On November 9, 2016, the EU Commission issued a press release stating that it was proposing a one year extension to the implementation date for the Regulation on Key Information Documents for Packaged Retail and Insurance-based Investment Products (the PRIIPs Regulation). The PRIIPs Regulation was due to apply from December 31, 2016. The EU Commission has published a draft amending Regulation which will delay the commencement date to January 1, 2018.
The PRIIPs Regulation applies to manufacturers and distributors of PRIIPs, and provides that where a PRIIP is to be made available to retail investors, a Key Information Document (KID) must be prepared and provided to those investors. The requirements as to the form and content of the KID are detailed and prescriptive. The KID must be a maximum of three sides of A4-sized paper. In connection with the PRIIPs Regulation, the European Supervisory Authorities (ESAs)4 published draft Regulatory Technical Standards (RTS) which contain additional detail on the content requirements for the KID, detailed methodology related to certain required elements, and a draft template for the KID. The RTS were adopted by the EU Commission in June 2016, which then proposed a draft delegated regulation to give effect to them. However, this process subsequently ran into difficulty with the EU Parliament, which raised a number of concerns on the draft RTS; these concerns included the methodology for the calculation of future performance scenarios, and the lack of detailed guidance on how the required "comprehension alert" should be structured. The EU Parliament formally rejected the proposed delegated regulation on September 14, 2016. It also called for a delay in the implementation timetable for the PRIIPs Regulation, in order to give time for revised RTS to be finalized.
Even prior to this time, many market participants and trade bodies had called for a delay in the PRIIPs implementation timetable. In addition to concerns about the draft RTS and the time needed for market participants to prepare productspecific templates for their KIDs, it was also noted that further guidance in the form of Q&As that the EU Commission had indicated would be published well in advance of the implementation date, had still not been made available. Although the EU Commission indicated that it might be prepared to proceed with the implementation of the PRIIPs Regulation without the finalization of the RTS, this approach was regarded as impracticable by many in the industry in view of the lack of detailed rules on the content of the KID in the PRIIPs Regulation, coupled with the potential for liability and/or sanctions for manufacturers if any KID did not comply with the PRIIPs Regulation.5
In its press release, the EU Commission stated that it is working closely with the ESAs to resubmit draft RTS, with a view towards meeting some of the concerns raised by the EU Parliament and developing guidance notes, particularly in relation to the practical application of credit risk mitigation factors for providers of insurance-based products. The Commission indicated that the revised RTS should be submitted to it by the end of 2016. with a view to them being finalized within the first half of 2017.
The Commission's amending regulation needs to be approved by the EU Parliament and EU Council of Ministers. It is not expected to face any objections in principle to the delay; however, it is not straightforward to finalize EU legislation in a short time frame. Concerns therefore remain about whether the amending regulation will be in force prior to the current PRIIPs Regulation implementation date. The delay is likely to be welcome by most participants in the structured products industry. That being said, there will still be concerns about the extent to which revised RTS developed in the course of the next six weeks will be able to meet the concerns that were previously raised. Nevertheless, the revised time frame for finalization of the RTS and guidance notes and implementation of the PRIIPs Regulation are likely to be regarded as much more workable than the current position.