Retail Investment Strategy and PRIIPs KID Gets One More Revamp
The action plan of the Capital Markets Union was revamped in 2020. The original action plan, dating back to 2015, intended to address the issue of fragmentation of the European capital markets from two specific angles. Creating new avenues of financing for SMEs, on the one hand, and new investment opportunities for European savers on the other. The first iteration of the Capital Markets Union was successful in that it resulted most notably in a reduction of some of the burdens for investment funds to access the single market crossborder and in new rules for long term investments.
Where one of the pillars of the second iteration of the Capital Markets Union action plan remains integration of national capital markets into a true single European market, more emphasis seems to be placed this time on fostering retail investors participation to these markets. More specifically, the aim now is to make Europe a safer place for individuals to save and invest by encouraging financial literacy and establishing trust in capital markets.
From a regulatory standpoint, the so-called retail investment strategy will be deployed by means of an Omnibus directive containing measures on investor protection to impact existing legal instruments (i.e. MiFID, IDD, UCITS and PRIIPs amongst the others).
Get in touch here with your contacts at Veneziano & Partners to see how we can help with the EU Commission Retail Investment Strategy.
Modernisation of the Key Information Document
One of the most interesting premises of the Capital Markets Union is the parallel with the state of the capital markets in the USA. That is the model that the European Commission had in mind when deploying the first iteration of its Capital Markets Union strategy to facilitate cohesion in the fragmented capital markets in Europe. And the USA capital markets remain the model also for the retail investment strategy as part of the 2020 revamped action plan of the European Commission. According to some of the research carried out by the European Commission in the related preparatory works, the European market for retail investments remains characterised by low levels of retail investors participation compared to international peers. More specifically, the percentage of household assets held in financial securities in Europe is still way lower – nearly half – compared to the one in the USA.
As a corollary to the Omnibus Directive, we also have a proposal to modernise the Key Information Document under the PRIIPs Regulation. The PRIIPs regulation is not new to improvements and many amendments have already been proposed over the course of the recent past. As part of the implementation of the overall retail investment strategy, it is proposed now to adapt existing disclosures to the ever-evolving needs of retail investors, related to the increasing use of digital environments when dealing with their investments. Increased digitalisation provides the opportunity to present Key Investor Information in a more attractive way. And the PRIIPs regulation needs to catch up to offer the flexibility required to allow for full presentation of this information in a digital fashion. In the eyes of the European Commission, the benefits of personalisation in the presentation of the key investor information are multifaceted. Reducing the visual overload of information for retail investor is one of them, which in turn will facilitate the comprehension of the features of specific PRIIPs.
An Electronic Format for the KID. Wait, that Rings a Bell…
The retail investment strategy of the European Commission intends to leverage on the progress of digitalisation. For what concerns specifically the PRIIPs key investor information, the idea is to allow for broader use of electronic formats when presenting key investor information. The degree of personalisation in presenting the information should not stop at a visual/cosmetic level. The plan of the European Commission, when proposing the modernisation of the PRIIPs KID regulation, is to include a degree of customisation in the key investor information so provided in an electronic format. Retail investors should be able to obtain information tailored to the specific amounts to be invested as well as the holding period to be inserted online when reviewing the key investor information of a PRIIPs.
However, the shift to an electronic format for retail disclosure, with the ability to customise certain information, is not entirely original. At a closer look, fund disclosures in an electronic and customisable format were already part of the approach proposed for the new retail disclosure in the UK. There remains though a significant difference between the two approaches. As we know, the key investor information document under the PRIIPs regulation will be entirely superseded in the UK by the new retail disclosure, electronic and customised. That is because the UK was never fond of the PRIIPs regulation and decided to entirely scrap it as part of its regained sovereignty vis-à-vis the European Union with Brexit. As part of the retail investment strategy, instead, the European Commission intends to leave unaltered the requirement to produce a key investor information document under the PRIIPs regulation and just wants to add the ability to use an electronic format with customised features. The three-page key information document should always be drawn up in accordance with Article 8 according to the European Commission proposal and available on the PRIIPs manufacturer’s website also for download.
Conclusions
Unsurprisingly the position of the EU and the UK seems to align once again, this time for what concerns retail disclosure. The position of Europe for what concerns PRIIPs is somewhat more delicate than the UK and possibly with less room to scrap entirely a big piece of regulation overnight. Maybe a soft termination for now, depending on the results of the key investor information provided entirely in an electronic format.
Get in touch here with your contacts at Veneziano & Partners to see how we can help with the EU Commission Retail Investment Strategy.