PRIIPs KID: the European Commission announces a 12 month-delay in implementation

In the interests of ensuring a smooth implementation and to ensure legal certainty for the industry, the European Commission has proposed today to postpone the implementation of the PRIIPs Regulation by 12 months until 1 January 2018. This will require an amendment to the PRIIPs Regulation for that purpose and therefore the approval of the European Parliament and the European Council.

As regards the delegated regulations (RTS) proposed by the European Commission earlier this year, it seems that following a meeting held between representatives of the Commission and members of the European Parliament at the beginning of this week, the Commission is willing to meet some of the concerns raised by the European Parliament that led to the latter’s rejection of the delegated regulation. The Commission has asked the ESAs to make changes in certain areas, such as the multi-option products, performance scenarios, comprehension alert and the presentation of insurance-related costs.

The European Parliament rejected the European Commission’s proposal for a delegated regulation on 14 September 2016, due to concerns over misleading future performance and cost display in the PRIIPs KID. The main reasons for the Parliament’s rejection were as follows: (i) it would be misleading to remove credit risk from the risk categorisation of insurance products, (ii) the treatment of multi-option products would need to be clarified, particularly in relation to the exemption for UCITS, until the end of December 2019, (iii) there are flaws in the calculation methodology for performance scenarios, and (iv) there is a lack of detailed guidance on the “comprehension alert”.

Following the Parliament’s rejection and calls from several EU Member States, the European Commission was considering delaying PRIIPs over the last few weeks. A number of EU Member States (including Luxembourg, UK, France, Germany and Ireland) backed a one-year delay by stating that pushing the implementation date back to 31 December 2017 would suffice to clarify open questions and ensure a proper implementation of the PRIIPs Regulation.

What’s next?

Considering that the European Parliament and the European Council are both in favour of a postponement in the PRIIPs KID implementation, it may be assumed that the required amendment of the PRIIPs Regulation in order to reflect the implementation of the one-year postponement (i.e. until 31 December 2017) will be a formality. In parallel, the work to revise the RTS can now be picked up by the ESAs. The European Parliament and the European Council will then again need to approve the revised draft RTS. The European Commission has indicated today, that the revised PRIIPs framework should be in place during the first half of 2017.