EU Prips rules could cripple UK DFMs, trade body warns

The discretionary management trade body has sounded the alarm about a piece of European legislation that could severely hamper discretionary fund managers in the UK.

The Wealth Management Association (WMA) has warned that if the packaged retail investment products (Prips) legislation is brought into force in its current form, it will cripple the sector.

The Prips legislation is currently being debated in the EU and a series of ‘trilogues’ – discussions between the European Parliament, Council and Commission – to hammer out the contents of the law began at the end of January.

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One major aim of Prips is to introduce an equivalent to the key investor information document (Kiid) required for Ucits funds across a wider range of investment products.

This new proposal for a key information document (Kid) currently encompasses such products as corporate bonds and investment trusts.

While the legislation is still in an early stage of development, the WMA has highlighted a number of areas which could damage its members’ businesses.

The main problem is that the rules in their current form would force DFMs to get their clients to sign off on the Kid for any new investment into a product encompassed by these new rules.

This would mean that the managers could no longer act in a ‘discretionary’ way as they would have to seek permission for every trade.

John Barrass, deputy chief executive at the WMA, said the trade body was fighting to get a special dispensation for discretionary managers written into the Prips rules.

He said the original rule on Kiids for open-ended funds had also neglected to provide a dispensation for discretionary managers. In the end, the trade body had to point out to the FSA, then the regulator, the impact the rule could have on the discretionary industry.

The FSA then asked for special dispensation for UK discretionaries, which it then codified in a COBS 14 rule that made the discretionary manager the client for Kiid purposes if it had written instructions to that effect from its client.

Mr Barrass said the WMA was fighting for an equivalent section to the COBS rule to be included in the draft proposals for the Prips legislation.

If it does not, the FCA will have to once again ask the European Commission for special dispensation, which Mr Barrass said was not guaranteed to succeed because the composition of the Commission has changed since it approved the dispensation for Ucits Kiids.

Mr Barrass said he was also concerned about the requirement for retail investors being required to sign and return the Kid before buying any product covered by the Prips legislation, which is one of the proposals currently being discussed.