The European Fund and Asset Management Association (Efama) is calling on the European Commission to give industry more time to implement the Packaged Retail and Insurance-based Investment Products (Priips) rules.
This is because the Regulatory Technical Standard (RTS) in the key information documents (Kids) “falls short of conducting a proper Level 1 review”, the trade body said.
It said that a review “is explicitly required by the Level 1 regulation and is overdue [by] more than one year”.
Efama believes this to be a “flawed review process, not tackling the heart of the issue”.
The problem with the Priips Kid is that industry players are finding it hard to create a “fully homogenised” retail investor documents including diverging investment and insurance products, with the goal of keeping information meaningful and not misleading.
Efama said: “In our opinion, both goals cannot be fully achieved simultaneously, and some trade-off will have to be found between meaningful and comparable information. This conundrum cannot be solved only by making technical changes at RTS level – despite the European Supervisory Authority’s (ESA) ongoing best efforts.
“We, therefore, understand and support industry associations and consumer representatives voicing their frustration that this issue is not tackled head-on through a Level 1 review.”
Lack of clarity
The trade body said that the current Ucits key investor information document (Kiid) functions well, and that the European Commission should work towards fixing “some of the current Kid’s biggest flaws before fund investors are confronted with the Priip Kid”.
Efama added that the revision of the RTS by the ESA is “a small step in the right direction”, but they have already been delayed for over a year, with the current deadline set for 31 December 2021.
It added: “The Commission’s original plan was to publish these new RTS by early 2020, ensuring that the financial industry would have sufficient time to implement wide-ranging changes before the end of 2021.
“This year’s deadline was originally meant as the official extension of the Priip Kid to retail funds after all the outstanding issues had been settled through the Level 1 review.
“[But] the RTS are delayed by more than one calendar year and there is still not enough clarity as to how they will ultimately look or when this process will be finalised.”
‘Massive operational undertaking’
As a result, Efama argues that fund managers and product providers simply do not have enough time to properly implement the “wide-ranging changes” in just 11 months.
This is why it claims that a 12-month extension of the Ucits exemption is necessary to make sure that the RTS, once published, are implemented correctly.
“It is important to bear in mind that the Priip Kid is one of the most visible documents to retail investors, meant to empower them to make the right investment decisions,” Efama said.
“If these documents are not implemented correctly, an essential tool will be missing to achieve the Capital Market Union’s goal of increased retail participation in the EU capital markets.”
The switch from Ucits Kiid to Priip Kid is a “massive operational undertaking” that requires a large amount of paperwork, with estimates stating this could require fund managers to produce “hundreds of thousands of Kids in aggregate”, the trade body said.
Additionally, the implementation of the rules cannot begin until the RTS are finalised, especially considering that the draft ones were rejected by the ESA in June 2020.
“Even small changes can have huge consequences in terms of operational implementation,” Efama added.
‘Recipe for disaster’
If this was not enough, fund management firms are struggling to mitigate the regulatory requirements with the effects of the global covid-19 pandemic.
Between allocating precise budgets for staff to transition to Priips within their IT plans for 2021; national lockdowns; and working-from-home requirements, fund managers may not be able to implement full changes effectively and within the timeline provided.
“The impossibly tight implementation deadline aside, it is equally important to talk about the future of the Ucits Kiid,” Efama said.
“The switch from the Ucits Kiid to the Priip Kid does not happen automatically and still requires timely legal changes to the Ucits Directive to ensure that retail investors are not presented with two Ki(i)ds simultaneously.
“This process should mark the end of the Ucits Kiid, meaning it should be fully deleted from the Ucits Directive. Considerations to keep the document alive for professional investors is without merit.
“The Ucits Kiid is, and has always been, a retail-investor document that is of little to no use for professional investors. It is also no longer fully Mifid-compliant and would require extensive revisions in the near future.
“Having two diverging different key information documents would also be a recipe for disaster.
“Efama, therefore, insists that another extension of the Ucits exemption of 12 months is necessary to ensure proper implementation.”
