An article has been published in Ignites Europe (paywall) saying that the EU Financial Services Commissioner Mairead McGuinness has written to MEPs to fast-track an extension of the UCITS KIID exemption by six months from the end of 2021 to 30 June 2022.
There are two immediate issues here and several unanswered questions.
MEPs are being pressed to amend the PRIIPs Regulation because the end of the UCITS KIID exemption is written into that as 31 December 2021, and they also need to amend the UCITS Directive, as publishing a PRIIPs KID doesn’t automatically remove the need for a UCITS KIID without that being made explicit in the Directive.
When the PRIIPs KID Regulatory Technical Standard (RTS) were belatedly submitted by the European regulators to the Commission in February, the expectation was for the changes to take effect at the same time as the end of the UCITS KIID exemption, which was planned for December this year. But there is no mention in the press article of the PRIIPs KID changes, so is the letter just a feeler put out by the Commission to see if MEPs will grant the extension, after which the Commission will propose the same effective date for the PRIIPs KID changes?
There are many other questions yet to be answered, but here are just a few of them:
- What happens if MEPs don’t agree to extend the UCITS KIID exemption? We have to assume discussions took place before the letter was written, but if the deadline for both PRIIPs KID changes and for UCITS to transition across to PRIIPs KIDs remains as December 2021, that will put enormous – many would say impossible – pressure on all affected companies.
- What about institutional share classes of UCITS? Currently, they need to provide a UCITS KIID, but they are outside the scope of the PRIIPs Regulation, as the R in PRIIPs stands for Retail. Will they no longer need to produce any generic pre-sale document, will they continue to produce UCITS KIIDs or will they have the discretion to produce PRIIPs KIDs instead?
- Currently, UCITS KIIDs need to be translated into an official language of each country where they are available for sale, but the PRIIPs Regulation makes no mention of translation. The revised PRIIPs RTS mentions keeping some parts of the original UCITS implementing regulation (which set out the content and presentation of a KIID) but the need for translations is in the UCITS Directive itself, so how much of that will be retained?
- UCITS KIIDs need to be lodged with the regulators wherever the fund is available, while PRIIPs KIDs do not, although the Regulation allows national regulators to require it. Will the requirement to lodge UCITS KIIDs be translated to PRIIPs as well, or will this be an opportunity to drop that?
It’s important to remember that neither the PRIIPs KID changes nor the end of the UCITS KIID exemption directly affects UK funds. The Financial Services Act 2021 allows HM Treasury to extend the UCITS KIID exemption to the end of 2026 at the latest. It also gives the FCA the opportunity to make its own changes to PRIIPs KIDs, by introducing “information on performance”, which for funds means past performance, either instead of or as well as future scenarios, but we don’t know when.
The UK’s divergence also brings further questions, such as whether the FCA will recognise EU PRIIPs KIDs for UCITS passported into the UK. If not, we face the possibility of EU-domiciled UCITS switching to PRIIPs KIDs next year, while still needing to publish UCITS KIIDs for their UK marketing efforts.
Earlier in the year FE fundinfo published research suggesting that many fund groups would struggle to meet the end-of-year deadline, owing to a combination of disagreements at policy level and the time and cost of fulfilling the vast data requirements in the PRIIPs Regulations.