Miscellaneous Amendments to the PRIIPs Regulation
Packaged Retail and Insurance-based Investment Products (PRIIPs) are a category of financial assets regularly provided to retail investors. PRIIPS are defined in Regulation (EU) No 1286/2014 of the European Parliament and of the Council of 26 November 2014 on key information documents for packaged retail and insurance-based investment products (PRIIPs) (the EU PRIIPs Regulation) as investments where, regardless of their legal form, the amount repayable to the retail investor is subject to fluctuations because of exposure to reference values or to the performance of one or more assets that are not directly purchased by the retail investor; or an insurance-based investment product which offers a maturity or surrender value that is wholly or partially exposed, directly or indirectly, to market fluctuations. Examples of PRIIPs include Undertakings for Collective Investment in Transferable Securities (UCITS) Retail Schemes, Foreign Exchange Transitions, Exchange Traded Derivatives and Over the Counter Derivatives.
	The EU PRIIPs Regulation aims to increase the transparency and comparability of investment products, and sets the requirements for a disclosure document, known as the Key Information Document (KID), that must be provided to retail investors when they purchase, or receive advice on, PRIIPs.
	Before the end of the Transition Period, the EU PRIIPs Regulation was a directly applicable EU Regulation, and in order to ensure that the Regulation had full effect in the UK, HM Treasury made the Packaged Retail and Insurance-Based Investment Products Regulations 2017 (S.I. 2017/1127), which entered into force on 1 January 2018.
	Following the end of the Transition Period, the PRIIPs Regulation forms part of retained EU law and therefore continues to apply in the UK, with the necessary changes made under the EUWA to ensure that it continues to operate effectively.
	The PRIIPs Regulation is supplemented by a Delegated Regulation (regulatory technical standards, or RTS) that sets out further detail of the requirements under PRIIPs. The RTS also form part of retained EU law, and the FCA is empowered to update and amend the RTS in the UK.
	The PRIIPs Regulation requires that a KID must contain certain information on the product in question, including the potential risks and returns associated with the product, the costs associated with investing in the product and performance scenarios illustrating the potential return of the product under a range of assumed market conditions. The methodologies for calculating transaction costs, producing performance scenarios and assessing Summary Risk Indicators (a numerical scale from 1 to 7 which indicates the investment risk associated with a product), along with detailed requirements on how information is to be presented in the KID, are set out in the RTS.
	The Government supports the objectives of the PRIIPs Regulation, which seeks to enhance investor protection by standardising the disclosure document provided to retail investors when they purchase PRIIPs. However, serious concerns about the unintended consequences of the PRIIPs Regulation have been raised extensively by governments, regulators and industry across Europe ever since it came into force in the EU in 2014. In particular, the Regulation has been criticised for requiring the disclosure of potentially misleading information to retail investors and for the lack of clarity surrounding its scope, which may have caused a reduction in the investment products made available to retail investors, reducing consumer choice.
	In the longer term, the Government intends to undertake a more wholesale review of the disclosure regime for UK retail investors, but in the meantime, the Act makes targeted amendments to the PRIIPs Regulation to avoid consumer harm and provide the appropriate certainty to industry.
	These amendments enable the FCA to clarify the scope of the Regulation, replace ‘performance scenario’ with ‘appropriate information on performance’ and enable HM Treasury to further extend the exemption currently in place for UCITS retail schemes.
	The amendments to the PRIIPs made by the Act will address significant uncertainty among industry as to the precise scope of PRIIPs, without changing the definition of a PRIIP. They also remove the obligation for PRIIPs manufacturers to produce performance scenarios, the methodology for which has been criticised for producing misleading predictions; andprovide UCITS retail schemes with an extended transitional period to comply with the Regulation, up to a maximum of five years.