EFAMA “Evidence Paper” on PRIIPs rules confirms shortcomings of the regulation for investors

28 June 2018

Six months into the implementation of the new PRIIPS rules, EFAMA has published an “Evidence Paper” which explains the shortcomings of the new PRIIPs Key Information Document rules based on “real life” data from its corporate members.

EFAMA’s compelling evidence showcases how the disclosures made in the PRIIP Key Information Documents (KID), originally designed to enhance investors’ understanding of retail investment products, are causing serious detriment to these same investors by mandating figures, particularly in relation to performance and costs, that at best confuse them and at worst mislead them.

The paper supports EFAMA’s assessment of the negative consequences of the PRIIPS rules by leveraging “live” data and direct insights from its corporate members on how the regulation is currently impacting the industry.

The European fund industry calls on the policymakers and the regulators for regulation that will enable shareholders to follow the fundamental principle that investor communications must be ‘clear, fair and not misleading’.  EFAMA believes this needs to be achieved through providing investors with truly reliable product disclosures on which to base their investment decisions.

The evidence supports the following findings and conclusions:

• The new methodology for calculating transaction costs produces confusing and unreliable figures: on a constant basis, transaction costs are either over or underestimated, sometimes even leading to overall negative transaction cost figures being presented to investors.
• As a result, PRIIP KID’s new methodology forces manufacturers to make claims for products that hinders investors’ understanding of them.
• Investors will be deprived of an important element of information as a result of past performance of products and of their benchmark if any not being disclosed in the PRIIP KID.
• Looking at future performance scenarios without further context will not help investors make investment decisions: the future performance scenario is based on the last five years returns and assumes that a market will operate in a single direction effectively indefinitely, meaning that investors will be provided with excessively optimistic and linear performance scenarios.
• Meaningful comparisons between similar investment products will become impossible: because costs are now averaged over a product’s recommended holding period, cost comparisons will not be possible for products with different holding periods.

Full publication

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