The background on UCITS and PRIIPs
The UCITS and PRIIPs regulatory frameworks are two of the most important pieces of investment product regulation in Europe.
While the UCITS Directive is much wider-ranging and sets out how relevant funds should be structured and managed, the PRIIPs Regulation is all about pre-sales disclosure. Under these frameworks are the UCITS Key Investor Information Documents (KIIDs), introduced in 2011, and PRIIPs Key Information Documents (KIDs), which came into force in 2018. Both are generic pre-contractual documents that provide investors with standardised and comparable information.
Recent changes to UCITS and PRIIPs
In September last year, the European Commission adopted its revised PRIIPs regulatory technical standards (RTS), with an effective date of 1 July 2022. The new RTS include the requirement for all firms that provide retail investment products, including UCITS, to supply investors with KIDs. So far, UCITS have been exempt from issuing PRIIPs KIDs, to give them time to prepare for the transition, and the effective date for the new PRIIPs RTS was intended to coincide with the end of the UCITS KIIDs exemption, as it then stood.
The European Parliament has voted on three subsequent amendments. The first of these is the extension of the UCITS KIIDs exemption end date to 31 December 2022, to give firms at least a year to prepare following the adoption of the PRIIPs RTS. The second is confirmation that, when a UCITS fund is obliged to publish a PRIIPs KID for a retail share class, there is no need to publish a UCITS KIID as well. And the third amendment – much later than the other two – was to delay the PRIIPs RTS live date to 1 January 2023 to ensure it still matched the end of the UCITS KIID exemption.
Although PRIIPs KIDs aim to simplify the delivery of important information for investors, they have faced criticism since their launch in 2018. The biggest issues relate to how KIDs represent performance scenarios, and the ways in which costs are calculated and presented. This is also possibly the biggest difference between the PRIIPs KIDs and UCITS KIIDs – KIDs show forward-looking performance scenarios, while KIIDs show historical returns. With these issues has come a divergence between the UK and the EU.
The UK’s divergence from the EU
The UK’s decision to diverge from the EU PRIIPs RTS brings with it some reasonably significant consequences. Arguably, the biggest of these is the fact that UCIITS KIIDs will continue to exist in the UK until the end of 2026, while, for retail investments, they’ll soon be a thing of the past in the EU. Some EU-domiciled UCITS still have passporting rights into the UK, but a decision is yet to be made on whether they will need to produce a UCITS KIID for sales in the UK after the end of 2022 or if their EU PRIIPs KID will be acceptable.
In terms of content, EU PRIIPs KIDs will try to overcome criticism about the future performance scenarios by introducing more complex calculations based on longer price histories and signposting to past performance charts elsewhere, while the answer in the UK, as pointed out in our recent blog, is simply to remove any performance numbers altogether. While less prominent, there will also be other differences between PRIIPs KIDs in the UK and the EU by the end of this year.
The UK’s divergence from EU reporting standards brings another layer of complexity to the production and maintenance of these regulatory documents. The constant review of regulations and the changes to deadlines all add to this. At FE fundinfo, we have tools that are designed to support the fulfilment of regulatory requirements. For more information on the hosting, production, and delivery of KIDs and KIIDs, contact us below.