As notified in our OAC Digest of 12 December 2016, the new rules on Key Information Documents (KIDs) are to apply from 1 January 2018. Whilst this new date of application represents a significant and welcome delay, the discussion about the Regulatory Technical Standards (RTS) is still ongoing – this was indicated in a letter from the European Supervisory Authorities (ESAs) circulated on 22 December 2016.
Following this announcement, the European Commission invited the ESAs (European Banking Authority (EBA), European Securities and Markets Authority (ESMA) and European Insurance and Occupational Pensions Authority (EIOPA)) to submit an opinion agreeing to certain proposed revisions to the RTS. These proposed revisions were aimed at addressing the concerns raised by the European Parliament in its rejection of the draft RTS, and covered the following:
- The treatment of multi-option PRIIPs with particular reference to investments in UCITs and non-UCITs funds.
- Performance scenario calculations due to concerns that the unfavourable scenario may be too optimistic.
- Criteria to facilitate consistent use of the comprehension alert.
- Changes in the presentation of insurance costs and benefits.
At the end of the agreed six-week review period, the ESAs announced in their letter that they had been unable to agree on a position on the proposed revisions.
Although two of the three ESAs (EBA and ESMA) were prepared to support the proposals submitted to the RTS, EIOPA would not agree, stating that it had concerns in particular in relation to the treatment of multi-option products, the criteria to determine whether a comprehension alert should be included in a KID, and provisions in the RTS on credit risk mitigation factors for insurers.
However, all three ESAs were of the view that the Commission’s amended performance scenarios raised comprehension issues, and thought that these might be misleading for certain types of products. This reflects the concerns we have noticed which have been expressed by the industry generally – many insurers are of the view that the solution proposed by the Commission is inherently unsuitable and raises more questions than answers.
In spite of the fact that the 12-month delay of the PRIIPs Regulation was meant to provide firms with more time to get ready for the complicated demands of the new regulation, this latest development introduces further uncertainty and the potential for further delay with regard to the RTS. This could mean that firms, in fact, have less than 12 months to prepare for 1 January 2018. At the time of writing, it remains unclear as to how the Commission will take the RTS forward. If the Commission proceeds in the absence of an agreed opinion from the ESAs and submits a revised draft RTS to the Parliament and Council, there would be a further three-month period (which could be extended to up to six months) for Parliament and Council to review the revised RTS, though this could be reduced with agreement.
As soon as the situation becomes clear, OAC will be issuing a summary of the final position.
For more information
Senior Regulatory Compliance Consultant
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