December 12, 2019 – On November 29, the European Supervisory Authorities (ESAs) held a public hearing on their Consultation Paper issued in October 2019. The Consultation Paper included potential amendments for the PRIIPs regulations (Packaged Retail and Insurance-based Investment Products (PRIIPs) and Key Information Documents (KIDs).
The KID for PRIIPs is a mandatory, three-page A4 informative document to be provided to consumers before purchasing a PRIIP. PRIIPs include investment funds, structured products and unit-linked and with-profits life insurance contracts.
The hearing was hosted by the European Working Group and brought together around 100 participants from the industry including key asset managers, consumer representatives and other stakeholders from all over the EU. The working group presented the changes proposed in the Consultation Paper. The topics with the most forceful impact are:
- New performance scenarios calculation with a dividend yield methodology to estimate the growth rate instead of using pro-cyclical historical growth returns
- Obligation to provide PRIIPs KIDs from 2021 onwards
- Detailed cost disclosure for multi-option insurance products (MOPs)
- Obligatory implicit transaction cost calculation based on market prices
The participants’ feedback will be considered until the end of Q1 2020, when the final changes will be published. Most members of the audience raised concerns over Risk and Performance Scenarios, namely that the proposed future performance methodology would be too complex and costly to implement. Nevertheless, they supported the ESAs’ decision to amend the current approach, as it is misleading for consumers, and asked for simpler alternatives to it.
Another issue that was discussed during the hearing was the cost disclosure for Generic KID and Specific Information Document of MOPs. The ESAs want the insurers to provide full cost disclosure of the most relevant investment options held by a MOP. Currently, the costs in Generic KID are presented in ranges and must be linked to Specific Information Document which can be challenging for the retail investor. The industry shared their doubts on the proposed amendments and supported the UCITS KID cost presentation as a widely understood document within the market.
Additionally, the topic of transaction cost calculation was addressed. The ESAs definitely hold on the slippage cost methodology but offer some enhancements like eliminating negative transaction costs as this might be misunderstood by the consumers. However, most of the negative cost cases that were examined by the authority were due to human error, not the methodology itself. The ESAs also introduced the proportionality threshold to the current full PRIIPs methodology that exempts PRIIPs with a small number of transactions or low portfolio turnover. However, this was criticized by the stakeholders as this might create the incentive in the industry to stay under the thresholds and use the exemptions.
The representatives of the Working Group highlighted that ESAs are continuously working on the amendments to rules and are welcoming any further feedback before the final changes are announced. As a leading service provider for PRIIPs regulatory reporting, acarda is actively conducting a comprehensive review and gathering the market opinions from the Insurance and Asset Management Industries.
Gerhard Jovy, CEO of acarda says: “We understand the issues to adapt the methodologies, however we agree that proposed amendments will increase transparency and standardisation of the PRIIPs reportings and improve the quality of disclosed costs. Our regulatory platform “arep” include all necessary calculations and optimises transaction cost with several market data providers.
acarda is the leading European RegTech service provider of regulatory and financial reporting for asset managers, fund administrators, insurer and banks.
The state-of-the-art digital platform “arep” covers the whole workflow from data collection, verification, classification, calculation and distribution for PRIIPS, MIFIDII, KIDs, AIFMD, CRR, Solvency II, Bafin, ECB and CSSF reports.
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