely tight deadline. In the meantime, there are still many outstanding questions the European Supervisory Authorities and the Commission will need to clarify through guidelines and Q&As to make implementation possible. EFAMA will continue its technical work to assist them in this task in the best possible way.
The PRIIPs Regulation is to be reviewed by the end of 2018, and we trust this will be the time to make the necessary changes in the interest of our clients, the end-investors. Ahead of this, EFAMA stands ready to continue the dialogue with the Commission, the co-legislators and the ESAs.
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Notes to editors:
About the European Fund and Asset Management Association (EFAMA):
EFAMA is the representative association for the European investment management industry. EFAMA represents through its 28 member associations and 61 corporate members to EUR 23 trillion in assets under management of which EUR 14.1 trillion managed by 58,400 investment funds at end 2016. Just over 30,600 of these funds were UCITS (Undertakings for Collective Investments in Transferable Securities) funds, with the remaining 27,800 funds composed of AIFs (Alternative Investment Funds). For more information about EFAMA, please visit www.efama.org