Eusipa highlights further issues with Priips implementation

The European Structured Investment Products Association (Eusipa) is seeking clarification on a number of issues "identified as being of crucial importance from an operational perspective in the upcoming implementation of the packaged retail and insurance-based investment products (Priips) regulation".

In a letter to the European Commission (EC), the European trade body has outlined a number of items that have not been dealt with in the recently held public consultation, and has requested a 'joint meeting' to discuss the 'open points'.

"We are worried that the discussion centres around risk and cost while there are many other issues that have a huge cost impact on issuers when it comes to the implementation of Priips," said Eusipa's secretary general Thomas Wulf (pictured). "Hence we wanted to transfer this sense of urgency also to the EU institutions."

Among the items of 'high relevance' to the implementation/application of the EU PRIIPs regulation which were outside the scope of the Joint Consultation Paper of the ESAs on draft RTS, Eusipa is asking the regulators to clarify the scope of products the Priips regulation will be applicable to, specifically around the use of derivative products, whether structured or not, which are used for hedging purposes only, as well as the definition of product manufacturer.

'Their coverage would clearly collide with the intention of the regulation which seeks to provide information material for products bought for investment purposes,' stated the Eusipa letter.

'A further clarification we think is needed in this context with regard to the term "manufacturer". It has to be made absolutely clear which entity will have legal responsibility to comply with the manufacturer requirements, particularly in situations where several parties work together on the design and structuring of a new product.'

The European trade body is also seeking guidance on the national regulatory treatment of products launched -but not yet matured at the moment of the regulation's enforcement - as it is highly likely to differ from one jurisdiction to the other, as well as on the use of Key Investor Documents (Kids) in other than their original market -home/host country principle, a clarification the trade body sees as 'absolutely vital' as otherwise 'there will realistically be no EU-wide homogenous Kid for many products falling under the Priips regulation and, consequently, no level playing field in a wide part of the retail product landscape'.

In this context Eusipa is of the view that the new rules will have to clearly define as of when a product is being distributed in another than the home market in a way that its distribution triggers the obligation for the issuer to submit a Kid to relevant host country authorities. From a legal perspective, these principles should also apply to the obligation to update the Kid, according to the association which is also asking the regulators to define 'which precise events in the product lifecycle, if any, should trigger the update obligation and which not'. Eusipa objects to base the update requirement solely on the existence of a secondary market for or the listing of a Priip.

According to Eusipa, product manufactures will also need further guidance on content and text structure of the Kid's most relevant parts, 'in particular the "What is this product?" section, to enable them to start drafting Kids without facing the risk that at a later point in time, more detailed rules will be added which were not reflected in their drafts'.

'This guidance could also come in the form of a clarification that no further specification on these requirements will be given at any level of implementation rules, including at national level,' stated the letter which also points at the need to clarify the provisions around claims - How to complain? Section, as issuer-fed distribution channels for a single product may be manifold, including a variety of business lines, entities and individuals in many jurisdictions. Eusipa 'strongly suggest allowing for generic statements with regard to claims addressed to the issuer but made with regard to distribution practices'.

In addition, the European trade body stressed that the use of generic Kids should be permitted in case the pre-trade provision of a Kid may be materially impossible, 'notably with over the counter (OTC) flow products such as swaps as these products are generally sold to sophisticated retail clients (e.g. corporate clients classified as retail and active on the FX or commodity markets or private bank clients that have recurring FX hedging needs), and it would make sense to provide a generic pre-trade Kid with complimentary information being submitted post-trade.

The Eusipa letter was addressed to Sven Gentner, head of unit, Directorate Financial Market at the European Commission EC), and Timothy Shakesby, chair of the Priips sub group at the European Insurance and Occupational Pensions Authority (Eiopa).

Click in the link to read the Eusipa letter.