Although 18 April marks the publication in the Official Journal of the European Union of Level 2 implementing measures for Key Information Documents for Packaged Retail and Insurance-based Investment Products (Priips Kids), the European Fund and Asset Management Association (Efama) has again argued the case that while overall a regime that has good intentions, in practice the Kids will cause further confusion for Europe’s retail investors.
That is because of provisions in the Regulatory Technical Standards (RTSs) of the Priips Kids which Efama says go against so-called Level 1 objectives. (This type of European law is implemented via Level 1 and 2 measures).
In particular, despite considerable efforts by the asset management industry to inject its views into the RTS work, Efama notes that:
- Historic performances will not be shown in the Priips Kid. Even if past performances are not necessarily an indication of future performances, they are based on (historical) facts presented in a standardised way, which shows how an investment product was able to meet or exceed its objectives and deliver value to its clients. This is a clear step back from the Ucits Kiid.
- The methodology for the calculation of the transaction costs is based on erroneous assumptions, which can mislead investors into believing that a product is more, or less, expensive than it is in reality.
- Cost disclosure. Costs are now averaged over a product’s recommended holding period. Retail investors will no longer be able to compare costs of the same products if these have different holding periods.
Taken together, these points lead Efama to conclude that it will be “difficult, if not impossible” for retail investors to compare different financial products under the regime.
Peter De Proft, director general of Efama, said: “Efama has been systematically alerting EU policymakers, throughout the legislative process, of the potentially negative consequences of part of the Priips rules on investors. We have repeatedly suggested practical solutions to address these concerns without undermining the policy objectives of the Regulation. We are deeply disappointed that insufficient attention was paid to these concerns, which Efama, Better Finance and the CFA Institute defended in a unique alliance. When rules are proposed to protect and benefit investors, their concerns should certainly not be dismissed.”
Alexander Schindler, president of Efama, added: “Providing the right information to our clients is paramount. The Priips RTSs make asset managers provide investors with incorrect information about the key characteristics of an investment product. This is against our duty to act in the best interest of our clients, the end-investors, and the overarching objectives of the Priips Regulation”.
As a so-called European Regulation, the Priips regime will apply from 1 January 2018. Efama notes that European asset managers are “continuing their work on this complex and costly implementation project, faced with an extremely tight deadline.”
Meanwhile, it adds that there are still many outstanding questions the European Supervisory Authorities and the Commission will need to clarify through guidelines and Q&As to make implementation possible.
The Priips Regulation is to be reviewed by the end of 2018.