Following the European Parliament's rejection of the PRIIPs KID regulatory technical standards (RTS) last week, Tim Mortimer, managing director at Future Value Consultants, asks whether the 31 December implementation date can possibly remain unchanged.
Andreas Widegren, head of the Swedish Structured Investment Products Association, commented to me that firms would essentially treat this period as a dry run until the regulation is clearer, since they already have systems and processes in place to deal with the advent of PRIIPs.
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He added that putting firms in such a position is highly unsatisfactory.
I believe that it would be likely that firms caveat the KID content by stating that they are providing information to the investor under their obligations on a best understanding and good faith basis, in the absence of full requirements.
This situation is bad enough once 1 January passes and may well lead to significant reduction in new product development and issuance.
Peter Green, partner at law firm Morrison and Foerster, expects some more complex or higher risk products in particular to be withdrawn.
Additionally, it may be that firms and their distributors or intermediaries are much more reluctant to take on new clients because there is less ability for them to demonstrate investor knowledge through previous transactions.
Widegren added that this will hurt SMEs the most and while he recognised that PRIIPs is important regulation for investors, under this scenario it would seriously impact the ability for firms to do business satisfactorily, and could potentially threaten their financial health.
This cannot be a sensible situation in a world where fees are already under pressure from increased competition.
Race against time
However, the situation could get more confusing deeper into 2017. If a consultation process rumbles on during the early part of the year, how quickly are firms expected to react and implement any RTS changes into their KID production?
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There could well be several rounds of changes and different firms will change their KIDs at different times, leading to loss of consistency and greater confusion for investors; another highly unsatisfactory outcome.
This could be prevented if the EC shows greater logic and foresight than it has thus far, by stipulating that implementation of a revised and agreed RTS will take place at some fixed given date (for example July 2017), and tells firms that they need not make any changes to their KID output until that time.
This would provide some breathing space and give greater consistency across firms, but the problem is that once Level 1 is in place it is not clear what the status of such guidance would be.
Widegren also noted that firms have an additional significant burden in preparing for MiFID II in 2018, adding that any significant delay in PRIIPs would impact this. Many firms would use the same people and IT resources for both projects, meaning they would struggle to implement them at short notice in parallel.
