Asset managers should pay attention to packaged retail and insurance-based investment products (PRIIPs) regulation, or risk more costs in the long run, according to Paul North, head of product management for asset servicing in Europe, the Middle East and Africa at BNY Mellon.
Although a lot of the documentation required for PRIIPs overlaps with that required for the Markets in Financial Infrastructures Directive (MiFID) II, many asset managers are treating MiFID II as a priority and failing to take action on PRIIPs, North said.
Those managers that go ahead with their MiFID II projects without considering PRIIPs, and the subsequent changes to key investor information documents (KIIDs), “could incur additional work and costs”.
Citing the benefits of integrating PRIIPs into MiFID II preparations, North pointed out the changes in what has to be communicated to end investors under PRIIPs. Product manufacturers will have to create a key information document, and KIIDs, which are already required for UCITS funds, but are restricted to two pages, will be allowed to be longer and broader, depending on the complexity of the strategy.
“For large firms the benefits gained from integrating PRIIPs into MiFID II programmes may be considerable,” North said.
“MiFID II places significant emphasis on cost transparency, requiring details which go beyond the single ongoing charges figure currently listed on KIIDs. MiFID II also requires that asset managers clearly define their target market and specify how the product is aligned to these clients and their needs.”
The deadline for KIIDs to be updated is January 2018, however, North suggested that firms are not putting in the early preparations that they should be.
“Whilst the deadline seems far away and, with PRIIPs regulatory technical standards still to be finalised, a lack of clarity is causing asset managers to push compliance programmes back,” he said.
“Asset managers must focus now on establishing what products they offer and what documentation they need to support their distribution model. The new KID will also need to sync up with other marketing literature, including contract notes, statements and prospectuses.”
“The industry needs clarity from the regulator and an appropriate timeframe in which to assess the requirements of the impending regulatory technical standards, and act accordingly. The amount of paperwork and communication that needs to ripple through the industry, from manufacturers to promoters to distributors and out to the end investor, is extensive.”
North concluded: “Asset managers face the additional burden of renegotiating distribution agreements under MiFID II. The cost of this work is considerable, and could spiral out of control if managers to do not combine PRIIPs requirements with the work they are doing for MiFID II.”
