EEA-domiciled UCITS marketed in the UK need to produce both a PRIIPs KID and UCITS KIID
Since the end of the Brexit transition period on 31st December 2020, new regulations or changes to existing regulations in the EU/EEA have not applied in the UK, and this has become particularly noticeable in the area of Packaged Retail and Insurance-based Investment Products, or PRIIPs.
Even before PRIIPs key information documents (KIDs) went live at the beginning of 2018, the information displayed was heavily criticised, and there was little let-up in this over the years, especially in respect of the performance scenarios, which have been accused of being meaningless and misleading.
European and UK regulators set themselves the tasks – separately – of making the information displayed on PRIIPs KIDs more useful to retail investors, but, of course, they didn’t come up with the same solutions.
The greatest divergences between the new sets of rules were around, not surprisingly, what to do about the performance scenarios, and also what happens to UCITS, which have been producing their own key investor information documents (UCITS KIIDs), which have been reasonably well accepted, since 2012.
On the first of these, the solution from the EU regulators was to do what they could to make the performance scenarios “less pro-cyclical” by basing them on a longer price history and adding extra stages to the calculation to arrive at what it believes will be meaningful favourable, moderate and unfavourable scenarios. The answer in the UK has been to remove performance scenario calculations altogether and replace them with narratives around what could deliver good and bad returns in future.
And on the second matter, UCITS in the EU were originally due to convert to producing PRIIPs KIDs for retail clients at the end of 2019, because UCITS fall within the definition of PRIIPs. This deadline slipped to the end of 2021, slipped again to the middle of 2022, and slipped again to the end of 2022, where it now stands. In the UK, where PRIIPs KIDs are still seen as flawed, the UCITS KIID has been given a reprieve until the end of 2026.
This means that, between 1 January 2023 and 31 December 2026, UCITS in the EU will need to produce PRIIPs KIDs, while those in the UK will continue to produce UCITS KIIDs.
For UK-domiciled funds, this isn’t such an issue, as UK UCITS no longer have automatic passporting rights into EU countries. But the FCA has been more accommodative towards those EEA-domiciled UCITS that were marketed into the UK at the time of Brexit. Under the Temporary Marketing Permissions Regime (TMPR), funds already marketed into the UK could register to retain that right until such a time as they either apply for direct authorisation in the UK or gracefully retreat from these shores.
After keeping the fund world on tenterhooks since saying on 25 March that “no decision has yet been made on whether the new EU PRIIPs KID for UCITS will be accepted in the UK after the end of 2022,” the FCA confirmed on 14 July that “when being marketed to retail investors in the UK, EEA UCITS…must produce a UCITS KIID.”
While this decision is the most obvious and sensible one, meaning that all UCITS sold in the UK have a similar pre-contractual disclosure document – and one that distributors have become familiar with over the last ten years – it does mean that any EEA-domiciled UCITS also marketed into the UK will need to produce both a PRIIPs KID and a UCITS KIID; past performance on one and future performance scenarios on the other, different scales for the risk indicators which look the same, the inclusion of transaction costs on PRIIPs KIDs but not on UCITS KIIDS, and different review and update cycles and triggers. What could possibly go wrong? It is more important than ever to ensure calculations and monitoring are kept separate and handled by an expert.
The good news is that EEA UCITS may choose between a PRIIPs KID and a UCITS KIID for any non-retail share classes, as they are outside the scope of the PRIIPs Regulation, so the need to produce both if selling into the UK may help with that decision.
To stay compliant with automated UCITS KIID and PRIIPs KID production, for funds marketed in the UK and EU, contact us to discuss FE fundinfo’s Regulatory Document Production solution.