This week’s announcement by HM Treasury that it is to extend the exemption for UCITS KIIDs in the UK for five years is good, if not wholly surprising, news for UK fund groups.
HM Treasury statement
The possibility that there would be an extension was flagged last July in a statement released by HM Treasury, where it clearly set out its position, noting: “the government currently considers that the existing rules for UCITS disclosure are satisfactory.” By implication then, they believed that the rules for PRIIPs disclosure are not. Given the the statement was issued after the draft revised PRIIPs regulatory technical standards (RTS) were published (but not yet submitted to the European Commission), this extension was always going to happen once the Financial Service Act was passed.
A competitive advantage?
The idea that retaining UCITS KIIDs somehow gives the UK a competitive advantage implies that a generic pre-sale regulatory disclosure document is used in the sales/advice process and that PRIIPs sales have suffered since their KID was introduced in 2018, neither of which do we understand to be the case. Also, although it will be messy, UCITS funds in Europe will continue to show past performance (the biggest sticking point between the two documents) when they switch over to producing PRIIPs KIDs instead, albeit signposted from the KID, rather than actually on it.
This divergence raises further questions around things like whether the UK and EU will recognise each other’s pre-sale documentation. In other words, will EU funds passporting into the UK under the FCA’s Temporary Permissions Regime and beyond be able to rely on their PRIIPs KIDs from whenever the changeover takes place, or will they still need to produce a UCITS KIID when selling in the UK. Recognition the other way is not so relevant, as UK funds are no longer technically UCITS as far as the EU is concerned and don’t have passporting rights to retail investors in Europe. Certainly, if funds do end up needing to produce both documents, it will increase complexity, but it’s unlikely EU fund groups will decide that is a step too far and exit the UK. That will probably depend on what level of sales they get in the UK and whether they are prepared to undertake the extra work to produce both.
There is already enough complexity in the EU in respect of the changeover from UCITS KIIDs to PRIIPs KIDs, as we don’t yet know what will happen to institutional funds and share classes that won’t fall in scope of PRIIPs. Will they need to continue to produce UCITS KIIDs, or will they be exempt, on the basis that professional investors don’t need a generic pre-sale document?
So, all in all, this clarity from HM Treasury is helpful as far as it goes, but fund groups need a lot more before we can see the whole picture.