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Digital Subscriptions > The Hedge Fund Journal > Issue 116 - September 2016 > A Testing Time For Europe’s PRIIPs Regime

A Testing Time For Europe’s PRIIPs Regime

Funds industry awaits clarity from European institutions

PRIIPs is an acronym for Packaged Retail Investment and Insurance Products. It represents a cross sector initiative, affecting asset managers, insurance companies and banks, aimed at creating a new standard common disclosure document for retail investors. The premise of the legislation, besides supporting the European single market, is to enhance comparability of PRIIPS with UCITS funds and the overall comprehensibility of financial products for retail investors - as highlighted in the explanatory works to the proposal of the European Commission - through a standard precontractual disclosure that is the same across the various sectors and product types.

The PRIIPs legislation is undoubtedly amongst the most ambitious regulatory efforts in recent memory and, in some respects, also one of the most innovative pieces of financial services legislation currently under works at a European level. We are also now witnessing how it is becoming one of the most debated ones. In fact, the PRIIPs regime was created through a regulation, which dates from 2014, as well as regulatory technical standards as delegated regulation. The topic of PRIIPs has been heavily prevalent in the news during the past number of weeks because the process of adoption of PRIIPS legislation has been halted by a group of members of the European Parliament, which have managed to gain the support of the Parliament in rejecting the proposed level 2 legislation, which covers the Regulatory Technical Standards (RTS).

Whilst we have already seen in the recent past how other pieces of financial services legislation have been delayed (MiFID II), it is not yet set in stone that the same outcome will be the case in relation to the PRIIPs legislation. On the one hand, the two initiatives (MiFID and PRIIPs) are deeply intertwined in some respects, and product manufacturers as well as distributors, who are the ones in charge of producing the KID, might benefit from an alignment of the timeline of both initiatives. On the other hand, however, there might be other forces in the market driving an adoption on time of the PRIIPS legislation, be it with a corresponding suite of level 2 principles or not.

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