Ready for Priips? I think that is going to be a problem

As the deadline for implementation of the packaged retail and insurance-based investment products (Priips) regime approaches and the markets in financial instruments directive (Mifid 2) looms in the horizon, market players provide feedback on how ready the market is to meet the new regulatory requirements and how this will affect their operations.

Will the industry be ready for full implementation of the Priips regime once it comes into effect?

Tom Van Dyck (pictured), partner at Liedekerke Wolters Waelbroeck Kirkpatrick
In Belgium, that is going to be a problem. There has been a lot of European Union regulation that only really has taken shape in recent months. Everyone knew that Priips was coming, but many important policy decisions have only been made in the last few months.

Many smaller and medium-sized players are having difficulties with these legislative processes. Once a new ruling is completed and finalised, legally, it is ready to be implemented. However, for parts of Mifid 2 (such as product governance) and certainly also for Priips, a lot of smaller and midsize players have said let's wait until its final and then we will start focusing on it.

The problem we have now is that they have only got a few months left to get around it and it is absolutely not clear, especially for Class 23 insurance products or structured products in Belgium, that Priips preparation will be completed in time.

Gianni Pauwels, product specialist life & structured products at Nagelmackers
For every new structured note which we distribute, and sometimes also for existing notes, a key information document (Kid) needs to be produced from January 1, 2018. The responsibility to produce a Kid lies with the manufacturer which in our case, since we are the distributor, is Societe Generale. We have already had a number of meetings with Societe Generale and they believe they are fully prepared to provide this information. From our end, as soon as we have received the Kid from Societe Generale, we will make sure we pass this document on to our clients in a correct manner.

For existing structured notes, a Kid only needs to be created if these products are still sold on the secondary market. Our structured products are not listed on the exchange and the liquidity of the products is provided directly by SG. Existing notes are sold now and then on the secondary market - we do offer our clients the option to exit - but there is not an active market when it comes to buying.

Thomas Wulf, secretary general of Eusipa
Given the broad scope of Priips and the learning curve that you inevitably have in the beginning when new rules are to be applied, national regulators should constructively work together with the industry to ensure that there is no disruption to the retail market. While many technical items have already been raised and addressed, a number remain open. Some, such as the target market indication duty and cost disclosure rules, stem from other legal sources, the Mifid 2 directive in that case, but are equally important in the context of Priips. Any incoherence in the Mifid 2 implementation at the national level is filtering through to Priips. Regulators need to be aware of that and probably also coordinate more through the European Securities and Markets Authority (Esma). While progress has been made over the past months, there is still a long way to go from our "union of many capital markets" to a true EU Capital Markets Union.

The concern with target market is that, despite recent Esma guidance, we have no certainty how regulators are going to apply it at the national level as various concepts are still being discussed. The target market will need to be indicated in the Priips document, which should be coherent for similar products across the EU. What we can see today already is that some regulators have a more restrictive approach to the distribution of certain products than others. Given that market and product intervention rights will either be passed on to Esma or become subject to uniform EU rules laid down in the Mifir regulation, the concern is that the target market indication hence may instead be used to steer distribution of products from a regulatory perspective.

As for the Priips rules, we see a major uncertainty still with the update of the Kid as there is no clear legal definition or comprehensive catalogue of events which make it necessary to update the document yet. While it may be difficult to define this in abstract without looking at all the individual product types in each market, national regulators surely will come up with a view that almost certainly will differ from market to market. This again is detrimental for customers which look for similar product outside their home jurisdiction.

Would Mifid 2's ban on commission kill the business of those advisers and distributors that are getting commissions from banks?

Steve Lamarque, founding partner at Hilbert Investment Solutions
This will not affect our business; we have been preparing for such change over the last two years. In the French market, advisors and distributors have been disclosing the fees of their product for some time now. The French regulator introduced a series of requirements for product providers, including a disclosure of fees at the point of sale so there are no hidden charges and investors know how much investing in a given product will cost them.

Also, the low interest rate environment of recent years had been prepared for advisers and distributors and clients on tight terms.

We position ourselves as a structured asset management house and our client provide us with mandate in exchange for investment objectives, which allows us to add value in the long run. As an investment house, our goal is to choose the right paper or shape which will match our client objectives. Our disclosed annual management fee are charged to the end client directly.

Paul Stainfeld, chairman of the European Federation of Financial Advisers and Financial Intermediaries
The feedback that I generally obtain about the use of structured products in mainland Europe is that there is often very little use in the IFA or retail market in many countries. As I understand it, commissions will only be banned regarding independent advisers, not those that are restricted, or tied or multi-tied. Any lack of commission payments tends to reduce business if competitor products are able to pay commissions. It may not 'kill it' but reduced volumes may well result.

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