15 November 2016
The European Commission (the "Commission") announced on 9 November 2016 that it was proposing to postpone the application of the regulation on Key Information Documents ("KIDs") for Packaged Retail and Insurance-based Investment Products ("PRIIPs") until 1 January 2018, stating that the delay is "in the interest of ensuring a smooth implementation for European consumers and to ensure legal certainty".
The move follows the European Parliament's (the "Parliament") rejection of the draft regulatory technical standards ("RTS") in September, which were drafted by the European Supervisory Authorities ("ESAs"), declaring the proposed legislation "flawed and misleading". The RTS implemented the provisions of PRIIPs, providing details on the format and methodology to be used by "manufacturers" of investment products when drafting a KID. PRIIPs was supposed to apply from 1 January 2017. However, following the Parliament's rejection of the legislation, the RTS has to be sent back to the ESAs to revise, making the 1 January 2017 application date difficult for manufacturers and distributors to comply with.
Under PRIIPs, a three-page KID must be published for each investment product offered to consumers, outlining the main product features and risks of any investment, thereby allowing consumers to compare the features of those products in which it is considering investing. The information provided in a KID is to be considered pre-contractual information.
Parliament called for the entry into application of PRIIPs to be postponed to give manufacturers and distributors time to comply with the new requirements. The Council, industry bodies and a large majority of Member States also supported a delay. The Commission said that the delay "is being proposed exceptionally" to facilitate implementation of the legislation and provide as much clarity as possible on the technical standards. However, the Commission maintains that PRIIPs is "sufficiently clear [but] … its objectives would be better served by having the RTS … already in place".
The Commission will now work with the ESAs to address Parliament's concerns surrounding the RTS. As stated in the letter sent by the Commission to the ESAs on 10 November, these concerns included: that the treatment of multi-option products needed to be clarified, that there were flaws in the methodology for future performance scenarios and a lack of detailed guidance in relation to a 'comprehension alert' which put investors on notice that a product may be difficult to understand. The Commission has asked the ESAs to change provisions in these areas and to develop guidance on the practical application of credit risk mitigation factors under the RTS for insurers.
The ESAs have six weeks to resubmit the revised RTS to the Commission. The RTS will then be adopted by the Commission and subject to scrutiny by the Parliament and the Council. The Commission has said it expected that the revised PRIIPs framework will be in place during the first half of 2017 and apply from 1 January 2018.