Transcript Title of presentation

PRIIPS and other EU
developments affecting retail
structured products
Penny Miller
Romeo Battigaglia
Maria Tomillo
24 April 2014
© Simmons & Simmons LLP 2013. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.
PRIIPS - Timeline
Communication on Packaged Retail Investment Products – April 2009
Consultation on legislative steps – November 2010
Level 1 Regulation - Proposal – 3 July 2012
Level 1 Regulation – 15 April 2014
Coming into force – likely August 2014 and application from 2016
© Simmons & Simmons LLP 2013. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.
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Product Scope
“An investment where regardless of the legal form of the investment the amount repayable to the investor is subject to
fluctuations because of exposure to reference values or to the performance of one or more assets which are not directly
purchased by the investor”
IN SCOPE
OUTSIDE SCOPE
(Article 2)

structured deposits

securities that do not embed a derivative

structured notes (including those issued by SPVs)

deposits

investment funds

UCITS (not for 5 years – transitional provisions)

certain non life insurance products and life insurance
contracts where the benefits under the contract are payable
only on death or in respect of incapacity

insurance products

occupational pension scheme

certain pension products
© Simmons & Simmons LLP 2013. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.
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Disclosure rules and intermediary regulation
UCITS
Key Investor
Information (KII)
of UCITS
Directive
Rules on product
information
applying to
manufacturers,
issuers or
intermediaries
MiFID
(high-level
product
disclosure
requirements
apply to MiFID
intermediaries
when selling
financial
instruments)
Other OpenEnded Funds
MiFID
(high-level
product
disclosure
requirements
apply to MiFID
intermediaries
when selling
financial
instruments)
Unit-linked life
insurance
policies
Structured
securities and
closed-end
funds
Solvency II
(CLD rules)
Prospectus
Directive
Insurance
Mediation
Directive for
some product
disclosure
requirements
MiFID
(high-level
product
disclosure
requirements
apply to MiFID
intermediaries
when selling
financial
instruments)
Structured
term deposits
No rules at EU
level BUT
MiFID II
E-commerce Directive or Distance Marketing of Financial Services Directive
© Simmons & Simmons LLP 2013. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.
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Form and content of KID (Articles 6-10)
What is Product?
Could I lose money?
• Type of product
• Capital protection
How long should I hold it
for?
• Objectives
• Compensation scheme
• cooling off period
• recommended holding period and
consequences of cashing in early
• Performance scenarios (if relevant)
What are risks and what
could I get in return
• Risk and reward profile of investment
product
What are the costs?
Other relevant information
• Costs associated with the investment
(direct and indirect)
• delegated acts
• Summary indicator of these costs
• Summary indicator of risk/reward
profile
What can I complain?
• complaints
© Simmons & Simmons LLP 2013. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.
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Who is required to produce and provide the KID (Article 5)
 Investment product manufacturer
–
Any entity who manufactures an investment product
–
Any entity who makes changes to an existing PRIIP including altering its
risk and reward profile or costs associated with an investment in the PRIIP
 A PRIIP manufacturer has no liability solely on the basis of the KID unless
misleading or inaccurate or inconsistent with legally binding pre contractual or
contractual documentation

A person advising on or selling a PRIIP must provide retail investors with KID
in good time before retail investor is bound by any contract or offer or in certain
circumstances after conclusion of transaction
© Simmons & Simmons LLP 2013. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.
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Timing, updating and publication (Article 10, 12 and 13)
 KID must be provided in good time before sale AND before an investment
decision is taken (other than for distance communications)
 Provision of KID may be satisfied:
–
3 sides of A4 sized paper
–
using durable medium other than paper where certain conditions met
–
via website where certain conditions met
 Updating
–
Product manufacturer must review KID regularly
–
Delegated acts will determine frequency and conditions
 Where retail investor demonstrates a loss resulting from reliance on a KID,
damages may be claimed
© Simmons & Simmons LLP 2013. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.
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Product Governance – UK and ESMA
Post sales
responsibility
- Business
models
- Product
approval
process
- Selection and
monitoring of
distribution
channels
- Point of sale
disclosure
Stress testing
and modelling
Identification of
target market
Product design &
development
© Simmons & Simmons LLP 2013. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.
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Product intervention in Italy

Italy has a long tradition on “product intervention”, e.g.
–
Bank of Italy power to prevent offering of complex instruments in Italy
until 2007 under Article 129 of the Italian Banking Law (subsequently
repealed that year)
–
CONSOB “illiquid products” position in 2009

CONSOB 3 years strategic plan for 2013/2015 (published in October 2013),
under Risk Area 3, emphasises that CONSOB will focus its supervision on
those intermediaries distributing products marked by a complex profile

More recently (March 2014), CONSOB Chief announced that it is being
evaluated some kind of voluntary regime, whereby intermediaries banning
from their products offering complex financial products, will benefit of a
lighter supervisory regime and “less controls” by the CONSOB.
© Simmons & Simmons LLP 2013. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.
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Product intervention in Spain

Spanish overview on complex products:
–
Increasing of complex financial products sold to retail investors
–
Retail investor protection is being strengthened
–
CNMV: to monitor the marketing + to carry out a preventive supervision
–
Entities are facing regulatory changes and internal adaptation is needed

Latest regulatory developments in Spain
–
Legislative level (recent amendments to the Securities Markets Act)
–
CNMV Circulars (C 3/2013, C 1/2014)
–
Soft law (CNMV Guidelines, CNMV Communication April 2014)

Other initiatives
–
CNMV Plan of Activities 2014: to enhance supervision of intermediaries
distributing structured products
–
New system of classification of financial products (traffic light)
© Simmons & Simmons LLP 2013. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.
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Regulatory Revolution Tracker
‘Regulatory Revolution Tracker’ including a specific recourse on Retail
Structured Products brings together information on the regulatory
initiatives taking place globally in one online resource. To access the
site click here (elexica registration required).
© Simmons & Simmons LLP 2013. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.
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Contact details
Penny Miller
T: +44 20 7825 3532
E: [email protected]
Romeo Battigaglia
T: +39 06 80 955 941
E: [email protected]
Maria Tomillo
T: +34 91 426 2583
E: [email protected]
© Simmons & Simmons LLP 2013. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.
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simmons-simmons.com
elexica.com
© Simmons & Simmons LLP 2013. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.
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