Key Information Documents, known as KIDs, have been the source of much controversy since the European PRIIPs Regulation came into effect on 1 January 2018.
Now for the UK it seems that the tide is turning with more than a glimmer of light ahead.
While, at EU level, progress on revising the regulation seems to be run aground.
The problem with PRIIPs in a nutshell
The three page KID document is meant to aid comparison of investment and insurance based products which are sold to retail customers, but feedback from firms, trade bodies and many others has highlighted that the documents not only fall short of doing this but often do more damage. By following the prescriptive requirements of PRIIPs, product providers may actually leave the investor with a misleading impression.
We’ve been very active in supporting firms to create and maintain their KIDS, particularly with our Venture Capital and Private Equity clients, and share the view that regulation is far from achieving its aims and is likely doing more harm than good. Two developments have occurred in quick succession.
UK development - change ahead
Firstly, for UK firms, there is perhaps a little light at the end of the tunnel. The government has stated its intention to improve the PRIIPS regime for the UK in response to the widespread feedback. HM Treasury have now released a publication confirming how the plan to do this, namely by:
Creating powers for the FCA that enable the regulator to “clarify” PRIIPs within their rules.
Amending the PRIIPS regulation so that instead of showing the prescribed performance scenarios firms include ‘appropriate information on performance’
Extending the exemption for Undertakings for the Collective Investment in Transferable Securities (UCITS) funds so that they may continue to be exempt from the PRIIPs regulation.
EU development - no consensus
At EU level, it seems a second attempt to revise the PRIIPs regulation has failed. Following rejection by MEPs in April this year, it seems now that that sufficient consensus cannot be struck across the three European Supervisory Authorities (ESAs) and so they are not able to submit a revised regulatory technical standards (RTS) to the European Commission.
The ESAs have written a letter setting out the challenges faced. Essentially while many board members are happy to approve the new RTS, others consider that a partial revision of the PRIIPs Delegated Regulation is not appropriate before a comprehensive review of PRIIPs is undertaken. This is likely to be a considerable set back to the timetable for updating the regulation at EU level.