23 December 2016

European Supervisory Authorities respond to European Commission on amendments to PRIIPs rules

The ESAs - the European Banking Authority,European Securities and Markets Authority and European Insurance and Occupational Pensions Authority - received a letter from the European Commission setting out the amendments it proposes to make, accompanied by draft amended RTS in November 2016.

The ESAs discussed the amendments to the draft RTS received from the European Commission and presented an Opinion to the three Boards of Supervisors covering all of the areas addressed by the Commission’s letter and the amendments in the RTS. The Opinion was adopted at the EBA and ESMA Boards on the basis of qualified majority voting. However, it did not receive the support of a qualified majority of the EIOPA Board as there were differing views expressed in particular concerning the treatment of multi-option products, the criteria to determine whether a comprehension alert should be included in a KID, and the provisions in the RTS on the credit risk mitigation factors for insurers. As a result, the three ESAs are not in a position to provide an agreed opinion on the amended draft RTS.

Nevertheless, since there was a general consensus during the discussions within the ESAs’ Boards that the amendments to the performance scenarios proposed by the Commission raised comprehension issues and may be misleading, we would like to convey the main concerns raised on this topic in our capacity as ESAs’ Chairs.

Whilst the performance scenarios should not provide overly positive expectations as to future returns, concerns were raised regarding the credibility of the ‘moderate’ scenario if it is either zero or, once costs are taken into account, indicates an expectation of losses over the whole recommended holding period. The ESAs selected an approach in the original draft RTS using historic returns over a five-year period to allow for performance of asset classes, costs and product features to be readily reflected. Though discussions within the ESAs showed that there was recognition that there are pros and cons to this approach also, the methodology in the ESAs’ original draft RTS was still considered to be preferable. If the Commission nevertheless wishes to amend the RTS along the lines it has proposed, one option the ESAs considered was the use of the mean of the distribution of risk free returns, adjusted for dividend yields. However, as inter alia this approach would not discriminate between different asset classes, and given the review of Regulation (EU) No 1286/2014 due by 31 December 2018, it was considered important for alternative approaches to be investigated as part of that review process.

Full letter

© ESMA