EUROPEAN UNION: EFAMA Recommends Delay into Entry of the PRIIP KID Regulation

Wednesday February 17 2016

EFAMA (European Fund and Asset Management Association) has recommended that the European Commission, European Parliament and Council delay the entry of application of the PRIIP KID Regulation by at least one calendar year.

The delay is recommended due to concerns about the limited time that product manufacturers will have between the final technical rules (RTS) and essential guidelines being published and the deadline to produce Key Information Documents (KIDs) from 31 December 2016 onwards. EFAMA has serious doubts that there will be enough time for market participants to implement the final rules by the end of this year, as originally foreseen by the co-legislators.

Development of technical standards for the PRIIPs KID has turned out to be a complex project involving several iterations of highly technical consultations. A number of fundamental questions still remain unanswered at this late stage, while others possibly require additional guidance at Level-3.

In the best-case scenario, the final RTS will be published in the EU Official Journal in Q3 2016, leaving only a few months for the industry to create a huge number of KIDs. EFAMA believes that past experience with the UCITS KIID has shown that one calendar year was clearly needed after the finalisation of the technical standards.

From a Project Management perspective the following three key deliverables in the UCITS KIID implementation underline the intricacies in the PRIIP KID delivery process:

• Building and testing the relevant IT build to produce the KIIDs to ensure that the data produced was accurate and error free. As this process was new and relied on a number of different data sources, several rounds of testing and review were typically needed before the KIID was in a state where UCITS and their management companies were able to sign off the final document. EFAMA expect the same need for testing and quality control in the PRIIPs KID;
• Drafting the statement of objectives in plain language involved consumer testing and consequential changes to fund documentation for consistency. Without a standard lexicon of key terms, all manufacturers had to develop their own glossaries and then test that changes to pre-existing wording faithfully represented investment strategies; and
• Working with distributors, execution-only platforms and fund data repositories to ensure they understood their respective duties (e.g. pre or post sale provision) and to test the mechanics of onward provision of KIIDs to end-investors. This process took a number of months, in particular as experience showed that there was widespread misunderstanding of the role of the KIID.

If insufficient time is provided to surmount the key operational challenges, EFAMA believes that PRIIP manufacturers will be unable to provide a PRIIP KID to retail investors, and they may face serious legal risks that will result in a de-facto ban on distribution of any type of PRIIPs from 01 January 2017.

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