No KIDs, no PRIIPS: paper jam stalling new product sales
Cantillon: Rules aimed at making investment easier are actually making it harder
In response to the lack of KIDs, a host of stockbrokers have stopped offering certain products from PRIIPS providers, given that they no longer comply with EU regulations. Photograph: iStock
The intentions may have been apposite, but the implementation of yet another piece of European regulation, ostensibly aimed at making investment easier for consumers, has thrown up some challenges in its early days.
Introduced on January 1st, the goal of PRIIPS, or the Packaged Retail and Insurance-based Investment Products Directive, is to allow retail investors compare products across Europe on a like-for-like basis. It aims to achieve this by requiring product providers, such as those offering foreign-listed, exchange-traded funds, to prepare specific documentation detailing the various risks, rewards and costs relevant to the product. This information is found in a document known as a KID (key information document), which can be up to three A4 pages long, and must also be available in an investor’s local language and posted on the provider’s website.
The problem which has now arisen, however, is that some product providers have stalled on preparing these documents, which means that not only can European investors not compare these investment products – they can’t actually buy them.
Yes, in response to the lack of KIDs, a host of stockbrokers have stopped offering certain products from PRIIPS providers, given that they no longer comply with EU regulations. This now means that rather than enhancing the playing field for retail investors, it has effectively restricted it.
And even when (and if) everyone does row in behind these new regulations and prepare the documents required, they will actually do little to help your average retail investor when it comes to comparing their options. This is because UCITS funds (Undertakings for Collective Investment in Transferable Securities), which are European-domiciled funds with common rules, are still exempt from the rules. While these funds, which are among the most commonly distributed structures in Europe, must already publish a KID, it differs from that introduced under PRIIPS. And it won’t be aligned until the end of 2019.
This means that the opportunity to compare products on a like-for-like basis will still escape retail investors for some time to come.
The wonder too about the current confusion is that PRIIPS did not just spring up overnight. It first came into legal effect back in 2014, and has been delayed numerous times since – a gestation period which has been long, even by European standards. And one which should have surely allowed for issues such as those outlined above to be smoothed over.