EUROPE: EC proposal amending Regulation (EU) No 1286/2014 as regards the extension of the transitional arrangement UCITS and non-UCITS

Friday July 16 2021

Regulation (EU) No 1286/2014 enables retail investors to better understand and compare packaged retail and insurance-based investment products (PRIIPs) and make better-informed investment decisions. PRIIPs include, but are not limited to, undertakings for collective investment in transferable securities (UCITS) and retail alternative investment funds (AIFs).

To meet its objectives, Regulation (EU) No 1286/2014 requires PRIIPs manufacturers to comply with a uniform set of product disclosure requirements and provide retail investors with a key information document (KID) on each PRIIP they offer. The disclosed information should enable retail investors to better understand the economic nature and risks of particular PRIIPs and to compare them. Greater transparency and harmonisation also benefit the internal market in financial services by creating a level playing field among PRIIPs and distribution channels.

The Regulation is accompanied by amendments to Commission Delegated Regulation (EU) 2017/653. Given the time needed to implement those amendments to Delegated Regulation (EU) 2017/653 and to reduce legal uncertainty, this Regulation extends the transitional arrangement to 30 June 2022.

The amendments to Delegated Regulation (EU) 2017/653 are based on draft RTSs jointly submitted by the ESAs on 3 February 2021. The draft RTSs involve:

• new methodologies for calculating appropriate performance scenarios and a revised presentation of the scenarios, with a view to ensuring that retail investors are not provided with inappropriate expectations as to possible returns;
• revised summary cost indicators and changes to the content and presentation of information on the costs of PRIIPs, to allow retail investors to better understand the different types of cost structure and to facilitate the use of this information by persons advising on or selling PRIIPs;
• a modified methodology for calculating transaction costs, to address practical challenges that have arisen when applying the existing rules, and issues regarding their application to certain types of investment;
• modified rules for PRIIPs offering a range of options for investment, to clarify the information on the cost implications.

The draft RTSs also lay down provisions in respect of past‑performance information for certain types of UCITS, retail AIFs and insurance-based investment products.

The Regulation is also accompanied by amendments to Directive 2009/65/EC, order to avoid a situation where, from 1 July 2022, investors receive two pre-contractual disclosure documents in respect of the same UCITS (i.e. the KID and the ‘key investor information’ in accordance with that Directive).

As a result of this proposal, Regulation (EU) No 1286/2014 will apply to management companies, investment companies and persons advising on, or selling, units of UCITS and non-UCITS from 1 July 2022, to coincide with the application of the amendments to Directive 2009/65/EC and Delegated Regulation (EU) 2017/653.

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