The packaged retail and insurance-based investment products directive is one of those regulations that has been through the regulatory mill of late and has suffered many false dawns and sunsets.
The reality though is that the regulation is less than 10 months away and the industry needs to ready itself for the new regime.
What is Priips?
Packaged retail insurance-based investment products (Priips) is regulation that will become effective across EU member states on January 1st 2018.
The aim of the regulation is to increase transparency and facilitate better comparability of Priips products by investors through the use of a pre-investment disclosure document called the Key Information Document.
What investment products are in scope for Priips?
One needs to decompose the regulation to gain an insight into what exactly is in scope. Priips are one or both of a packaged retail investment product, or an insurance-based investment product.
From an adviser perspective, it is vital that you understand the in-scope and out-of-scope products and all advisers should reference the FCA handbook once the finalised policy has been established.
In the interim you can reference CP16/18 here where the FCA outlines its proposed scope.
This reflects the broad definition of Priips, which has a clear purpose “to ensure that no investment product slips through the net”.
At a high level the following are considered in the scope of the law:
- Investment funds – open, closed, Ucits, non-Ucits retail schemes (Nurs) etc.
- Structured products – of all forms.
- Insurance products where the surrender value is directly connected to returns of the insurance company’s own investment assets or the profitability of the insurance company (with-profits).
- Derivative investments.
- Structured deposits (as per Mifid).
- Investment products that promote guarantees where the investment return is loss-limited, or even where all or a portion of the investment return is guaranteed.
The following would be considered to be out-of-scope:
- Products that have a specific rate of return set in advance for the entire life of the product.
- Banking products that contain no element of investment packaging or investment risk such as retail bank deposit accounts, noting that a structured deposit is specifically in-scope.
- Directly held shares and bonds – where no wrapper structure is in place.
- General insurance products that offer insurance benefits e.g. pure protection or non-life insurance. The specific test being products where the surrender value is not dependent on fluctuations in the performance of one or more underlying assets or reference values.
- Pension schemes.
UK advisers are urged to monitor the FCA for publication and updates to the handbook and written policy statements on Priips scope.
Advisers in other EU jurisdictions should similarly acquaint themselves with their own National Competent Authorities scope specification as there is expected to be regional differences in interpretation of scope.
What about Nurs and Ucits, aren’t they exempt?
Nurs managers will have the choice of implementing a Ucits KIID or a Priips KID.
Ucits have derogation from production of Priips KIDs until January 2019. In January 2019, Ucits and Nurs will both move to producing Priips KIDs.
Which clients are in scope?
The Priips regulation only applies if the Priip product is made available to retail investors. The definition of retail investors is:
- Retail clients as defined by Mifid.
- Customers as referred to in the Insurance Mediation Directive, where they would not qualify as professional clients under Mifid.
It is important that advisers make themselves fully aware of the product and investor scope in order to correctly assess situations where provision of a KID to an investor is expected.
What are the responsibilities around the KID and its provision?
The entity or person advising or selling the Priip is responsible for the provision of the KID. Depending on the nature of the engagement this could be the manufacturer, the distributor, or advisory firm / adviser.
Where the product provider is engaged directly with retail clients, the responsibility will be on the product provider itself to provide the KID.
For full discretionary portfolio management, it is sufficient to provide the KID to the discretionary manager.
