EBA欧洲银行-JC-2019-63_Consultation_Paper_amendments_PRIIPs-KID_123页_3mb

Joint Consultation Paper on PRIIPs KID Amendments Summary

Core Content

The European Supervisory Authorities (ESAs) have issued a Joint Consultation Paper (JC 2019 63) proposing amendments to the PRIIPs Delegated Regulation (EU) 2017/653, which governs the Key Information Documents (KIDs) for Packaged Retail and Insurance-based Investment Products (PRIIPs). The paper aims to enhance the clarity, relevance, and usability of KIDs for retail investors, while also considering the implications of the potential end of the UCITS exemption from the PRIIPs Regulation.

Main Aims of the Review

• Ensure the appropriate application of the PRIIPs KID by both UCITS and non-UCITS funds.
• Address regulatory issues identified since the implementation of the PRIIPs KID.
• Consider changes to the methodology for presenting performance scenarios, costs, and investment options.
• Explore the integration of digital innovation into the KID framework.

Key Topics and Proposals

1. Consumer Testing

• The ESAs and European Commission are conducting consumer testing to evaluate the effectiveness of different performance information presentations.
• Testing includes current KID approaches, revised performance scenario tables, and illustrative performance scenarios for certain PRIIPs.
• The results of the testing are expected by the first quarter of 2020.

2. Future Performance Scenarios

• The current methodology uses historical returns from the past five years to derive performance scenarios.
• This approach is pro-cyclical, leading to potentially misleading expectations for investors.
• The ESAs propose to revise the methodology by using dividend yields and risk premia to estimate future performance.
• The expected growth rate for an asset will be the sum of a reference rate and an asset-specific risk premium.

3. Alternative Performance Scenario Approach

• The ESAs are considering illustrative performance scenarios as an alternative to probabilistic ones, particularly for Category 3 PRIIPs.
• This includes the possibility of using only illustrative scenarios or both illustrative and probabilistic scenarios depending on the product type.

4. Past Performance Information

• The inclusion of past performance is proposed, especially for products with a recommended holding period of 10 years or more.
• For funds, past performance is presented using bar charts as per the UCITS Regulation (583/2010).
• For insurance-based investment products (IBIPs), average performance over different time periods is also being considered.

5. Costs and Transaction Costs

• The presentation and methodology of costs are under review.
• Transaction costs are specifically addressed, with a focus on transparency and clarity.
• The summary cost indicators are to be revised to ensure they are more informative and user-friendly.

6. UCITS Exemption and Regulatory Changes

• The UCITS exemption from the PRIIPs Regulation is set to expire on 31 December 2021, after which UCITS will need to comply with the PRIIPs KID requirements.
• The ESAs are considering amendments to the PRIIPs Regulation based on the outcomes of this review, especially regarding the use of UCITS KII for professional investors.

7. Digital Innovation Considerations

• The ESAs are seeking feedback on whether the current PRIIPs Regulation or Delegated Regulation hinders the use of digital solutions for KID presentation.
• They are also asking for opinions on whether KIDs should be published in a format that allows for easy extraction by IT tools.

8. Legislative Amendments

• The consultation paper includes draft amendments to the PRIIPs Delegated Regulation, covering:
  • Revised probabilistic performance scenario methodology (Annexes IV and V).
  • Use of illustrative performance scenarios (new Annex VIII).
  • Inclusion of past performance (new Annexes IX and X).
  • Revised cost presentation (Annexes VI and VII).
  • Revised transaction costs methodology (Annex VI points 7 to 23).
  • Integration of UCITS Regulation provisions into the Delegated Regulation.

9. Timeline and Next Steps

• The ESAs aim to conclude their review by the end of Q1 2020.
• The final proposals will be submitted to the European Commission for endorsement.
• The European Parliament and Council will then have the opportunity to object to the proposed amendments.
• The amendments could be applied to existing PRIIPs in 2021, before the UCITS exemption ends.

Key Information Document (KID) Revisions

• The KID will include dividend yield-based risk premia to estimate future performance.
• The probabilistic methodology is being revised to address pro-cyclicality and improve accuracy.
• Consumer testing is a key component of the review, with results expected by early 2020.
• The use of illustrative scenarios is being considered for certain PRIIPs, especially Category 3.

Stakeholder Engagement

• Stakeholders are encouraged to provide clear rationales and alternative approaches.
• The ESAs are particularly interested in feedback on the proposed amendments and whether they would help retail investors understand their investments better.
• Confidentiality of responses is possible, but not guaranteed unless explicitly requested.

Conclusion

The consultation paper outlines a comprehensive review of the PRIIPs KID framework, with a focus on improving clarity, accuracy, and usability for retail investors. The ESAs are seeking stakeholder input to guide their final proposals, which may be submitted to the European Commission by early 2020. The amendments are expected to be implemented by 2021, aligning with the end of the UCITS exemption.