Why the MEP backlash could spell problems for Priips
If the past few months has taught us anything, it’s to expect the unexpected. Nobody, not even Nigel Farage, truly believed VoteLeave would win, and even more of a surprise was the UK’s 0.6% expansion in GDP in the months leading up to the vote.
The trouble is that every twist and turn in politics has a knock-on effect on the world of finance. Last week was a prime case in point, with MEPs coming out against European Commission rules aimed at protecting retail investors. A consequence of this could be a potential delay in the implementation of the Packaged Retail and Insurance Investment Products – more commonly referred to as Priips – which aims to help retail investors better understand the complex risks associated with financial markets.
From retail investment product providers to life companies, fund managers and stockbrokers, Priips impacts a vast array of financial firms. The problem is that while this MEP revolt is no doubt underpinned by good intentions, it only serves to create further uncertainty for those affected by Priips. The industry already has enough on its plate waiting results from the Esma Level 3 Q&A projected in September, without considering further speculation around delays.
The reality is that firms cannot wait for the Q&A results or rely on the MEPs forcing a delay, they need to start making their own assumptions on Piips based on what they know today. Firstly, we know firms will need to provide key information documents (Kid) to investors. There will also be a need to treat all historical Priips as potentially in scope. If the manufacturer is still showing the offer price on an exchange, then a Kid will need to be made available. However, if there is no offer price, manufacturers will need consider if this is deemed out of scope.
There is also the small matter of Mifid II. Scheduled to be implemented in 2018, firms will need to connect a number of dots between Mifid II and Priips. The main one relating to costs. Under Mifid II, information about all costs and charges will have to be aggregated – all in an attempt to help them deliver more transparency around ROI to the client. Under Priips, the Kid will partially capture these costs, including for entry and exit, and on-going costs relating to portfolio transactions.
Events of this week are surely likely to create another layer of uncertainty. But this is unlikely to be the last political spanner thrown into the regulatory works. Considering that restructuring business models to meet regulatory requirements is a tough enough task as it is, the key for firms affected is to seek out further opportunities for cross industry collaboration. Industry workshops, such as the Consultative Expert Group (CEG) involving the likes of JP Morgan are already sharing their regulatory expertise and experiences. Only further collaboration through groups such as this can firms best prepare themselves for the challenges ahead – regardless of what the next political move may be.
Giles Crosthwaite is a partner at financial consultancy Delta Capita