EUROPE: Joint Report on Packaged Retail Investment Products (PRIPs)

Wednesday October 13 2010

The 3L3 Task Force has published a joint report on Packaged Retail Investment Products.

In conducting it `s work, the Task Force has focused on three central areas of the scope of the PRIPs regime; the product disclosure requirements for PRIPs; and the regulation of their selling practices.

Scope

The report states that a majority of Task Force members agreed with the following definition

for PRIPs, developed by the Task Force – A PRIP is a product where the amount payable to the investor is exposed to (a) fluctuation in the market value of assets or (b) payouts from assets, through a combination or wrapping of those assets, or other mechanisms than a direct holding.

A minority of Task Force members considers this definition to be too broad amid suggestsions of rephrasing some of its elements, as to take into account the level of investment risk and the principle.

The product disclosure requirements for PRIPs.

Overlap with UCITS and MiFID

Amongst others, the UCITS Directive and MiFID all contain existing standards and specific requirements on the content and the presentation of product disclosure information. The Task Force has recommended that these should be taken into account in developing any common regime for PRIPs (e.g. in order to avoid overlapping provisions).

The Task Force agrees that, in principle, the concept of Investor Information provided through a Key Investor Information (KII) document, as developed for UCITS, could usefully be applied to PRIPs. However, the detail of the information that would be contained in such a document would not cover precisely the same areas as the KII template for UCITS, since some information is specific to UCITS.

The Task Force has considered whether the KII should be subject to prior approval by a competent authority. The majority of the Task Force does not support prior approval. Aside from the administrative burdens and possible timing delays this approach might involve, prior approval may shift the responsibility of contents of the KII from the product provider to the competent authority. Furthermore, for insurance products, systematic prior approval is not currently allowed under the Life and Non-Life Directives or under Solvency II.

Selling Practices

In this report, the Task Force considered a number of areas where the PRIPs regime is likely to set requirements for the distribution of PRIPs. Its approach has been to take existing MiFID Level 1 provisions as the benchmark.