EU PRIIPs Regulation And Kids: Q&As

Author:Mr Kam Dhillon, Oliver Riley and John Reed
Profession:Gowling WLG
 
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The PRIIPs Regulation (EU/2014/1286), together with the regulatory technical standards in Commission Delegated Regulation (EU/2017/653) will apply from 1 January 2018.

Almost 10 years in the making, the PRIIPs Regulation aims to encourage efficient EU markets by helping retail investors to better understand and compare the key features, risks, rewards and costs of different packaged retail investment and insurance based products (PRIIPs) through access to a Key Information Document (KID).

Here, Gowling WLG's regulatory experts give an overview of UK implementation of the regulation, its scope and key provisions, and the potential fines individuals and companies can expect if there is a breach.

UK implementation

The PRIIPs Regulation is an EU Regulation, which means it will apply directly in the UK without the need for any domestic implementing legislation. As a result, the UK has limited policy discretion in how the provisions of the PRIIPs Regulation take effect. However, it will require changes to certain disclosure and information requirements in the Financial Conduct Authority (FCA) Handbook in order for the UK to become compliant with the provisions in the PRIIPs Regulation.

The FCA consulted on its approach to the PRIIPs Regulation in 2016 (CP16/18) and issued its policy statement (with its final rules and guidance) in May 2017 (PS17/6).

The FCA acknowledges there is limited guidance at EU level on the PRIIPs Regulation and that this may lead to practical difficulties with implementation and uncertainty. To date, the European Supervisory Authorities have issued Q&As on the PRIIPs KID. The Association of Investment Companies (AIC) also issued guidance in September 2017 for investment companies (available to subscribers).

Scope

The scope of the PRIIPs Regulation is wide. It applies to anyone that:

manufactures (or changes an existing PRIIP, including altering its risk and reward profile or the costs associated with an investment in a PRIIP); advises on; or sells, PRIIPs to retail investors in the EU/EEA. This captures fund managers, stockbrokers, financial advisers and intermediaries, insurance companies, investment firms, credit institutions and retail investment product providers.

What are PRIIPs?

The definition is wide and covers a broad range of products and structures.

PRIIPs are investment products, where the amount repayable to the retail investor is subject to: (i) fluctuation because of exposure to reference values; or (ii) the performance of one or more assets that are not directly purchased by the retail investor.

Examples of PRIIPs include:

regulated collective investment schemes, including non-UCITS retail schemes, qualified investor schemes and individually recognised overseas schemes. UCITS schemes are PRIIPs, however they must comply with the PRIIPs Regulation with effect from 31 December 2019 (rather than 1 January 2018); unregulated...

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