EUROPEAN UNION: ESMA Executive Director Addresses PRIIPs Implementation Issues

Friday October 28 2016

As part of a speech to the Finanstilsynet 30th Anniversary International Conference in Oslo, Verena Ross, the Executive Director of ESMA, addressed some of the concerns regarding the implementation of the PRIIPs (Packaged Retail and Insurance-based Investment Products) Regulation. ESMA are responsible for drafting the PRIIPs Regulatory Technical Standards (RTS). Notable by its absence however, was any comment relating to the recalculation of PRIIPs transaction costs.

The relevant extract of the speech is as follows:

“The so called packaged retail and insurance-based investment products Regulation (PRIIPS) is probably one of the most important projects ESMA has been working on in close cooperation with EBA and EIOPA (and of course all national competent authorities). It is one of the most visible projects for the end investor that ESMA is working on: retail investors will physically be able to see a Key Investor Information Document (KIID) bringing together the key information about potential investments. ESMA together with EBA and EIOPA has been working hard over the last years in finding a suitable cross-sectorial approach for PRIIPs and their manufacturers, working closely with the European Commission that did some important consumer testing work. We believe that the standards we have proposed to the European Commission represent a balanced compromise between the different interests. They are built on considerable stakeholder consultation – three separate consultations and including the input of an expert group.

It seems that some market participants are not convinced by our suggested way forward, probably also because there might still be some concerns related to the implementation of the Insurance Mediation Directive (IMD). Indeed, given the timing of the PRIIPs work, there was a clear need for alignment with MiFID 2 but we also had to look at the UCITS KID in this context.

As you know, the European Parliament’s ECON Committee expressed concerns which were followed by the Parliament when deciding to reject the RTSs prepared by the ESAs and to ask for a delay of the implementation deadline.

The Parliament’s concerns are four-fold:

1. How credit risk should be treated within the risk calculation and categorisation of insurance products?
2. How multi-option products should be treated?
3. Whether the proposed method for performance scenarios reflect accurately potential losses investors could suffer; and
4. How the comprehension alert, which informs an investor that she/he is about to buy a product that is not simple and may be difficult to understand, will be applied across the different EU countries.

I still believe that the RTS proposed by the three ESAs and supported by the respective NCAs represents a balanced compromise between the different interests, fully taking into account the breadth of PRIIPs covered and aimed to ensure better comparability between them.

Of course these RTS – as with any technical instrument – can always be improved and refined. But they represent a good and sound foundation in our view. It is now up to the European Commission – who is in the lead – to find a common way forward together with Parliament and Council in the next months.

There is no formal role for the ESAs, but we will assist the Institutions wherever possible. Rest assured that I am fully convinced about the need for clarity both for investors and market participants on what the world will look like on 1 January 2017, when the Regulation is supposed to come into effect which as I mentioned earlier is another topic the Institutions are currently discussing.

We are also conscious that further guidance might need to be provided by the ESAs and we stand ready for that. In fact, we are already preparing some Q&As or guidelines which might help the industry in its implementation of the PRIIPs regulation.”

Click on the above link for further details.