PRIIPs: Are you ready?
Of Relevance to:
Most firms providing investment products or investment services to retail investors, including AIFMs, UCITS Management Companies and the Authorised Fund Managers of NURS.
As mentioned in Regulatory Roundup 61, Regulation 1286/2014 on the provision of key information documents for packaged retail and insurance-based investment products (“PRIIPs”) applies from 31 December 2016. Being a Regulation rather than a Directive, it will apply in all member States from that date without the need for any individual legislation.
Note that UCITS will be exempt from PRIIPs until 31 December 2019 (Article 32(1)). The same is true for NURS where so elected by virtue of Article 32(2) (see below).
At its heart, the concept behind Regulation 1286/2014 – which will apply to both PRIIP ‘manufacturers’ and to those that advise on or sell such products – is to help investors better understand and compare the key features, risks, rewards and costs of different PRIIPS by way of a key information document (“KID”). The regulatory technical standards on the content, presentation etc. of the KID can be found in a Delegated Regulation (and Annexes).
In the light of this, the FCA has now published Consultation Paper CP16/18 “Changes to disclosure rules in the FCA Handbook to reflect the direct application of PRIIPs Regulation”.
The FCA expects that the PRIIPs Regulation will apply to firms such as (this is not an exhaustive list – see paragraph 2.14 of CP16/18):
- fund managers
- discretionary investment management firms
- firms operating retail distribution platforms
- financial advisers.
There is no definitive list of what constitutes a PRIIP but rather we need to look at the characteristics of the product (as per Articles 4(1) & (2) of 1286/2014) where:
“regardless of the legal form of the investment, the amount repayable to the retail investor is subject to fluctuations because of exposure to reference values or to the performance of one or more assets which are not directly purchased by the retail investor, or which is an insurance product that offers a maturity or surrender value that is wholly or partially exposed, directly or indirectly, to market fluctuations”.
The FCA has set out a list of products that it considers will fall within the definition of a PRIIP (see paragraph 2.8 of CP16/18) including, but not limited to, (it is appreciated that some may overlap):
- Derivatives: options, futures and contracts for difference
- Securities issued by certain SPVs
- Shares in investment trusts
- Unit-linked policies
- Structured investment products.
It must be emphasised that the above is not a definitive list and reference should be made to paragraphs 2.8 to 2.10 – the latter provides examples of what is not a PRIIP. As mentioned in paragraph 2.7 “Identifying whether a particular product is a PRIIP may not always be straightforward …..”.
As mentioned above, because UCITS require the production of a ‘Key Investor Information Document’ (“KIID”), UCITS Management Companies will not be required to comply with the PRIIPs Regulation until 31 December 2019. Authorised Fund Managers (“AFM”) of NURS can also provide a similar document (referred to as a NURS-KII document) if they so elect (subject to a modification by consent). Where a NURS-KII is produced then certain Handbook rules relating to packaged products (which includes a unit in a NURS) are disapplied e.g. commission disclosure requirement (COBS 6.4.3(4), key features document requirement (COBS 13.1.3(2)(c)) and various product information requirements arising in COBS 14. The consultation paper proposes rules changes to the Handbook so that the AFM of a NURS can either:
- continue to produce a NURS-KII document until 31 December 2019; or
- comply with PRIIPs and produce a KID with effect from 31 December 2016.
Note that the current modification by consent will cease to apply after 30 December 2016 and the rules proposed in CP16/18 will replace it.
Comments on CP16/18 are invited by 19 September 2016.