On 14 September the European Parliament voted in plenary session, by a vote of 602 to 4 (12 abstaining), to approve a resolution objecting to the European Commission’s proposed Delegated Regulation supplementing the Regulation on Key Information Documents (PRIIPs KID Regulation). The proposed Delegated Regulation contains regulatory technical standards (PRIIPs RTS) on the presentation, content, review and revision of KIDs.
The European Parliament has sustained the 1 September 2016 vote by the European Parliament Economic and Monetary Affairs Committee (ECON) to unanimously approve the motion rejecting the PRIIPs RTS. The ECON Committee rejected the RTS, describing them as “misleading” and “flawed.”
Key issues identified by the ECON Committee
The ECON Committee set out warnings against the PRIIPs RTS including:
- a need to promote a level playing field in the market no matter what type of financial intermediary manufactures or markets the investment products;
- lack of clarity around multi-option products, especially with regard to the explicit exemption granted to UCITS;
- flaws in the methodology for the calculation of future performance scenarios;
- lack of detailed guidance on the “comprehension alert”; and
- generally, that the RTS if left unchanged may not ensure that retail investors are provided with clear, comparable, understandable and non-misleading information on PRIIPs.
Following on from the ECON Committee's motion, the European Parliament's resolution:
- instructs the President of the European Parliament to notify the Commission that the Delegated Regulation cannot enter into force;
- calls on the Commission to submit a new delegated act that takes account of the concerns set out in the recitals to the resolution. These include concerns that there are flaws in the methodology for the calculation of future performance scenarios and the lack of detailed guidance on the comprehension alert; and
- calls on the Commission to consider a proposal postponing the application date of the PRIIPs KID Regulation to ensure a smooth implementation of the requirements set out in the Regulation and the Delegated Regulation and to avoid the PRIIPs KID Regulation applying without RTS being in force in advance.
The Commission proposed a number of practical workarounds to allay the Parliament’s concerns ahead of the plenary vote but it appears that these were not sufficient.
Following yesterday’s vote, the Commission will now have to propose new RTS for implementing the PRIIPs legislation which is due to come into force on 31 December 2016. The implementation timeline may be postponed, though John Berrigan of the European Commission had previously indicated that the PRIIPs KID Regulation could be allowed to enter into force without the measures in the regulatory technical standards as a “second best” option. Any amendment to the implementation date of the PRIIPs KID Regulation would have to comply with ordinary legislative procedure and would require the European Commission to introduce a new regulation (similar to what happened with MiFID II – the so called ‘quick fix’).