Both in-house and private practice industry participants have welcomed the one-year postponement of contested new rules for packaged retail products – but they have stressed the importance of working quickly to resolve the issues.
The European Commission made the announcement on Wednesday while the world was distracted by the US presidential election. This is the second large piece of financial regulation that’s been postponed this year, after the Markets in Financial Instruments Directive (Mifid) II was formally delayed in February.
The rules for packaged retail and insurance-based investment products (Priips) have been criticised from the beginning for taking a one-size-fits-all approach to a wide range of different types of products. In an unprecedented move, European Parliament voted to reject the draft regulatory technical standards (RTS) that accompany the rules in September. MEPs said the rules were ‘so flawed and misleading’ that they could actually lose people money. With time until the original implementation date, December 31 2016, quickly running out and no final RTS to speak of, something had to give.
“We should all be relieved that common sense has prevailed. It’s an outcome we’ve long been pressing for as an industry,” said Zak de Mariveles, chairman of the UK Structured Products Association and managing director at Société Générale.
But it’s imperative not to relax now, added de Mariveles. “Regulators need to work quickly with the industry on resolving the many uncertainties that exist within the current proposals, alongside a coherent implementation of Mifid II with Priips. There is much to be done.”
Commission spokesperson Vanessa Mock said that this is purely a one-off measure to ensure legal certainty and smooth implementation. “It’s essential that no substantive changes to the content of the Priips regulation are introduced,” she added.
|
|
"We should all be relieved that common sense has prevailed" |
|
|
The content of the level 1 regulation has never been the problem; increased transparency and clearer guidance for investors would be difficult to argue against.
Clifford Chance partner Monica Sah said that while the authorities have done the right thing, the concern now is that they will take a quick-fix approach to redrafting the RTS. “What we need now is clarity as to what a KID [key information document] is supposed to look like, and what constitutes a Priip in the first place,” she said.
The EU’s regulatory reform agenda appears to be finally coming to a head. The Market Abuse Regulation came in in July, Mifid II is still developing and a final decision on new margin requirements for over-the-counter deals, which have also had significant pushback from the market, is due on November 21. “They’ve got a lot on their plate,” said Sah.
Morrison & Foerster partner Peter Green said the postponement is important as confusion would likely have stopped issuers from creating new products altogether. By opting for a one-year delay, the Priips regulation and Mifid II will become effective at the same time. “That makes sense as there’s some interaction between the two,” he said.
See also
Banks fret over Priips KID compliance
Priips needs structured product tailoring
Market welcomes potential Mifid II delay