On 30 April 2009, the European Commission published a Communication on Packaged Retail Investment Products (PRIPs), in which it committed to develop a common level of consumer protection for packaged retail investments. This would be delivered by a ‘horizontal approach’ regarding pre-contractual product disclosures and selling practices for PRIPs.
The Communication provided that PRIPs could ‘take a variety of legal forms which provide broadly comparable functions for retail investors’:
• ‘They offer exposure to underlying financial assets, but in packaged forms which modify that exposure compared with direct holdings’;
• ‘Their primary function is capital accumulation, although some may provide capital protection’;
• ‘They are generally designed with the mid- to long-term retail market in mind’; and
• ‘They are marketed directly to retail investors, although may also be sold to sophisticated investors.’
PRIPs were grouped into four indicative ‘product families’ for the purposes of the Communication:
• investment (or mutual) funds;
• investments packaged as life insurance policies;
• retail structured securities; and
• structured term deposits.
Regarding the pre-contractual product disclosures, the Communication provided that the recent work on developing a Key Investor Information document (KII) for UCITS provided ‘a clear benchmark of the standard for mandatory disclosures…, though these disclosures would need to be adjusted to reflect the particular features and legal forms of other products.’
With regard to conduct of business and conflicts of interest provisions, MiFID was considered by the Commission as a clear benchmark which would form the basis for a common PRIPs sales regime.
Since the April 2009 Communication on PRIPS, the three Level 3 Committees have worked to develop their thinking on this subject with a view to providing input to the Commission in the further development of its proposals. The first output of the Level 3 Committees work was the joint submission of three sectoral reports to the Commission on 18 November 2009. It was in this context that the Level 3 Committee Chairs agreed on 17 November 2009 that, in order to reach a common position across the Level 3 Committees, and recognising the inherently cross-sectoral nature of the PRIPs workstream, a joint Level 3
Task Force on PRIPs should be established.
In conducting this work, the Task Force has focused on three central areas:
• the scope of the PRIPs regime;
• the product disclosure requirements for PRIPs; and
• the regulation of their selling practices.
Throughout the paper, the terminology based on the Commission’s communications on the PRIPs project is used. The firms that produce PRIPs are referred to as manufacturers, firms that sell PRIPs as distributors and PRIP customers as investors (irrespective of the nature of the product).
In the future, when reviewing relevant directives (e.g. IMD and MiFID), the Task Force believes the Commission should take account of the future PRIPs regime and, as far as appropriate, seek consistency between the different sets of rules.
In the interests of harmonisation and to avoid the potential for regulatory arbitrage, some Task Force members believe any modification to the conduct of business regime for MiFID financial instruments which are PRIPs should also be introduced for non-PRIP MiFID financial instruments.
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