FEATURE
Priips Part I: Full circle The Priips saga, with its sector heroes, regulatory disputes, implementation frustrations and (even) parliamentary uprisings, has finally come full circle. By Sybil Yorke.
A KID cannot be the end of a decision tree for investors
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y December this year the European Commission will propose changes to the regime’s legal formulation as part of a broad Retail Investment Strategy Review. This ‘level one’ review has long been sought by ESAs and market participants to both loosen and clarify wording that prevents the regime from meeting its objectives. As ESA joint committee chair Petra Hielkema said as she opened a recent ESA hearing, Priips has “important shortcomings” in both design and implementation. “Contradictions” is probably as apt: Priips enshrines the principles of consumer understanding and comparability in legislation that captures a broad and disparate array of products without saying which principle comes first when they clash. As a result, its delivery engine, the Key Information Document, KID, can look like the financial equivalent of a tool for comparing the relative wing speed of a sycamore key and a gnat. This tension perhaps stems from another – lack of clarity over whether Priips is fundamentally a tool to educate, or a decision tool. “A KID cannot be the end of a decision tree for investors,” insists Eusipa secretary general Thomas Wulf (above). History seems to have shifted the ESAs in the same direction: Eiopa consumer protection expert Tim Walters called it a “useful reference point” at the recent public hearing. DDV CEO Henning Bergmann told that hearing only 15% of investors use the KID to make investment decisions. With numbers
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like this, the KID hardly be said to fulfil its fundamental purpose. “That, I think, is a motive for the level one review that will hopefully lead to a satisfactory answer for both regulators and the marketplace,” adds Eusipa’s Wulf. Regulatory experts like Deloitte Luxembourg’s regulatory consulting partner Francois-Kim Huge also expected the ESAs to, “push for a review of high level regulation before making further changes to the RTS.” Their predictions have been born out. Senior policy officer Emmanuel Doumas says the ESAs want to “introduce differentiation into level one” by advising a ‘comprehension first’ policy where core principles clash, and re-articulating the legislation where it restricts necessary level two changes or is unclear. They also hope bringing the KID into the digital age may resolve some of its problems. Although a child of the twenty-first century, the KID is currently prescribed as a pdf document. “…Internet browser windows, or PDF documents printed out and laid in front of you side by side, 1970s style. Not cool if you invest using your smartphone,” says Eusipa’s Wulf. DIRECTION OF TRAVEL In terms of detail, structured product issuers will be pleased to know there will be a review of the comprehension alert, which has been overused to the point almost of futility.
