Europe  

With draft legislation rejected, is it RIP Priips?

The parliament objected to the rules on several points. It said it was misleading to investors to remove credit risk from the calculation of risk categorisation of insurance product, the treatment of multi-option products needs to be clarified and there are flaws in the methodology for future performance scenarios and a lack of detailed guidance in relation to a 'comprehension alert', which alerts investors that a product may be difficult to understand. 

It warned that the rules set out in the RTS go against the spirit and aim of the legislation: to provide clear, comparable, understandable and non-misleading information on PRIIPs to retail investors. 

The parliament instructed the commission that the RTS cannot enter into force and that a new RTS should be drafted that takes into account its concerns. Given the parliament's objection, the council no longer needs to comment.

The commission will therefore send the RTS back to the Esas for revision and then send the revised draft to the commission for its endorsement. The parliament and the council will then be able to reconsider the draft.  

As this is the first time the parliament has formally rejected an RTS, it may be possible for the institutions to reach a compromise on a far more accelerated timetable given the end of 2016 deadline. The parliament has also asked the commission to assess whether implementation of Priips should be delayed, a move that has the backing of council and industry groups including the European Fund and Asset Management Association. 

For now, however, the deadline remains in place. Without further information regarding the timetable for implementation, firms should continue their preparations for implementing Priips. The Financial Conduct Authority is likely to release more information on how the rules will be implemented in the UK over the next couple of months as Brussels reviews its options in relation to future steps.

Mark Compton is a partner and Lauren Smith is an associate in the Financial Services Regulatory & Enforcement practice at Mayer Brown 

Key points

602 MEPs voted against introducing the Priips in September.

The centrepiece of the Priips proposal is the introduction of a key information document.

The Parliament said it was misleading to investors to remove credit risk from the calculation of risk categorisation of insurance products.