EU regulators revolt over fund performance forecasts
Rare spat between Brussels and EU financial watchdogs piles pressure on policymakers to review controversial Priips rules
EU regulators have staged an unusual rebellion against Brussels lawmakers over reforms to consumer protection rules, marking the latest escalation in a long-running dispute centred on fund performance disclosures.
The EU’s banking, securities markets and insurance watchdogs said on Tuesday they had failed to reach an agreement on a compromise solution aimed at rectifying problems with the maligned regulations, known as Priips.
Priips, which came into force in 2018, introduced a requirement for providers of investment products to publish projections of their future performance in different market conditions. These forecasts have been decried as unreliable, with many funds generating wildly over-optimistic figures, such as the 523,000,000,000 per cent annualised return forecast by one provider.
In an attempt to fix the problems, the European Commission asked the EU’s three regulatory authorities to propose solutions. But the process has been fraught with conflict, with the commission and the regulators disagreeing about how far the reforms should go.
An earlier proposal by the regulators to allow funds to publish historical scenarios based on past performance data was rejected by the commission on the grounds it went against the original objective of the Priips legislation.
The regulators said in a letter on Tuesday they were “not in a position to formally submit” a final proposal, which would allow past performance data to be used but not to supplant future performance forecasts, because it failed to win the backing of all three authority boards. The securities market regulator and banking regulator supported the proposals, but some members of the board of the European insurance watchdog dissented.
Despite some opposition within its ranks, the regulators said in the letter that the final proposal represented a “balanced and proportionate” compromise.
The revolt is the first time that EU regulators have failed to endorse their own advice and will pile further pressure on the commission to look again at the controversial Priips rules. Despite a backlash from asset managers and investor groups, the commission has largely defended the regulations and resisted calls for a more comprehensive overhaul.
Julie Patterson, asset management regulatory change leader at KPMG, said the regulators’ mutiny represented “new procedural territory” and demonstrated how divisive the Priips rules had been for policymakers.
The chairs of the three regulators said they shared the dissenting board members’ view that past performance should be included in the main body of investor disclosure documents rather than in a separate publication.
“[Past performance] is key information to inform retail investors about the risk-reward profile of certain types of Priips,” the chairs said, adding that a more onerous legislative overhaul was necessary to enable this.
Sheila Nicoll, head of public policy at Schroders, said it was unclear whether the revolt by the regulators would force a rethink by the commission.
Ms Nicoll, who was part of an expert group that last month called for Brussels to overhaul Priips, said that despite the watchdogs’ “best efforts to engage with consumer groups and with practitioners, they have been constrained from the start”. The disagreement over the compromise solution added “another mess to what is already a very messy situation”, she said.
The commission could not immediately be reached for comment.