Latest regulatory watch (EU/UK)

A) PRIIPs latest (EU, UK)

1. Still awaited: ESA / FCA ‘level 3’ Q&A

Weeks before the big PRIIPs KID transition deadlines, firms impacted continue to prepare without official guidance readily available.  There is still no sign of the European Supervisory Authorities’ (ESAs) latest PRIIPs KID Q&A, to clarify their extensively updated ‘level 2’ regulatory technical standards.

NB: we understand the ESA’s may be considering a “phased” PRIIPs level 3 approach, with an initial set of revised EU-KID Q&As expected to appear before the end of October.

Meanwhile, we also continue our efforts to locate any equivalent Financial Conduct Authority (FCA) guidance (to support their local UK-PRIIPs KID) within the time available.  Watch this space.

2. FinDatEx: publish EPT 2.1 for UK regime

The new version of FinDatEx’s European PRIIPS template (to reflect the diverging UK regime) is now available.

Following the recent consultation, EPT V2.1 contains an additional section relating to the FCA’s revised UK PRIIPs rules in place since March 2022.

NB: the template was updated last week for an editorial amendment to local anti-dilution (data field no. 125).

In the medium-term, it is proposed the EPT v2.1 is used by either:

• UK-based firms distributing products to UK investors only, or
• UK and EEA based firms, with investors in both regimes

EEA firms that do not market funds in the UK may continue to deploy the current EPT v2.0 until further notice.

EPT V2.1 will now coexist alongside the EPT V2.0 template, until a longer-term convergence takes place.

B) Swiss latest

Back in 2011, the Swiss Financial Market Supervisory Authority (FINMA) requested that specific ‘supplementary’ content was included in the “Practical Information” section of the UCITS Key Investor Information Document (KIID), to enable products to be marketed to local investors, i.e.

The country of domicile of the collective investment scheme;

• the local representative [name, address];
• the local paying agent [name, address];
• the location where the fund documents, annual and semi-annual report, may be obtained free of charge.

Since then, the local Financial Services Act (FinSA) has been legally adopted. As this is aligned with the EU-PRIIPs regime, the option to file a UCITS KIID with FINMA will expire on 31 December 2022.

It is now clear that EU UCITS disclosing an EU-PRIIPS KID (in place of the local BIB) must include the ‘supplementary’ information previously specified for Swiss retail investors, ongoing.

NB: Kneip have already adjusted their KID templates, accordingly. We understand these updated PRIIPs KIDs must be prepared for all share classes within the sub-fund registered with FINMA (i.e. whether or not every individual class is marketed, locally).

Since 2020, it has been possible to file local fund documentation (including the PRIIPs KID) in English.

However, this does entail a formal change of fund ‘official language’ (i.e. from German, French or Italian), including a separate FINMA notification process in advance.

There are now over 8,500 UCITS / non-UCITS foreign open-ended collective investment schemes publicly registered with FINMA.  We understand also that FinSA disclosure provisions may apply also to other foreign funds offered directly to local qualified investors (e.g. ‘private clients’ or ‘non-discretionary clients’).

We advise fund firms to contact their Swiss legal counsel (ASAP) if necessary.

C) UCITS latest (EU)

Still awaited: EC art.82 ‘urgent’ clarification

There is still no update from the European Commission (EC), following the ESA’s request for “urgent clarity” in relation to the obligatory filing of key information to home regulators (per UCITS L1 art.82).

Since May, the ESAs have been left to determine whether:

• PRIIPS-KIDs must be filed with local NCAs (instead of the UCITS KIID), or
• Mandatory NCA filing of UCITS pre-contractual documents will no longer apply

NB: While we continue to assume that most key regulators should expect to receive a replacement PRIIPs KID (filed from EEA UCITS manufacturers) from 1 January: the matter remains generally unresolved.

Similarly, there are no developments linked to the separate ex-ante notification of KIDs (per PRIIPs L1, art. 5(2)). As before, this remains optional (i.e. adopted by only five EU regulators to date).

D) Market latest, trends

1. UK PRIIPs divergence “will cost industry”

“The material increase in costs for fund firms is because some asset managers, especially those with UK roots or those affiliated to  Swiss private banks, have a very large proportion (if not all) of their retail funds, registered in the UK and in the EU”.

Deloitte, 17 October 2022

Leading today’s FT Ignites is a fascinating article containing their latest PRIIPs divergence analysis.

It is reported the UCITS industry now faces an extra EUR 50 million cost as a result of the UK’s decision to diverge from the EU PRIIPs regime.  Alongside the effort to migrate to the EU-PRIIPs KID, firms will incur an additional 20% surcharge to maintain the UCITS KIID disclosure (for the same product offered) in the UK.

It is also revealed that 8,274 EEA UCITS funds currently distribute into the UK per post-Brexit temporary marketing permissions regime (TMPR).  You may recall the FCA have re-confirmed these products must continue to disclosure a UCITS KIID until 31 December 2026 (i.e. to remain in the TMPR).

NB: Kneip’s very own Ulf Herbig also gets a prominent mention, alongside Deloitte and two industry ‘insiders’.

2. UCITS, AIF stakes ahead of 1 January

Alongside UCITS, Alternative Investment Funds (AIFs) facing non-professional clients remain a key part of the PRIIPs KID changeover scope on both sides of the Channel.

According to EFAMA’s latest data, total Net Assets related to UCITS and AIFMD regimes are as follows:

As the European industry hurtles towards major re-alignment of local retail investor disclosure regimes (amid challenging new ‘sustainable’ product rules), the stakes remain very high.