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Update: Extension of PRIIPs KID Exemption for UCITS
PRIIPS KID: UCITS Exemption
22nd July 2019
The Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation has been applied across Europe since 1st January 2018.
The PRIIPs Regulation was introduced by the EC following the success of similar regulation for UCITs - the UCITS KIID Regulation - whereby UCITs schemes are required to provide investors with a Key Investor Information Document (KIID).
PRIIPs stands for Packaged Retail Investment and Insurance Products, and the PRIIPs Regulation is directly applicable to firms within the EU. Therefore those that fall under the Regulation will have needed to comply with PRIIPs Regulation since implementation, of course, in addition to any relevant disclosure requirements in the FCA Handbook. However, there was an exemption…
Although UCITS schemes are PRIIPs, they did not have to comply with the PRIIPs Regulation until 31 December 2019 -this being largely due to having to comply with similar requirements, (namely producing a Key Investor Information Document (KIID) per the UCITS KIID Regulation).
However, it now seems likely that the PRIIPs KID UCITs exemption period will be increased by another two years.
We have previously provided an overview of PRIIPs Regulation, however in essence, the aim of the PRIIPs Regulation is to encourage efficient markets within the EU by helping retail investors to better understand and compare the key features, risks, rewards and costs of different products by being issued with a short and consumer-friendly Key Information Document (KID).
In December 2018, the European Parliament Committee on Economic and Monetary Affairs, known as ECON, adopted amendments to the PRIIPs Regulation. These amendments included providing for a review of PRIIPs by 31st December 2019.
In addition, given some concerns over the initial implementation of PRIIPs and how it may work alongside UCITS KIID Regulation it has been put forward by ECON that the UCITs exemption period set out in the PRIIPS Regulation should be extended by a further two years, allowing for any issues to be reviewed and addressed.
This would mean that the date of the exemption for management and investment companies and persons advising on, or selling, Undertakings for collective investment in transferable securities (UCITS), to produce and provide a PRIIPs KID would be extended from 31 December 2019 to 31 December 2021 instead.
Whilst this is anticipated, the extended exemption isn’t cemented until it has gone through the necessary hoops completing the legislative process at European level. Commenting on the next steps for the PRIIPS KID UCITs exemption, the FCA clarified via their publication FS19/01 earlier in the year:
“The UCITS exemption is set out in the PRIIPs Regulation and is expected to be extended to 2021 following the conclusion of trilogues between the European Commission, Council and Parliament. The original exemption reflected a clear policy decision by the Commission and ESAs to ensure the PRIIPs SRI could accommodate a broader range of products subject to the PRIIPs legislation, in contrast to the narrower scope of the UCITS Directive. We are aware of concerns regarding the potential comparability of the PRIIPs KID and UCITS KIID by investors and have shared these concerns with the ESAs.”
FCA FS19/01 February 2019
So, it seems, subject to official announcement, the UCITS Exemption period under PRIIPs Regulation will now be extended until 31 December 2021.
Having read the above, you might be wondering, “What exactly is a PRIIP?”
Well, in answer to that, Packaged Retail and Insurance-based Investment Products (PRIIPs) are defined as:
“an investment where, regardless of its legal form, 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 that are not directly purchased by the retail investor; or an insurance-based investment product which offers a maturity or surrender value that is wholly or partially exposed, directly or indirectly, to market fluctuations.” FCA
The tricky thing is, that identifying if a certain product is a PRIIP may not be as straightforward since the concept of ‘exposure to reference values’ is wide. Often you will need to consider the specific terms of a product before determining if it is a PRIIP or not.
If you are affected by the PRIIPs Regulation and need any support or assistance such as putting together a PRIIPs KID, we can help. Just drop us a line and we’d be happy to help.
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