PRIIPs KIDs - ESAs publish updated Q&As

On 14 November 2022, the European Supervisory Authorities (ESAs) published an updated version of their document, “Q&As on the PRIIPs Key Information Document (KID)” in preparation for changes to the PRIIPs regime which come into effect on 1 January 2023.

The new Q&As include a number of new questions, spread across the following headings:

• General topics
• Market risk assessment (Product categories)
• Performance scenarios
• Past performance
• Derivatives
• Multi-option products (MOPs)
• Autocallable products and
• Methodology for the calculation of costs (Calculation of the summary cost indicators) and
• Methodology for the calculation of costs (Presentation of costs)

Two points to note:

• the Q&As cover issues under both the PRIIPs Regulation and the Level 2 rules made under it.
  The Level 2 rules were set out in Commission Delegated Regulation (EU) 2017/653 (the KID Delegated Regulation). This, though, has now been amended by Commission Delegated Regulation (EU) 2021/2268 (the Amending Delegated Regulation), the vast majority of which applies from 1 January 2023.
  The new document includes Q&As that deal with both (a) the original rules in the KID Delegated Regulation and (b) amendments made by the Amending Delegated Regulation, which apply from 1 January 2023.
  As a result, the ESAs specifically indicate where a new Q&A relates to the amendments that will not come into effect until 1 January 2023.
• In addition, some Q&As cover requirements which will be amended when the Amending Delegated Regulation comes into force. These Q&As will remain relevant until the end of 2022, but may no longer be relevant from 1 January 2023 onwards.
  Again, the updated document flags those sections where Q&As will need to be revised. The ESAs intend to publish the necessary revisions before 1 January 2023.

Although the new document contains more than 40 new Q&As, we would, in particular highlight the following two, in the sections headed ‘General Topics’ and ‘Investment Funds, respectively’:

General Topics

Question 10: Prior to 1 January 2023 is it possible to prepare a KID based on the new requirements in the Amending Delegated Regulation, for example for a product launched between September and December 2022 or a product with a subscription period that runs from 2022 into 2023?

Answer: The requirements in the Amending Delegated Regulation do not apply until 1 January 2023. Therefore, all KIDs published prior to that point need to comply with the existing requirements in the KID Delegated Regulation.

The Simmons view

We take this this answer to confirm that, where a manager is currently required to prepare a PRIIPs KID, until 1 January 2023 the KID produced must continue to comply with the current requirements.

For managers transferring from UCITS KIIDs, we don’t consider that this answer is intended to prevent them from preparing PRIIPs KIDs compliant with post-1 January 2023 requirements in advance of 1 January 2023.

Investment Funds

Question 1: Do the rules concerning the UCITS key investor information document (KIID) still apply?

Answer: The rules concerning the UCITS KIID still apply in certain specific situations. In particular, where a UCITS is not made available to retail investors in the EU in accordance with Article 5(1) of the PRIIPs Regulation, the UCITS management company is required to draw up a key investor information document in compliance with the rules in Directive 2009/65/EC (UCITS Directive), unless it has decided to draw up a KID as out in the PRIIPs Regulation.

The Simmons view

Some have mistakenly understood the position and believe that, while the requirement to produce and provide a UCITS KIID remains, it can be satisfied by the manager providing a PRIIPs KID instead.

The trend we are seeing is for managers of EU UCITS to only produce PRIIPs KIDs, such that UCITS KIIDs will become an endangered species, seen only in the UK for

• UK UCITS and
• where an EU UCITS is marketed in the UK under the TMPR (at least unless and until the FCA decides that this will not be needed under the Overseas Funds Regime – we expect its consultation on the OFR to be published in Q1 2023).