A divergence of regulatory approaches to recommendations for assessing how consumers could be helped by a new investment disclosure regulation for fund managers under the Packaged Retail Investment and Insurance Products (Priips) level 2 review could increase legal uncertainty and compliance costs for market participants, according to an insurance federation.
“The European Supervisory Authorities (ESAs) should take the necessary time to develop sound, meaningful and workable solutions and methodologies that are proven to improve consumer understanding effectively and to fit the diverse PRIIPs,” said William Vidonja, head of conduct of business at Insurance Europe, in an email.
“Interim solutions would increase legal uncertainty for companies and create additional compliance costs, without giving consumers a substantially better understanding of the products. Furthermore, successive interim changes risk further significantly undermining consumer trust in the Priips Key Information Document (Kid).”
The European Commission plans to run consumer testing on performance scenarios at the end of the year, while the ESAs will run a separate and parallel public consultation on the performance scenarios methodology. But tensions are rising between the European policy makers as both look to tackle the issue independently of one another.
On August 7 the ESAs sent a letter to the European Commission concerning the exclusion of three out of six options for presenting information on performance scenarios to be tested during a consumer testing exercise under the level 2 review of the Priips Kid regulation.
The ESAs said they were “not convinced by the explanations” the Commission had provided on the options that it did not intend to include in the consumer testing. And that they viewed the “limitation of the scope of the exercise as a significant missed opportunity […] which can weaken our ability to take informed policy decisions to ensure that investors receive meaningful information.”
The letter also expressed concerns by the ESAs’ that they do not “share the view that some of the testing options are not practically feasible.”
In an earlier letter to the ESAs, Olivier Guersent, director general for financial stability, financial services and capital markets union at the European Commission said that “a draft amending regulatory technical standards that will not comply with the requirements of the Priips regulation 1286/2014 would have to be rejected by the Commission and would put at risk the timely adoption and implementation of the changes before January 1, 2022.”
None of the ESAs responded to a request for comment.
But the overall process adopted for the Priips level 2 review is not “streamlined” and could be significantly improved, according to Vidonja.
“The ESAs will only be able to consider the outcomes of the consumer testing at the end of their public consultation, with a possible misalignment between the findings on performance scenarios presentation and the work done on the methodology,” said Vidonja.”In Insurance Europe’s view, the PRIIPs review process should start with a proper testing of consumers’ understanding of the performance scenarios. A public consultation on the performance methodology should only be launched after the analysis of the consumer testing’s outcomes, in order to properly leverage the finding.”
Concerns are rising that the scope of the testing could be too limited, according to Vidonja.
“[The proposed test] is not sufficient to represent the whole EU insurance market, in particular as Insurance-Based Investor Products (IBIPs) under the current scope of Priips which are very heterogeneous (eg unit-linked, with profit, hybrids, funeral insurance, annuities, etc.) and even similar types of IBIPs have different specific features across the various EU markets,” said Vidonja.
For Jonathan Lipkin, director for policy, strategy and research at the Investment Association focus should be on testing proposed ways of presenting fund information.
“One of the key challenges is ensuring that new approaches to presenting fund information, including performance scenarios, are thoroughly tested with savers. Our industry wants to ensure good customers outcomes, with savers receiving clear and meaningful information to help them make informed investment decisions. The review needs to take the opportunity to get this right,” said Lipkin in an email.