The packaged retail and insurance-based investment products (Priips) regulation, due to come in to force on 1 January 2017, requires fund manufacturers to provide a key information document (Kid) - a simple, easy-to-understand guide of no more than three pages – to enable retail investors to compare different products.
On its website on Thursday, the European Fund and Asset Management Association (Efama) described the Priips Kid as a “good concept”, but called on the European Commission to “carefully scrutinise the usefulness” of the document in its current form.
The statement was made in response to the European Supervisory Authorities’ (ESAs) final regulatory technical standard (RTS) draft, published in April, arguing that it “fails to meet the desired aims” of the Priips regulation of providing greater consumer choice.
“Efama does not believe that the desired aims will be met. Comparability will not be achieved and there is a danger of investors, at best, being led to focus on the wrong issues and, at worst, being misled,” it said.
Not enough time for firms to comply
The comments come just weeks after the association wrote to the EC urging it to delay the introduction of the Priips framework until 2018.
The letter, signed by a number of other trade organisations such as Insurance Europe and the European Banking Federation, argued that as the final RTS will not be released until the third quarter of this year, this gives firms very little time to comply by the 31 December deadline.
“This timeline is simply unrealistic. We cannot stress enough the considerable operational challenges that Priips manufactures need to overcome in order to provide the Priips Kid to retail investors,” said the organisation at the time.
Ailo calls on EC to remove clause 14
Efama’s criticism is the latest blow to the controversial Priips framework.
Last week, speaking at International Adviser’s Future Advisory Forum in London, Simon Willoughby, head of proposition at Axa Wealth International, confirmed that the Association of International Life Offices (Ailo) had also written to the EC calling on them to abandon a clause in the regulation that will require fund manufacturers to provide Kids on open-architecture bonds.
Describing the requirements as a “nightmare” and “unworkable”, Willoughby, who is the chairman of Ailo’s distribution committee, pointed out that this particular section of the legislation “has no basis in the underlying law”.
Correcting the flaws
In a comment paper entitled ‘How to make the Priip Kid fit-for-purpose?’, Efama goes on to list the mistakes that it believes, if left unchecked, will “ultimately lead to consumer detriment”.
It raises concerns that the Kid as it stands will fail to disclose the past performance of funds to investors, which it called “contradictory” as any future scenarios are based on them.
The trade body argues that past performance of Priips should be included to let investors know whether a product has made money in the past so that they can compare them with other products.
Furthermore, the organisation says under the new system the proposed Kid will include too much “prescriptive narrative” for retail investors – making it impossible to explain the actual product.
“All in all, there are up to nine A4 pages of narrative that have to be included if applicable. It will be a massive challenge to include all this narrative while still providing information about the actual Priips (investment objective, etc.) in less than three pages,” said Efama.