Author: Partner | Lawyer Klaus Henrik Wiese-Hansen and associate Heidi Magnussen
Work on the PRIIPs-regulation began in the EU in 2007, first under the heading “retail investment products”, then as “packaged retail investment products” (PRIPs) in 2009 and finally in 2014 as “packaged retail and insurance-based investment products” (PRIIPs). The PRIIPs-regulation has a side to the financial crisis in 2008-2009 and the experiences one gained during this period, and is a part of the European Commission’s ongoing work to regulate the financial markets.
Within the EU the Regulation enters into force on 31 December 2016, with direct effect. Within the EEA the Regulation needs to be implemented in order for it to become effective. This is the reason why the FSAN has forwarded the legislation proposal together with amending regulations and the proposed hearing note to the MoF. The Act that is being proposed in the hearing note is referred to as the PRIIPs Act (Act on key information about packaged and insurance-based investment products). The MoF will now consider the FSAN’s proposal and then submit it for consultation, possibly with somewhat modified contents. The consultation period is normally 2-3 three months and we therefore assume that the PRIIPs Act will be effective from 1 July 2017 at the earliest.
About the PRIIPs-regulation
As mentioned above, «PRIIPs» is an abbreviation for Packaged Retail and Insurance-based Investment Products and includes most types of structured investment products, regardless of which channel they are manufactured by or sold through.
The PRIIPs-regulation regulates the requirements imposed on manufacturers of structured investment products to non-professional investors, which includes a requirement for the preparation of key information in a standardised document (key information document, “KID”). The PRIIPs-regulation does not impose specific requirements relating to the advice provided to non-professional investors, nor does it introduce a marketing passport or similar requirements for PRIIPs. The PRIIPs-regulation does, however, stipulate specific pre-contractual documentation requirements for the sale and distribution of packaged and insurance-based investment products to non-professional investors. These requirements are comparable to the provisions of UCITS IV (KIID, by distribution of mutual funds) and the distinctive Norwegian requirement in the AIF Act § 7-2 (KID, for alternative investment funds to be marketed to non-professional investors), although the content requirements applicable to the above-mentioned provisions are not harmonized with each other.
The PRIIPs-regulation includes standardised and uniform requirements applicable to the format, content and presentation of the key information document (KID). This in turn means that information on the possibility of losing invested capital, the risk profile of the product, returns and all costs involved shall be provided. These disclosure requirements also apply to sellers and advisers of PRIIPs.
The purpose behind the PRIIPs-regulation’s requirements for KID is to increase transparency in investments for non-professional investors. Furthermore, the goal is to achieve equal rules for such investment products within the EU, whilst improving the internal market. Previously there have been various product requirements depending on whether the product offered is a bank product, an insurance product or a financial instrument offered by investment firms. From 2017 (in the EU), the PRIIPs-regulation will harmonize the information requirements for packaged and insurance-based investment products. This may facilitate increased consumer confidence in the financial markets, as well as making it easier for consumers to fully understand compound investment products. Theoretically, this should also lead to a situation where non-professional investors more easily are able to make deliberate investment decisions.
The main content of the FSAN’s hearing note
As the PRIIPs-Regulation aims to harmonize information requirements when selling structured and insurance based investment products across the banking-, insurance and securities sector, the FSAN proposes to gather the requirements in one general Act. The Act shall apply regardless of industry, and thus for all manufacturers, consultants and sellers of these investment products. The PRIIPs-Regulation is not an obstacle for Member States that wishes to include other products than packaged and insurance-based investment products in the requirement to prepare a KID such as, for example, pension products. Different types of pension products have similar features to packaged and insurance-based investment products. In the Norwegian market this includes certain individual pension products (“IPA” and “IPS” with investment choice) and “pension capital certificates”, “pension certificates” and “paid-up policies”, all with investment choice (issued to former members of collective pension plans).
The FSAN has therefore considered whether such products should be subject to the key information requirement as well. The FSAN proposes that the MoF should be authorised to adopt Regulations that allow all or part of the PRIIPs-Act to apply to products other than those directly covered by the Act and the Regulation. The proposal for such an extended area of application is something that the consultation bodies are particularly requested to provide feedback on.
The PRIIPs-regulation further permits the Member States to choose freely whether the KID shall be submitted to the regulatory authority before the products are marketed. This also applies in relation to the introduction of administrative penalties, for instance by use of violation charges. The Regulation also gives Member States the opportunity to decide not to introduce administrative penalties if the violation is already covered by criminal penalties in national legislation. The FSAN does not suggest to the MoF that the KID shall be submitted to the FSAN before the products are marketed, and we believe the MoF will follow this suggestion. The FSAN suggests a requirement on the supervisory authority to protect the identity of people reporting on possible violations of the PRIIPs-Act, together with provisions relating to the confidentiality of sanction decisions where this may be of significance to the financial market’s stability.
The FSAN also wants the consulting bodies to take a position on whether such provisions should be implemented in the sectorial rules, or in the Financial Supervision Act, bearing in mind that such provisions are of significance across all sectors.