On 18 May 2016, the European Commission responded in the negative to industry calls to delay the implementation of the Regulation on key information documents for packaged retail and insurance-based investment products (the "PRIIPS Regulation"). The PRIIPS Regulation introduces a standardised pre-contractual disclosure document (the "KID") for manufacturers and distributors of PRIIPs and applies to investment products such as investment funds, life insurance policies with an investment element and structured deposits. By 31 December 2016, all manufacturers of PRIIPS and those advising or selling must prepare a KID for each PRIIP.
In recent months, the European financial associations and Insurance Europe had lobbied intensively on behalf of industry to delay the implementation of the KID for PRIIPS citing the timelines as being unrealistic given the significant operational challenges for manufacturers to overcome. The suggested timelines for the final Regulatory Technical Standards (RTS) was understood to be the third quarter of 2016, leaving only a number of months for industry to meet the 31 December 2016 deadline. In particular, Insurance Europe had recently pointed out the current draft RTS would mislead consumers owing to design faults and, furthermore, that the insurance industry needs sufficient time to programme, test and launch the KID correctly.
In response to a formal request for postponement submitted by the representative bodies of the EU banking, insurance and asset managers industries in late April 2016, the Commission has now responded through a letter from Commissioner Jonathan Hill (the "Letter"). In summary, the Commission’s position as outlined in the Letter is as follows:
- The RTS are expected to be adopted before the summer to allow industry to receive legal certainty on the final format for the KID.
- There are no transitional provisions for existing PRIIPs i.e. both new and existing products offered to retail investors must be accompanied by a KID from 1 January 2017.
- Insurers offering multi-option insurance products (as in the case of unit-linked products) are required to provide a KID.
- A derivative generally falls under the definition of a PRIIP and therefore, a KID is required. For certain derivatives, a simplified KID will be provided for in the RTS.
- The PRIIPS Regulation imposes an obligation (i) on manufacturers to draw up the KID in accordance with the prescribed format and (ii) on entities advising on and/or selling a PRIIP to retail investors to provide the KID. These two obligations are triggered when a PRIIP is offered or sold to retail investors within the EU.
- The Commission will host, together with the European Supervisory Authorities, a workshop open to all stakeholders, which will allow questions about the new rules to be posed.
The Commission’s refusal to postpone implementation of the PRIIPs Regulation represents a considerable blow for industry. There are many areas where more detail and guidance will be needed, and quickly, if manufacturers and distributors are to achieve the 31 December 2016 deadline.