The timing of changes to PRIIPs KIDs?

It would be foolish or dangerous – or both – to try to predict what is going to happen to regulatory consultations or proposed developments in the light of what seem like daily updates from legislators and regulators on the coronavirus, but life goes on, up to a point.

The European securities regulator ESMA has delayed the deadline for responses to its consultation on technical standards on the provision of investment services and activities by third-country firms by four weeks from the end of March to 28 April.

Last October’s consultation paper on changes to PRIIPs KIDs’ performance and cost tables (JC 2019 63) included the statement that the European Supervisory Authorities (ESAs)

“intend to conclude their review around the end of the first quarter 2020 and submit their final proposals to the European Commission shortly afterwards.”

On that basis, the consultation asked if changes to PRIIPs KIDs should come in during 2021 or to coincide with the end of the UCITS exemption at the end of 2021.

We are now at the end of Q1 and all we have seen so far has been the European Commission’s consumer testing of different performance scenarios and methodologies, published at the end of February.

While proposals intended to be concluded shortly must have been well advanced before the lockdowns started, things are unlikely to progress as quickly as planned for the foreseeable future.

Assuming normal service will resume before too long, the end of the UCITS exemption is unlikely to be delayed again, but it could be that changes to PRIIPs KIDs have no choice but to be introduced at the same time. For those companies with both PRIIPs and UCITS, this could mean a “big bang” almost on a scale of the introduction of PRIIPs and MiFID II at the start of 2018.

One of the changes consulted on was whether to show past performance, in addition to future scenarios. The way of showing it that was consumer tested for funds was the one used on UCITS KIIDs. The results of the consumer research

“suggest that using the past performance versions of the KID may help consumers select funds…according to their risk and loss preferences.”

That’s quite an admission from regulators who were hoping to get away from past performance with the arrival of the PRIIPs KID. At least it means that UCITS, once they transition over to PRIIPs KIDs, should still be showing past performance, even if it’s not yet clear how the future scenarios are to be calculated.

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