This article was written by Joe McHale and Christian Benson, Regulatory Affairs Specialists at Bloomberg.
The peculiar nature of the pandemic has emphasized the role of retail investors in wider financial markets as people have tended to find themselves with more time, fewer opportunities to spend money, and more digitally sophisticated means of investing available to them. Perhaps most visibly, the events around Gamestop shares at the beginning of the year and the growing prominence of cryptocurrencies have reminded regulators of the quickly evolving retail investor landscape and the imperative of new supervisory strategies for the retail investor market.
The EU is keen to get going in its development of a retail investment framework and the EU Commission has launched a consultation ahead of its retail investment strategy planned the first half of 2022. The strategy will cover a range of initiatives to boost retail investor participation, protection, and confidence in Europe’s capital markets system. Building on its Capital Markets Union (CMU) action plan, the EU seeks to take an integrated approach that will streamline the overall quality and amount of information for retail investors to replace the current patchwork approach.
The Packaged Retail Investment and Insurance Products (PRIIPs) regulation is an example of retail investor-focused legislation that has rarely been out the limelight for long. Since its implementation in 2018, it has been beset by industry complaints and arguments between different regulators on the best way forward. Nonetheless, a revised set of rules were finally agreed upon by European Supervisory Authorities (ESAs) in February this year. The revisions are intended to remedy the performance and cost methodologies that feed into the required disclosure document. The new rules were expected to take effect from January 2022, but the EU Commission has recently proposed a 6-month delay until end-June 2022 for both the revised methodologies as well as the expiry of the Undertakings for the Collective Investment in Transferable Securities (UCITS) fund exemption.
A more fundamental review of the PRIIPs regulation is in the works and this is likely to address the scope of products covered by the regulation, the possibility of digitalized disclosure documents and better alignment between PRIIPs and other EU rules on cost disclosure such as the Investment Distribution Directive (IDD) and MiFID II.
In what is starting to become a familiar theme, the UK intends to exercise its freedom to diverge by making three main changes to the PRIIPs regulation that it inherited from the EU: (1) clarification of the regulation’s scope; (2) a less prescriptive approach to the performance scenario; and (3) an announcement that the UCITS fund exemption will be extended by a further give years until 31 December 2026. The latter is intended to provide the government with a sufficiently large window to comprehensively review the disclosure framework for investment products in the UK, and the FCA is consulting on changes to disclosure requirements under the PRIIPs regulation.
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