What is the modification and what do you need to do?

Following discussions between the Investment Association and the FCA, it was recently clarified that the FCA’s modification by consent of COBS and COLL will continue to be made available until 2018 (unless obsolete or revoked).

The modification allows managers of Non-UCITS Retail Schemes (NURS) to produce a document similar to the UCITS KIID known as a “NURS KII” instead of a key features document or simplified prospectus.

Managers that currently use this modification will need to apply for an extension as all existing modification directions expire on 30 June 2016.

Does the modification affect the implementation of PRIIPs?

The PRIIPs Regulation requires a short, pre-investment disclosure document to be prepared and provided to investors of certain financial products from 31 December 2016 (for more information, see our dedicated PRIIPs webpage).

UCITS and NURS are both within the scope of the PRIIPs Regulation. However, UCITS are specifically exempt until at least 31 December 2019 - recognising the relative novelty of the UCITS KIID. That exemption may also apply to other products where a Member State applies the UCITS KIID requirements to those products. Many in the industry had hoped that the availability of the modification by consent would allow managers of NURS to avail themselves of this exemption. However, our understanding is that, at present, the FCA may not consider the modification by consent to be sufficient to enable a NURS operator to benefit from exemption. The exemption may be available if, in due course, the FCA applies a requirement to produce NURS KIIs to all NURS on a wholesale basis.

If the FCA does not implement such a requirement, the only circumstance in which the manufacturer of a NURS would not be required to produce a PRIIPS KID by 31 December 2016 is if the effective date of the PRIIPs Regulation is postponed.

The efficacy of the extended modification by consent may, therefore, be significantly less than many first anticipated. We expect the FCA’s PRIIPs consultation paper (anticipated later this summer) to consider this.

Furthermore, it is possible that NURS which have greater than a 20% exposure to real estate (or a feeder fund investing in such a fund) will not be able to benefit from the exemption in any circumstance. The FCA has long taken the view that a UCITS KIID does not adequately capture and illustrate the liquidity risks arising from investment in real property and therefore the FCA applies considerably different requirements to the NURS KIIs of real property funds compared to those applied to UCITS KIIDs.

Further information

At the time of writing the FCA’s webpage had not been updated to reflect the content of this article.