PRIIPs KID in UK. More Head Wind for UCITS Managers
****PLEASE NOTE that since this article was published, the UK FCA confirmed that the exemption to the requirement for UCITS to transition to PRIIPs KIDs will last until December 2026. Until then, EEA UCITS, both the ones authorised to market under the TMPR and under section 272 FSMA will have to provide UCITS KIDs.
New challenges at the horizon for UCITS fund managers currently marketing, or planning to market, towards retail investors in the UK. Concluding a journey started in 2021, the UK FCA recently issued a Policy Statement on PRIIPs KID in UK to introduce new Scope Rules as well as amend the PRIIPs Regulatory Technical Standards.
For the lack of a position, today as to whether come 2023, UCITS marketed or to be marketed in the UK will be allowed to use the European PRIIPs KID or will have to continue producing the former UCITS KIID, accessing or retaining access to UK retail investors for those managers might become more burdensome and costly.
Get in touch here with your contacts at Veneziano & Partners to see how we can help with PRIIPs KID in UK.
Onshoring Unamended PRIIPs RTS
Even when still part of the EU and notwithstanding the support for the overall principles of fair disclosure towards retail investors, the UK never shied away from expressing heavy criticism towards the way that PRIIPs regime was designed. That same regime was indeed onshored in the UK at the time of Brexit, on the basis of the Regulatory Technical Standards then only subsequently amended by European Authorities after Brexit.
The UK has now the ability to propose targeted amendments to the PRIIPs Regulatory Technical Standards onshored in order to tackle some of the most pressing issues created by the PRIIPs KID in UK. These amendments shall be considered as a first step of a bigger process, where HM Treasury will take a look in a more organic and encompassing way at the entire disclosure regime for UK retail investors.
The UK finds itself once again in a position, which we have witnessed now also in other circumstances in relation to different pieces of regulation, where there is an agreement in principle with the overarching premises and goals of European regulation, yet it is possible due to the regained sovereignty post Brexit to achieve those same goals in a different way.
Targeted Amendments and Intended Outcomes
And the approach adopted by the UK post Brexit, on the one hand supportive of the overall goals of the European regulation with some divergence, on the other, in the formula adopted to pursue those goals, besides being good in principle for equivalence, also allows to tackle more directly issues that are particular to the UK internal market. This seems to be the case also for PRIIPs KID in UK.
A considerable part of the targeted amendments proposed by the UK FCA to the PRIIPs Regulatory Technical Standards is related to the scope of the PRIIPs regulation with regards to corporate bonds. Cognisant of the issues experienced in the past by both issuers and distributors with regards to the production of PRIIPs KIDs in UK for this type of products, the UK FCA plans to tweak the scope of the rules in order to ensure that higher quality instruments can reach the retail market without the need to produce a KID, where the EU version of the PRIIPs regulation had made that more complicated in the past.
For what concerns the actual Regulatory Technical Standards, one of the targeted amendments will affect the requirements and methodologies for presentation of performance scenarios in the KID, where it is proposed to introduce a requirement to provide narrative information on performance as opposed to the result of complex calculations.
What happens to UCITS with PRIIPs KID in UK?
As we anticipated, the biggest challenge posed by these amendments to the PRIIPs regulation will be for UCITS marketing in the UK. Grandfathering from the requirements of PRIIPs KID in UK is currently in place for UCITS for a period of five years, until the end of 2026. The same grandfathering is applicable also to EEA UCITS marketing in the UK. This is the case both for UCITS already authorised pre-Brexit under FSMA section 264 – now operating under the Temporary Marketing Permission Regime – as well as any new UCITS to be authorised for marketing to retail under the existing and operation FSMA section 272.
HM Treasury has not yet determined whether an EU PRIIPs KID for UCITS will be acceptable and actually accepted as of 2023 for EEA UCITS marketing currently or intending to market in the UK, leaving a considerable degree of uncertainty and the possibility, already accepted by many global market participants, of a double disclosure regime for their funds.
The UK Overseas Fund Regime
This uncertainty for the future of PRIIPs KID in UK comes on the backdrop of an already complicated scenario for UCITS new entrants to the UK retail market. The new rules on the UK Overseas Fund Regime, introduced to govern the new marketing authorisation in the UK of UCITS not currently marketing under the Temporary Marketing Permission Regime, are in force already, yet not operational due to the lack of equivalence assessments made by the UK. It would not be hugely surprising if, for political reasons linked to the evolving relations between the UK and the EU, the Temporary Marketing Permission Regime is extended beyond 2023, leaving new entrants to the UK retail marketing with some hard choices to make.
Conclusions
The implications of Brexit are manyfold as we see and are posing more hurdles to new entrants to the UK retail market than existing European participants.
Here more than ever it is of paramount importance to be able to design a distribution strategy that takes into consideration these obstacles, including the angle of the disclosures to investors, and has a very realistic stance on the evolution of the relations between the UK and Europe for what concerns equivalence, tied in with the individual intentions on time to market and intended investor audience.
Get in touch here with your contacts at Veneziano & Partners to see how we can help with PRIIPs KID in UK.