Last summer the European Commission mandated the Joint Committee of the European Supervisory Authorities (ESAs) (the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority) to provide technical advice specifying the details of the procedures used to establish whether a packaged retail investment product (PRIIP) targets specific environmental or social objectives, based on Article 8(4) of the PRIIPs Regulation.
According to the Commission’s mandate, where a key information document (KID) states that a PRIIP targets environmental or social (EOS) objectives, the manufacturer must be able to demonstrate to stakeholders, and in particular to the potential retail investor, in supporting documentation to the KID, the relevance of these objectives for the whole value chain of the investment process.
The Commission asks that the ESAs consider whether measures are required to ensure that PRIIPs manufacturers have appropriate governance systems in place to ensure that disclosed EOS objectives are met. The ESAs are asked to examine the product governance requirements and validation procedures laid down in existing EU legislation and what extra measures might be considered if shortfalls are identified.
The Joint Committee of the ESAs has now issued a consultation paper concerning draft technical advice on the procedures to be used to establish whether a PRIIP targets specific environmental or social objectives, pursuant to the PRIIPs Regulation. The consultation paper sets out an overview of the current status of the market for EOS PRIIPs in certain Member States and surveys existing approaches and markets for qualification of EOS and socially responsible investment products, as well as associated investment strategies. Following an overview of consumer protection challenges arising from the Commission’s mandate, the consultation paper sets out a gap analysis looking at the existing governance and other relevant regulatory requirements, to assess their sufficiency and consistency. The consultation paper also contains suggested minimal standards for a governance approach to EOS PRIIPs, starting from the perspective of the retail investor who wishes to generate a socially/environmentally desired impact.
The deadline for comments on the consultation paper is 23 March 2017.