Once upon a time, the
financial supervisory authorities across the EU and the UK had a utopian plan.
They said: let’s have a single system to provide information on financial
investment products. For each product, investors will always receive the same
simple document, can compare and make informed decisions. What a nice and
This sensible intention had its first obstacle with HM Treasury’s decision
to extend UCITS funds exemption from PRIIPs for 5 years (Source). And now, as
published last Friday (March 25th, 2022), the UK FCA completely
buried the one-system objective, with the formation of a UK version for PRIIP
Manufacturers of UCITS & PRIIPs that distribute their products to the
EU and the UK will need to deal with 3 separate systems:
- EU PRIIP KIDs for all
PRIIPs distributed in the EU
- UCITS KIIDs for UCITS
distributed in the UK
- UK PRIIP KIDs for PRIIPs
(other than UCITS) distributed in the UK
3 different methodologies and templates of key information documents.
Distributors will need to be very cautious on providing the right document for
each combination of product and potential client.
Let’s go through the
main differences among the 3 systems.
The methodologies for
calculating the risk in UCITS KIIDs and PRIIP KIDs are completely different.
This is dangerous, as both are using the same 1 to 7 scale. Here are some
sample calculations we did a year ago:
(Luckily) EU and UK PRIIPs use the same methodology for the SRI
calculation, but they usually end up with a lower risk class than the UCITS
SRRI. It is true that both EU and UK PRIIPs allow manufacturers to increase the
SRI in case they believe it should be higher. However, the industry is
reluctant to exercise this option, as it would lead to incomparability with
Having two different risk classes for the same fund, one when distributed
to EU investors and another one when distributed to UK investors, both on the
same 1 to 7 scale, is a risky outcome and a likely cause of investor confusion.
Here the 3 systems notably
The costs are another
section where the methodologies and the presentation diverge significantly
among the 3 systems:
* For the
calculation of cost impact on returns, there needs to be a scenario, based on
which the cost impact is calculated. Since the UK PRIIPs dropped performance
scenarios from the performance section, the use of the Moderate Scenario is not
relevant anymore. The amended UK PRIIPs RTS then requires the use of “a
moderate performance scenario based on reasonable and robust assumptions and
methodology”. Is this the same scenario as the EU PRIIPs’ Moderate Scenario?
** RHP is an
abbreviation for Recommended Holding Period
The KI(I)Ds future turned uneven and complicated.
The rest of year 2022 is going to be very challenging for manufacturers and
distributors. Manufacturers need to update their systems and disclosures to
support the new regulatory amendments. Distributors need to train their
personnel on the changes.
Let’s hope this disclosure fragmentation
doesn’t lead to too-many retail investment losses.