PRIIPs Turns E.U. Policymakers a Little Frosty

February 01, 2021
Relationships between E.U. policymakers have become a little frosty as some important regulatory deadlines draw near.

With the turning of the year, a cold snap often descends and while much of the world remains in lockdown, we often open the curtains to find the cold has covered our surroundings with a frosty and often beautiful veneer.

It is also evident that certain relationships between European Union (E.U.) policymakers have turned slightly frosty as some important regulatory deadlines loom large across industry and divergent opinion frays relationships a little.

In this regard, PRIIPs and SFDR come to mind - let’s explore this issue in more detail.

E.U. Rulemaking is Complex

Before addressing some of the current rulemaking tensions, for those not as close to the action, we should briefly explain exactly how E.U. financial regulation is made. Being brief is not easy when it comes to addressing the complexity of E.U. rulemaking, but let’s give it a go.

Generally, financial regulation is generated or amended by inclusion of a diverse but interconnected group of policy stakeholders across the spectrum of politics (E.U. Council and Parliament), administration (E.U. Commission) and supervision in the form of the European Supervisory Authorities comprised of ESMA, EIOPA and the EBA.

When the rules are fully formed and agreed by the E.U. institutions they are usually implemented in the form of:

  1. Regulation – directly applicable across all E.U. member states
  2. Directive – requiring national member state interpretation and implementation

The very fact that there are so many constituent parts in rule formation means that naturally, there is often disagreement and the passage of new regulation to implementation is rarely without bumps in the road.

However, some regulations cause more angst and conflict than others. The most divisive E.U. regulation in recent memory is PRIIPs, which has had E.U. policymakers locking horns for some time now. It has flared up once more recently with the European Commission looking to end the existing stalemate and bring PRIIPs towards its end game.

PRIIPs: Let’s Finish This One Way or Another

The latest flare up on PRIIPs, the problem child of E.U. regulation, comes by way of a letter from Mairead McGuinness, the EU Commission’s new financial services head to the European Supervisory Agencies (ESMA, EIOPA, EBA) and the main industry body, the European Fund and Asset Management Association (EFAMA) asking them once more to urgently conclude the final technical rules for PRIIPs by the end of January. Otherwise, the Commission will “take all necessary steps” to bring PRIIPs to conclusion. This hints at the fact that in order to draw the saga to a close, the regular implementation processes might be circumvented and national regulators, and by extension industry itself, may lose all opportunity to engage or comment on the final ruleset.

This could have negative practical consequence on the shape and timing of the new rules, particularly for UCITS funds, an important cornerstone of the E.U. retail funds market.

UCITS Impacts

UCITS is perhaps the single greatest E.U. regulatory policy success ever. As such, any new requirement that has the potential to negatively impact UCITS gets a lot of airtime and this issue remains a red-hot topic for all UCITS managers.

Since its implementation, PRIIPs has faced continued criticism since its design is said to result in misleading investor disclosures, notably in the areas of costs and projected future performance metrics.

The reason PRIIPs remains such a hot and divisive topic is that UCITS funds currently enjoy an exemption from these PRIIPs requirements, but the exemption expires at the end of this year.

ESMA, which oversees the UCITS market, wants UCITS to remain exempt until such time that a better form of investor disclosure can be collectively agreed before drawing in a ruleset that it said in prior correspondence might be “detrimental to retail investors” compared to past performance disclosure.

If the Commission does ultimately impose the existing proposed ruleset on UCITS funds without further exemptions, it will be a challenge for UCITS fund providers both in terms of time to comply with the disclosures and the fact that the sub-optimal cost and performance disclosures might prove confusing to investors. Such a move might also possibly reduce confidence in the UCITS product that has continued to be successful in terms of attracting fund flows year on year, even in the face of market volatility, due to confidence in its design.

Furthermore, it could set a precedent where new rules might be enforced without considering either regulator or broader industry inputs which has been a factor in so many E.U. regulations being successfully implemented in practical terms historically.

It’s not just PRIIPs

The current interactions between Europe-wide regulators and the Commission are not exclusively reserved for PRIIPs. Another large regulation that is under tight scrutiny currently is the Sustainable Finance Disclosure regulation (SFDR), where certain requirements become applicable on March 10th (that’s 37 days from now).

This is a significant regulatory deadline, with certain ESG/sustainability disclosures having to be made by product manufacturers and for the fund products themselves. However, even at this late stage, the European regulators responsible for overseeing the new rules have asked for several clarifications from the E.U. Commission in the form of a January 7th letter.

The letter poses some technical questions regarding the scope, clarity of definitions, and interaction of SFDR with some other E.U. regulations. The fact that it comes so late in the day is indicative of the complexity of the requirements and difficulty that all stakeholders have in preparing for an important step in the E.U.’s journey towards enshrining ESG regulations. It is hoped that the regulators and Commission can come to a consensus position quickly, so that regulated entities in the scope of the rule can prepare themselves for the pending March 10th deadline.

The PRIIPs and SFDR issues are indicative of the importance of industry-wide dialogue on regulatory implementation to include all stakeholders with a view to rule certainty.

You won’t ever please all of the people all of the time, however a certain thawing of relations on regulations and a commitment to constructive and consultative dialogue is optimal in order to ultimately provide the best outcomes possible for underlying investors, who ultimately are the stakeholders most affected by such changes.

Brown Brothers Harriman & Co. (“BBH”) may be used as a generic term to reference the company as a whole and/or its various subsidiaries generally. This material and any products or services may be issued or provided in multiple jurisdictions by duly authorized and regulated subsidiaries. This material is for general information and reference purposes only and does not constitute legal, tax or investment advice and is not intended as an offer to sell, or a solicitation to buy securities, services or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code, or other applicable tax regimes, or for promotion, marketing or recommendation to third parties. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed, and reliance should not be placed on the information presented. This material may not be reproduced, copied or transmitted, or any of the content disclosed to third parties, without the permission of BBH. All trademarks and service marks included are the property of BBH or their respective owners. © Brown Brothers Harriman & Co. 2021. All rights reserved. IS-07000-2021-01-29

As of June 15, 2022 Internet Explorer 11 is not supported by

Important Information for Non-U.S. Residents

You are required to read the following important information, which, in conjunction with the Terms and Conditions, governs your use of this website. Your use of this website and its contents constitute your acceptance of this information and those Terms and Conditions. If you do not agree with this information and the Terms and Conditions, you should immediately cease use of this website. The contents of this website have not been prepared for the benefit of investors outside of the United States. This website is not intended as a solicitation of the purchase or sale of any security or other financial instrument or any investment management services for any investor who resides in a jurisdiction other than the United States1. As a general matter, Brown Brothers Harriman & Co. and its subsidiaries (“BBH”) is not licensed or registered to solicit prospective investors and offer investment advisory services in jurisdictions outside of the United States. The information on this website is not intended to be distributed to, directed at or used by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Persons in respect of whom such prohibitions apply must not access the website.  Under certain circumstances, BBH may provide services to investors located outside of the United States in accordance with applicable law. The conditions under which such services may be provided will be analyzed on a case-by-case basis by BBH. BBH will only accept investors from such jurisdictions or countries where it has made a determination that such an arrangement or relationship is permissible under the laws of that jurisdiction or country. The existence of this website is not intended to be a substitute for the type of analysis described above and is not intended as a solicitation of or recommendation to any prospective investor, including those located outside of the United States. Certain BBH products or services may not be available in certain jurisdictions. By choosing to access this website from any location other than the United States, you accept full responsibility for compliance with all local laws. The website contains content that has been obtained from sources that BBH believes to be reliable as of the date presented; however, BBH cannot guarantee the accuracy of such content, assure its completeness, or warrant that such information will not be changed. The content contained herein is current as of the date of issuance and is subject to change without notice. The website’s content does not constitute investment advice and should not be used as the basis for any investment decision. There is no guarantee that any investment objectives, expectations, targets described in this website or the  performance or profitability of any investment will be achieved. You understand that investing in securities and other financial instruments involves risks that may affect the value of the securities and may result in losses, including the potential loss of the principal invested, and you assume and are able to bear all such risks.  In no event shall BBH or any other affiliated party be liable for any direct, incidental, special, consequential, indirect, lost profits, loss of business or data, or punitive damages arising out of your use of this website. By clicking accept, you confirm that you accept  to the above Important Information along with Terms and Conditions.

1BBH sponsors UCITS Funds registered in Luxembourg, in certain jurisdictions. For information on those funds, please see

captcha image

Type in the word seen on the picture

I am a current investor in another jurisdiction