On 3 February 2021, the European Supervisory Authorities (ESAs) submitted to the European Commission a final report containing final draft regulatory technical standards (RTS) on amendments to the key information document for packaged retail and insurance-based investment products (PRIIPs). The final report follows a consultation paper that the ESAs launched on 16 October 2019.
The draft RTS relate to the empowerments in Article 8(5) of the PRIIPs Regulation on the presentation and content of the key information document (KID), including methodologies for the calculation and presentation of risks, rewards and costs within the document, and in Article 10(2) of the PRIIPs Regulation on the review and revision of the KID. The ESAs have acted in view of their responsibility to review the application of RTS within their competence and to propose amendments where appropriate. The draft RTS proposes amendments to the existing rules in Commission Delegated Regulation (EU) 2017/653 of 8 March 2017.
In summary, the draft RTS includes proposals in the following main areas:
- New methodologies to calculate appropriate performance scenarios and a revised presentation of these scenarios, with a view to ensuring that retail investors are not provided with inappropriate expectations about the possible returns they may receive.
- Revisions to the summary cost indicators and changes to the content and presentation of information on the costs of PRIIPs, to allow retail investors to better understand the different types of cost structures, as well as to better facilitate the use of this information by persons selling or advising on PRIIPs.
- Modifications to the methodology to calculate transaction costs to address practical challenges that have arisen when applying the existing rules, and address issues regarding the application to certain types of underlying investments.
- Refinements to the rules for PRIIPs offering a range of options for investment reflecting experience of challenges regarding the clarity and usefulness of the information, in particular to identify the product’s full cost implications.
- The incorporation of existing provisions applying to investment funds into the PRIIPs framework, given the expiry of the exemption in Article 32 of the PRIIPs Regulation on 31 December 2021.
- The requirement for certain types of investment funds and insurance-based investment products to publish information on the past performance of the product and refer to this within the KID so that the availability of this information is known, and the information is published in a standardised and comparable format.
The ESAs have also made recommendations for targeted amendments to the PRIIPs Regulation itself. The ESAs signalled in the consultation paper that they would consider if such amendments were deemed necessary, in order to address the regulatory issues identified and ensure appropriate outcomes in terms of the understanding of KIDs by retail investors. Such amendments include, despite the proposal in point 6 above, a recommendation to include past performance information within the main contents of the KID on the basis that it is key information to inform retail investors about the risk-reward profile of certain types of PRIIPs. Since it has been argued that the intention of the co-legislators was for performance scenarios to be shown instead of past performance, the ESAs understand that a targeted amendment to Article 8 of the PRIIPs Regulation would be needed to allow for this. The ESAs also consider that a further consequential amendment is needed in this case to allow the 3 page limit (in Article 6(4)) to be exceeded to 4 pages where past performance information would be included in the KID.
Following the final report the ESAs will be considering whether Level 3 guidance is needed to clarify the application of the proposed rules.
