14 September 2016 – Today, the EP plenary passed a resolution (by 602 votes to 4, with 12 abstentions) calling for changes to the technical standards, called RTS, on packaged retail and insurance-based investment products (PRIIPs) — a market worth up to €10 trillion in Europe.
It thereby confirmed the ECON committee vote last week. The European Commission (EC) now has to revise the RTS. This might result in a push back of the application date (31 December 2016), a real slap in the face for investor protection.
Investor protection
The PRIIPs Regulation creates a so-called Key Information Document (KID) that should provide retail investors and other financial consumers with key information around risk, performance and costs in relation to the packaged products they consider to invest in.
Such standardization is meant to facilitate comparability and (cross-border) competition among providers of packaged investment products.
European Investors has been a major supporter of the PRIIPs Regulation. Standardized disclosure is key to investor protection and allows for better investment decisions.
Performance scenario’s
The rejection vote in EP originates primarily from concerns related to the performance section in the KID. There are flaws in the calculation of future performance scenarios that will not lead to “accurate, fair, clear and not misleading” results as requested by the PRIIPs Regulation.
As Sven Giegold (Greens, DE) states on his website: “The Commission’s proposal would lead to unrealistic positive projections for many products. The projections would show a profit for products in scenarios, where the actual value of an investment would be a loss.”
European Investors has long argued (together with other consumer representatives and industry groups) that, in addition to future performance simulations, the KID should include past performance figures over a representative time period. Such figures are more reliable and enable the investor to see whether a fund manager has under- or outperformed in the past.
What’s next?
With the EPs rejection, the timely entry into force of the KID is in danger. The PRIIPS Regulation is meant to apply as of 31 December 2016, but implementation without an approved set of RTS will mean high legal uncertainty and is therefore unthinkable.
It is therefore imperative that the EC and EIOPA quickly start to work with the ECON committee to address the legitimate concerns expressed by MEPs (and others). Several MEPs have actually indicated that they still want to stick to the original timeframe, an ambition we fully support. A delay (after the MiFID II-delay) would be another blow to the investor community.
That said, it is better having a delay but with better rules than having to amend the rules later. Consumer detriment caused by flawed technical rules should be avoided at all costs.