EU moves to delay PRIIPs for 12 months to realign with MiFID II

The European Commission announced today that it will take the necessary legal steps to postpone the PRIIPs Regulation for 12 months. The European Commission will publish its proposals in an amending draft Regulation. This must be quickly passed by Parliament and Council if the existing 31 December 2016 application date is to be successfully pushed back by one year. The announcement aligns the dates of application of PRIIPs with MiFID II.

The legal situation
The European Commission announced today that it will formally move to postpone the application date of the PRIIPs Regulation by 12 months. The European Commission will propose a new Regulation to amend the article of the PRIIPs Regulation that sets out the date of application. The delay will only be formalized if the new amending Regulation is adopted by the European Parliament and European Council within the next month. Until that final hurdle is cleared, the original date remains in force.

Parliament and Council must now formally adopt this proposal as fast as possible, as new European Union legislation must be published in the official journal of the EU usually 20 days (although sometimes sooner) before it can enter in force. In the case of MiFID II, the process to amend the application date took almost four months to get through Parliament and Council. The amending Regulation for the PRIIPs Regulation will need to progress much more quickly given the tighter timescales.

However, given that both Parliament and Council have requested a postponement of the date of application of PRIIPs, it is expected that both institutions will expedite the amendment’s progress through the legislative process within the next month. The next plenary session of the European Parliament where a vote could take place is scheduled for the week of 21 November.

Otherwise, the Level 1 Regulation will apply from 31 December 2016 without supporting Level 2 regulatory technical standards. Assuming that both legislative institutions respond swiftly to the proposal, the new date of application will be 31 December 2017. This means that the PRIIPs Regulation timetable will align more coherently with MiFID II, which applies from 3 January 2018.

This announcement is likely to be met with relief by the financial industry. However, the uncertainties over the detail of the Level 2 RTS still remain and will need be addressed in the early part of 2017.

Next steps
The European Commission has stated that it will now work with the three European Supervisory Authorities (ESAs) to resubmit the revised Regulatory Technical Standards (RTS). In particular, it has requested the ESAs to make targeted changes in certain areas (i.e. multi-option products, performance scenarios, comprehension alert and presentation of insurance related costs).

Additionally, to ensure greater clarity for insurance companies, the European Commission has invited the ESAs to develop guidance on the practical application of credit risk mitigation factors under the RTS for insurers. Once redrafted, Parliament and Council will need to adopt the RTS. According to the Commission, their aim is that the PRIIPs framework should be in place during the first half of 2017 and apply as of 1 January 2018.

What does it mean for the financial industry?
For many market participants the 12 month delay means more time to get ready for the complicated demands of the PRIIPs regulation. However, in reality this may not be as beneficial as it appears. Firstly, many firms already have a full slate for 2017 as they prepare for MiFID II.

Secondly, there is a risk that some firms have now put PRIIPs preparation on hold for almost a year as the regulatory situation evolved. Due to the eleventh hour postponement, these industry players could be almost a year behind in their preparations, and an extra 12 months will not create much breathing space for them.

Thirdly, the value of a delay depends largely on what the redrafted RTS look like and when they are made available. Those firms who have already invested resources into PRIIPs projects are unable to complete them without finalized Level 2 legislation being made available. Maximizing the benefit of a delay points to a review of RTS being conducted, finalized and adopted in Q1 2017. Otherwise, industry risks a repeat of 2016, which saw RTS being proposed in April and reviewed in June, putting huge pressure on firms to interpret and respond to the legislation in time.

Nevertheless, the postponed date also creates opportunities. The realignment of the PRIIPs and MiFID II timetables offers the financial industry an opportunity to embrace a more strategic approach to investor protection compliance.

Many aspects of dealing with PRIIPS-KIDs will be relevant to MiFID II. Additionally, some MiFID II challenges like the two-way exchange of information required between manufacturers and distributors, can be partly addressed by PRIIPs preparation. A key example is that MIFID II requires manufacturers to define target market criteria and make this information available for the distributor. Distributors, meanwhile, need to report back on volumes sold outside this target market. These MIFID II requirements involve connectivity challenges that PRIIPS lays the ground for.

Time pressure may persuade firms to move away from a tactical approach of dealing with each regulation separately. Instead, the industry could make a move towards coordinating the interfaces, connectivity and strategic partners required for both regulations at once. This will make it easier to discover synergies in compliance requirements and reduce the internal resources needed to tackle both regulations at once.

Phil Lynch, Head Markets, Products & Strategy at SIX said, “More clarity about the PRIIPs implementation timetable is welcome news to the industry. However, there is still a lot for the financial industry to do as they prepare for PRIIPs and MiFID II simultaneously. With both regulations now aligned to the same implementation timetable, firms have the opportunity to look at compliance projects more strategically. SIX supports this approach with an industry utility that has been expressly designed to accommodate the long-term obligations of investor protection legislation. The flexible system can be easily adjusted in response to RTS updates and allows SIX to contribute to the compliance value chain by offering key aspects of the connectivity and entitlements that will be required for compliance across a range of investor protection regulations.”

Further reading:
Commission extends the application date of the PRIIPs Regulation by one year

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Julian Chan, Media Relations

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