The FCA had published on Friday, March 25th, 2022, their final policy statement in relation to the UK PRIIP regulation. This update had been expected and awaited by PRIIP manufactures, in 2021 the FCA performed a stakeholder consultation and, as part of their Regulatory Initiative Grid in November, announced that PRIIP changes are to be finalized in Q1 2022.
As part of the PS22/2: PRIIPs - Final scope rules and amendments to Regulatory Technical Standards, the FCA reconfirms the proposals that were made as part of the Consultation Paper (CP21/23). Namely, the following topics of guidance and amendments to the existing PRIIP regime are made:
- Clarification of the UK PRIIP regulation scope applicability
The scope is clarified with clearer guidance that allows excluding the majority of the corporate bonds (like Make-Whole) from the scope of the PRIIP. Additionally, a clear interpretation of ‘made available to retail investors as been proposed: products, which terms and conditions contain a prominent disclosure that they are not intended for retail investors, are not considered a PRIIP, even in the case it is available to a retail investor over e.g. a secondary market offering.
- Replacing the requirements for presentation of Performance Scenarios and Risk
The consultation of the FCA had proposed a complete removal of the performance scenarios in the KID. Instead, the KID should contain a product specific description on the performance, with several narrative elements outlining the main drivers of investment performance for the PRIIP. Additionally, small amendments in relation to the SRI score presentation and assignment (e.g. minimum score for Venture Capital Trusts) were proposed.
- Technical amendments in relation transaction costs disclosure requirements and slippage methodology application
Several amendments are proposed in relation to anti-dilution treatment, calculation cost for over-the-counter (OTC) transactions in bonds, as well as costs of index-tracking funds.
- Amendments are also made to align the existing exemption from PRIIPs Regulation for funds until the end of 31 December 2026
Already on 01 June 2021, HM Treasury announced an extension of the UCITS transitional period in UK by the end of 2026, exempting UCITS and AIFs manufacturers targeting retail clients in the UK from the PRIIP KID requirement, as long as Key-Investor-Information-Document (KIID) is provided as an alternative to the investors. This change is now also officially aligned within the FCA Handbook.
The published Handbook and RTS amendments come into force immediately, with a transitional period until end of the year. By 31 December 2022, firms and manufactures under the scope of the UK PRIIP regime, must apply the new requirements that were prescribed by the FCA.
As the application date for the related EU PRIIP changes have also slipped to 01 January 2023, it means the end of the year 2022 will be intensive for PRIIP manufactures. Manufacturers targeting both EEA and UK retail clients would need to adapt their PRIIP KID solution to both new requirements separately, in order to stay regulatory compliant in the respective jurisdictions. In particular two separate and different Risk and Cost sections disclosures will have to be followed in EU and UK, which would also affect the maintenance efforts for the individual manufactures.
Cleversoft’Regulatory watch group has started a detailed analysis of the provided finalized FCA Handbook and RTS amendments, and their effect to cleversoft PRIIP services, such that we can help our customers to transition to the new PRIIP regulatory requirements by the end of the year. Our customer success team will keep you updated of the required actions and changes.
In the meantime, do not hesitate to contact us, we will be happy to help you and actively discuss with you any concerns you might have to the upcoming requirements.