Fund managers and insurers unite to combat Priips confusion

Insurers and fund managers brought together to tackle loophole in structured products reforms

Fund managers, insurers and trade associations contributing to working group

Europe's largest insurers and fund managers are coming together in a bid to tackle burdensome new disclosure requirements for so-called multi-option products (Mops) required under incoming European Union reforms of the retail investment products market.

Mops are structured products that offer customers a range of investment options to choose from and include many fund-linked life insurance policies used heavily throughout Europe. A clause in the Packaged Retail and Insurance-based Investments Products (Priips) regulation, due to come into force on December 31 this year, means Mops issuers must provide reams of data on each underlying investment option to potential investors in new key information documents (Kids) – information they can only get from fund managers.

"Insurance companies need to stick to the 2016 deadline but they rely on the information being provided by the asset managers. So there is high pressure on the asset managers to collect and calculate the data for insurers, because if not they may be inclined to say they cannot offer life insurance products with specific underlying funds out of fear they cannot provide the proper Kid," says Angelo Lercara, partner at law firm Dechert in Munich.

Any such move could drain millions from funds wrapped up in these structured products, market participants fear – hence the drive to find a mutually agreeable solution that prevents a mass extinction of Mops.

I had meetings with asset managers a month ago and when I said, 'Have you heard about Mops and the need to provide this information?' they went crazy
Structured products lawyer

"The issue of insurers collating data from fund managers is currently being worked on, with a European working group looking at producing an industry-standard template that fund managers can populate and provide to insurers. The working group consists of representatives from fund managers, insurers, trade associations and other interested parties across Europe," says Nicky Young, senior regulatory risk consultant at Standard Life in Edinburgh.

The trade associations involved are the Association of British Insurers (ABI), Insurance Europe and the European Fund and Asset Management Association (EFAMA). Standard Life is also a member, along with representatives from at least 15 European countries across the fund management and insurance sectors, it is understood. The first meeting reportedly took place in July.

An ABI spokesperson confirmed the association's membership, and said its aim was to find a common European data submission standard. An EFAMA spokesperson said it was too early to talk about the group's plans.

Surprise requirement

Fund managers were largely caught unawares by the Mops requirement, since their products are granted a carve-out from the regulation that spares them having to produce Priips-compliant data for their products until 2020. Regulatory technical standards (RTS) from European regulators appear to override this exemption when it comes to Mops, however.

Article 14 of the rules state that Priips manufacturers shall include, for each underlying investment option, a comprehension alert, the fund's investment objectives, a summary risk indicator, and a presentation of costs. Each of these has to comply with Priips standards outlined elsewhere in the RTS.

"Somehow the market missed this one. I had meetings with asset managers a month ago and when I said, 'Have you heard about Mops and the need to provide this information?' they went crazy. Immediately after I left, they called the fund association, the bank association and the insurance association and shouted about how they hadn't been informed properly," says a structured products lawyer.

Investment funds are already mandated to produce their own key investor information documents (KIIDs) as part of the Undertakings for Collective Investment in Transferable Securities (Ucits) regime.

Peter de Proft, Brussels-based director-general at EFAMA, says these documents should be allowed to satisfy the Mops obligation under Priips. "We understand the Ucits exemption to be also applicable for Mops. The Priips regulation simply requires insurers to provide more detailed pre-contractual information for their underlying options, which should certainly apply to the Ucits KIID as the original precursor to the Priips KID. While we understand the Priips regulation requires additional data to be provided to insurers, this should not take away the pre-contractual nature of the Ucits KIID until the end of its exemption."

Others say the Mops requirement in the RTS openly contradicts the agreed text of the regulation. The regulation itself requires issuers to "state where and how" more detailed information on the underlying investment options can be found but does not impose a liability on issuers to provide this information.

Insurers cannot be responsible and liable for producing information for products they do not manufacture themselves
William Vidonja, Insurance Europe

William Vidonja, head of conduct of business at Insurance Europe in Brussels, says: "Insurers cannot be responsible and liable for producing information for products they do not manufacture themselves. In this context, the RTS should not include the current article 14. In addition, the suggested approach seems unrealistic to implement in the foreseen Level 1 timeframe and will leave some insurers with no other choice than to withdraw some products."

Dechert's Lercara adds that the problem of who should be responsible for producing a Mops KID may be stymying progress towards addressing how the Mops-KID should be designed. "It's not really clear who needs to be the proactive partner. Should it be the insurance company's job to reach out to the fund providers telling them they have their funds wrapped in their products or should it be the other way around? Everyone seems to be waiting for everyone else to make the first move."

Frustration with the treatment of Mops was cited by members of the European Parliament as one reason they are threatening to oppose ratifying the RTS in September. This could lead to a soft launch of the Priips regime, as intimated by a spokesperson for the European Insurance and Occupational Pensions Authority.