Whilst everyone is well aware that a new version of the PRIIPs KID will come into effect in the EU on January 1st 2023, there is confusion in the market around when they need to be filed with home and host regulators and when they can be made available to distributors and other intermediaries. This 3-page document plays a significant role in the distribution of funds to retail investors, replacing the 2-page UCITS KIID which has been around since 2012.
Each fund must file legal documents with its home regulator, as dictated by the fund’s domicile. Notification to host regulators is required if the fund is marketed in more than one EU jurisdiction, e.g. sold in Luxembourg and France. Therefore, filing dates and requirements of both the home and relevant host regulators are important for European asset managers making their funds available to retail investors.
However, when looking at the different filing dates and the communications issued by various local regulators, it becomes obvious where the asset managers’ confusion originates from.
CSSF, the Luxembourg regulator, recently updated its Q&As and advised that filing of PRIIPs KIDs for Luxembourg-domiciled funds must not take place before January 1st, but needs to be done during January. By extending the deadline to the end of January, the expected volume of PDFs can be controlled and staggered – a not insignificant detail in the largest European fund market.
Other regulators, such as Ireland, Finland and Austria, require KIDs to be filed with them by January 1st, but the documents must only be used after that date. The underlying intention seems to be the same as for CSSF, as allowing filing ahead of the deadline should mean volumes can be controlled. In addition, this also answers the question for asset managers with Irish or Austrian funds around how they could comply with the requirements of those host regulators who also request filing of PRIIPs KIDs ahead the deadline – a paradox for Luxembourg fund groups selling their funds in one of those countries.
A third cohort of regulators, such as France, Germany and the Netherlands, advise groups to file ‘from the 1st January 2023’, interpreted by many as a need to file the documents on January 1st itself. It will be interesting to see the volume of PDF documents shared in the European financial market on that very day – which happens to be a public holiday across the EU.
Countries close to the EU, such as Norway or United Kingdom, have set out their own requirements. The UK continues to use UCITS KIIDs for retail funds during an extended exemption period until the end of 2026, but has also introduced a UK-specific version of the PRIIPs KID, which differs from the EU version. Norway has different rules for domestic and EU-domiciled funds. There will be UCITS KIIDs for Norwegian funds sold in Norway, PRIIPs KIDs for EU funds sold in Norway, and PRIIPs KIDs will also be required for those Norwegian funds sold into the EU. So, there will be both UCITS KIIDs and PRIIPs KIDs available in Norway.
If all of the above has made you dizzy, don’t worry – you are in good company.
Fund distributors are required to ensure that they have the correct disclosure documents at the point of sale in the EU. But those expecting a PRIIPs KID for each share class previously covered by a UCITS KIID might be proven wrong – share classes of funds only sold to non-retail investors can continue issuing a UCITS KIID, or they can opt for a PRIIPS KID.
There is also indication from the CSSF that those share classes permanently closed to new retail investors must update the UCITS KIID each year.
Some asset managers have become quite nervous, especially as we have seen fund distributors, apparently unaware of the divergence between different regulators’ requirements, requesting PRIIPs KIDs ahead of the year-end deadline – a request which does not meet the legal requirements of the regulators. However, signals from the market indicate that information about the inconsistencies has now leaked through and a pragmatic and adaptive approach might suit best.
We expect the situation to be resolved during January, giving breathing space to asset managers to brace themselves to adapt to further changes to the European ESG Template (EET), coming from an update to the SFDR Regulatory Technical Standards around the inclusion of gas and nuclear power.