They say good things come to those who wait, and market participants have certainly had to be patient as first the Markets in Financial Instruments Directive (Mifid II) and then, at the eleventh hour, the Packaged Retail and Insurance-based Investment Products (Priips) regulation was put back for another year. However, with a revised Priips RTS now imminent, coupled with a Mifid II deadline of January 2018 locked down, the waiting could soon be over, according to Joe Channer (pictured), chief executive officer at Delta Capita.
The existing delays have already come at a cost to the industry, according to Channer. "Take the uncertainty surrounding the timing of Priips as a classic case in point," says Channer. "The structured products industry had accepted the Priips regulation as a positive step, invested significant effort to be ready for delivery and had their minds set on January 1, 2017 as the deadline."
The commitment of the industry and the desire to create Key Information Documents (Kids) that would be of real benefit to investors and allow comparison across products, coupled with the tight original deadline, had even resulted in co-operation between the usually ultra-competitive banks, according to Channer. "With the original Mifid II deadline anticipated to be further down the road, and associated regulatory guidance still under wraps, the Priips work was carried out in isolation despite the obvious crossover," says Channer. "With this in mind, the big question facing the industry over the coming months is how much of the work completed on Priips now needs to be reviewed again and exactly how is this crossover with Mifid II going to work?"
Take the target market requirements under Priips, says Channer pointing that in the Kid, the manufacturer has to specify the target market for a Priip. "Correspondingly, product governance rules under Mifid II state that manufacturers need to communicate the precise target market to distributors," he says. "The problem is that these requirements go much further under Mifid II - with the detailed European Securities & Market Authority (Esma) guidance likely to be difficult to contain in an already cramped three-page Kid."
In addition, further regulatory text requires distributors to explain to the manufacturer when a product is sold outside the target market, according to Channer. "All this means that the Kid templating for Priips - that would have been carried out in time for anticipated January deadline, now has to be updated to reflect the changes made in the current preparation for Mifid II," says Channer.
Target market is just one of a number of areas of crossover now under consideration, with costs and charges, as well as scenarios being other good examples, according to Channer. "Priips provides a cost table where manufacturers have to disclose any costs, charges and fees paid to the distributors," says Channer. "Priips regulation is also very prescriptive regarding the display of these costs in the form of reduction of yield under various scenarios. These scenarios are also used to provide an indication of potential outcomes to end investors."
Here the overlapping between the two regulatory frameworks is obvious as Mifid II has similar objectives covered in a number of different articles in the standards, which now need to be considered in the context of a Kid being present in every transaction, according to Channer.
However, Channer believes that with a revised RTS for Priips anticipated soon, hopefully addressing concerns outlined by the European Parliament, firms can ill afford to put this Priips/Mifid II crossover to one side. "The good news is that once again the structured product industry associations and working groups are taking the lead and trying to pool their regulatory expertise and experience to address this issue," says Channer.
"While this is unlikely to be plain sailing as the clock ticks relentlessly towards the new deadline date, only further collaboration through groups such as this are likely to lead to a smooth implementation in January 2018."
Regulators are far more engaged with the industry, SRP Europe