So the PRIIPs RTS have been rejected, but no delay on Level 1 (yet)

By Mikkel Bates

Updated on Thursday, 15 September, 2016

On 14 September the European Parliament, as expected, followed the lead of its Economic and Monetary Affairs Committee (Econ) by voting 602 to 4 to reject the Level 2 rules as set out in the Regulatory Technical Standards (RTS) proposed by the Commission.

There were a couple of issues, but the main stumbling block was the calculation and presentation of the favourable, moderate and unfavourable performance scenarios.  These scenarios were intended to show the range of returns a retail investor could expect in future, based on historical prices in the case of funds.

MEPs took issue with the numbers that can be thrown up by the calculations behind the scenarios, calling them “flawed and misleading”, as even the unfavourable scenario has been shown to be too optimistic in certain market conditions.

So the Parliament has returned the RTS to the Commission for revision – something that has never happened before.  But nothing has been done (yet) to change the Level 1 PRIIPs KID regulation (EU 1286/2014), which has an implementation date of 31 December 2016 baked in.  Only the European Parliament can vote to change that, but as it stands, we will be in the bizarre situation of having the Level 1 regulation in place without any of the Level 2 detail.

Beyond listing the sections of a KID and what they are to show, the regulation states that the Commission will be delegated the responsibility of providing the detail of the calculations and text required.

At FE Kii Hub, we were firmly of the view that it would be a non-starter to try to go ahead with the Level 1 regulation without the details in Level 2 and this has been supported by the German industry body BVI, but it is by no means a unanimous view. 

So, unless there is a vote to delay the regulation, we could be left with two equally unpalatable choices – either the industry applies the high level regulation without the details to ensure the consistency and comparability that it seeks, or we get new RTS very, very late in the day, giving providers no time to change their systems to accommodate them.  We are now in uncharted territory, so how we reach the destination and when we get there are completely unknown.