On February 20 2018 the Financial Market Authority (FMA) published a new circular concerning key information documents for packaged retail and insurance-based investment products. The circular is available only in German on the FMA homepage.
The FMA had already published a revised version of its circular on sound remuneration policies and practices (in German) on January 19 2018.
The circular is addressed to insurance undertakings and entities that produce, sell or advise on insurance-based investment products.
This update summarises the most important interpretations by the FMA of the Packaged Retail Investment and Insurance Products (PRIIPs) Regulation (1286/2014):
- In case of mixed endowment and death insurance, the key information document (KID) must outline both components (death and endowment insurance), although traditional death insurance is not subject to the PRIIPs Regulation.
- Immediately starting annuity insurances do not fall within the scope of the PRIIPs Regulation and hence no KID need be produced. Deferred annuity policies are subject to the KID requirement, although the presentation of the performance scenarios may be limited to the savings phase.
- The FMA considers the following individual and occupational pension products to fall outside the scope of the PRIIPs Regulation:
- state-aided pension provision pursuant to Section 108g of the Income Tax Act;
- additional pension insurances pursuant to Section 108b of the Income Tax Act;
- future insurances pursuant to Section 3(1) Z 15, Letter a) of the Income Tax Act;
- occupational pension insurance pursuant to Section 93 of the Insurance Supervision Act 2016;
- pension fund business pursuant to Section 1(2) of the Pension Funds Act;
- pension reinsurance;
- severance payments cover insurance; and
- severance payments and anniversary bonus cover insurances.
- Additional insurance sold together with, but not itself qualifying as, an insurance-based investment product must be described in the KID in the "Other relevant information" section.
- If insurance-based products are not offered after January 1 2018, no KID is required – even if investment options may (continue) to be exercised in future.
- Even if Annex I of the PRIIPs Delegated Regulation (2017/653) does not foresee a separate section for 'term', the term of an insurance-based investment product must be described in the "What is this product" section.
- Whereas the German text of Annex VI of the PRIIPs Delegated Regulation used the term 'or', the aggregate costs must be presented as a monetary amount and percentage.
- The FMA considers that uniform holding periods will form the basis of the presentation of the recommended holding period for certain product classes. Products with a fixed term will have this fixed term as the recommended holding period.
- If a KID is updated, the FMA considers publication via the webpage of the insurance undertaking sufficient. This is also based on the draft of the Insurance Distribution Act 2017, which prescribes at least annual reporting of certain substantial information to the insured party in paper form or via durable medium.
- The FMA considers that life insurance eligible for profit participation for which a cover pool has been established will constitute a non-complex insurance-based investment product. However, whether all conditions for such qualification pursuant to the PRIIPs Delegated Regulation are met must be documented by the insurance undertaking on a case-by-case basis.
- Unit-linked and index-linked life insurance for which a cover pool has been established will also constitute a non-complex insurance-based investment product, provided that the underlying financial instruments are non-complex pursuant to the Markets in Financial Instruments Directive. Again, whether all conditions for such qualification pursuant to the European Insurance and Occupational Pensions Authority Guidelines 17/651 are met must be documented by the insurance undertaking on a case-by-case basis.
- Performance scenarios of products with investment options will be presented in accordance with these investment options. Hence, the requirement to present four performance scenarios in accordance with the PRIIPs Regulation will not apply. In addition, the FMA considers that the generic KID must contain only death scenarios.
Following the publication of the Guidelines on Remuneration Policies (EBA/GL/2015/22) by the European Banking Authority (EBA) in June 2016, the FMA has now updated its own circular on sound remuneration policies and practices.
The most important findings can be summarised as follows:
- Whereas it could be derived from the EBA guidelines and the available materials that the EBA would prefer that complete neutralisation of certain requirements should no longer be permissible, the FMA continues to consider a complete neutralisation of the requirements of Items 11 to 12a of the Annex to Section 39b of the Federal Banking Act permissible for non-complex institutions. The FMA likely bases this on Item 49 of the EBA's Final Report to the EBA guidelines, in which the EBA expressed its belief that a complete neutralisation of certain requirements should no longer be permissible, but at the same time recognised that many member states consider a complete neutralisation in compliance with Article 92(2) of the Capital Requirements Directive.
- The balance sheet threshold – relevant for determining whether an institution is complex – has been increased from €1 billion to €5 billion.
- It continues to be permissible to neutralise certain requirements for certain classes of employee.
- The materiality threshold for variable remuneration remains at 25% of fixed income or €30,000. Any amounts exceeding this threshold will be considered significant.
For further information on this topic please contact Stefan Paulmayer at Schoenherr by telephone (+43 1 5343 70) or email (firstname.lastname@example.org). The Schoenherr website can be accessed at www.schoenherr.eu.
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