ESMA Securities and Markets Stakeholder Group (SMSG) responds to PRIIPs consultation paper

ESMA’s SMSG – its own panel of advisers, made up of industry participants, consumers and academics – has published its advice to ESMA on the proposals in the PRIIPs Consultation Paper, JC 2018 60, and it doesn’t pull any punches.

The SMSG’s advice is consistent with most of the consultation responses we have seen so far, as it says that, while “it has always strongly supported the aim of the PRIIPs Regulation”, it warned some time ago that requirements, including the need “to indicate the future performance of the product, could lead to misleading investor information”.

The SMSG is critical of the four weeks allowed for this consultation, which “cannot replace the need to begin in a timely manner the review of the Level 1 PRIIPs regulation” that was due the be completed by the end of this month. It also bemoans the lack of time for any consumer testing if the plan is to rush through changes before the European Parliament elections next May.

Specific points on which the SMSG expresses concern include:

It has written on several occasions of its concerns over the scope of the regulation, the cost information and the performance scenarios, but the CP only addresses the last of these.
Inclusion of past performance doesn’t remove the shortcomings of the future performance scenarios and showing simulated past performance is unlikely to be useful.
Adapting the narrative explanations will be of limited benefit “as most retail consumers do not read the ‘small print’”. The scenarios may also fail the MiFID II requirements for a “prominent warning that such forecasts are not a reliable indicator of future performance”.
The proposal to use 3% annual performance for the RIY calculation would be highly misleading, in particular for money market funds.
The number of large and complex changes proposed allows no time for stakeholder scrutiny before submission to the Parliament and Commission.

In conclusion, the SMSG agrees with the recent proposal from the Economic and Monetary Affairs Committee to extend the UCITS exemption beyond the end of 2019, as UCITS should not adopt PRIIPs KIDs until any conclusions of the full review of PRIIPs have been reflected in EU rules. In the meantime, “the current transparency regime for UCITS has proven to be effective” and should be left alone.

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