The European Association of Co-operative Banks welcomes the opportunity to respond to the ESAs’ joint consultation paper on changes to the key information document (KID) for PRIIPs, which was published on 16 October 2019. Despite not being involved in creating the actual structure of the PRIIPs, as distributors we are in direct contact with the retail investor and can understand whether the regulation on the PRIIPs KID delivers the required investor protection as originally intended. Our greatest concern is whether clients can understand the information in the KID, which at the moment is very challenging also for the people working in financial markets (especially regarding the performance scenarios and transaction costs). We thus provide our answers to the consultation paper mainly on the following positions:
- Intermediate and stress scenarios are considered favourable, but if stress scenarios are to be included these should include a uniform calculation method i.e. the same drift should be applied to all scenarios;
- Past performance could be disclosed but only for certain products such as funds;
- Statements/warnings accompanying past performance, and narratives between past performance and future performance scenarios are considered beneficial;
- Costs disclosures: in favour of disclosure of 1 year and recommended holding period (RHP);
- Historical cost ratios: The requirement to publish historical cost ratios in accordance with Annex VI, No 83 of PRIIPs Commission Delegated Regulation (EU) 2017/653 should not be applicable to structured securities;
- Revised methodology for transaction costs (Option 2) considered favourable;
- OTC Derivatives: modifications in ESMA Q&A on OTC derivatives to be reflected in the Level 2 regulations;
- Professional clients/eligible counterparties to be out of scope or able to opt-out of receiving a KID;
- For financial instruments which fit within the scope of MiFID II - yet are also considered PRIIPs and/or UCITS products – we propose that the manufacturer and distributor should present cost and charges information to retail investors in accordance with MiFID II, rather than the investor document regulations under the PRIIPs and UCITS regulations;
- Savings plan: Provision of KID should be only at beginning and not during the term of a client’s savings plan; and
- Reference amounts: should be fixed in the individual currencies so that PRIIPs denominated in the same currency can be compared as far as possible.
We also take this opportunity to highlight that although the ESAs’ powers and responsibilities lie within the Level 2 Regulation we think it is inefficient (and goes against the European Commission’s Better Regulation Agenda) to propose Level 2 amendments before addressing possible issues within the Level 1 Regulation. That said, we applaud the initiative of the ESAs in highlighting certain Level 1 issues to the European Commission such as the scope of bonds within the PRIIPs Regulation. The ESAs joint supervisory statement (JC-2019-64) dated 24 October 2019 provides a welcome clarification on which bonds are considered within scope of the PRIIPs Regulation and which are not. We also appreciate that the ESAs consider that their statement provides clarification only to a certain extent, and propose that Level 1 changes would still be required in order to ensure consistent application amongst national competent authorities (NCAs) of the provided guidance.
Another important issue which we think should be addressed as part of a comprehensive review of both Level 1 and Level 2 PRIIPs regulation, that in our opinion, should be completed in a big-bang approach by 2022 is the Member State Option. It should be noted that the authorised languages for information documents can differ under PRIIPs (only in mother language) and UCITS (in English and mother language) between the Member States. The ESAs should be aware of the possible differences in implementation between Member states and the possible negative side-effects this might entail. If a member state chooses not to use the Member State option, this might be a barrier to the freedom of capital movement in general and could shrink the range of investment options for retail investors.
Furthermore, when considering the alignment of the PRIIPs Regulation with the UCITS Regulation as well as other proposals, we urge the ESAs to be mindful of two unfavourable scenarios: (i) a situation where such alignment leads to a PRIIPs KID to exist alongside a UCITS KIID for the same financial product (whether for retail or professional clients); and (ii) the requirement to fit all disclosures to clients within the three-page limit of the KID.