RIS: Simplification Is Firmly On The Agenda

Have you had heard what’s in the Commission’s simplification proposals yet? We have, and one thing is clear, the Commission appears to have conceded ground on, amongst others, VfM benchmarks and the inducements ban.

A little reminder…

In our March EU RIS View we reported that the first RIS trilogue meeting focussed on simplification. The Commission was tasked with drafting non-papers on simplification of value-for-money benchmarks, disclosures and best interests/suitability. These papers were delivered by the Commission last week.

What’s in the latest Commission suggestions?

While the Commission proposals are not public we’ve had our ear to the ground and here’s what we know.

It’s all about the (value) for money

The Commission's latest suggestions show a shift towards the Parliament and Council's positions on peer group benchmarks (for investment funds and structured products) and supervisory benchmarks (for IBIPs). How would it work? We don’t have all the details yet, but the Commission suggests:

• For investment funds and structured products, manufacturers and distributors would carry out their own VfM assessments using peer group comparisons of products at inception/authorisation and on an ongoing basis. The methodology for selecting the peer groups could include product features, target markets and distribution channels, and would include key comparable products from across member states (so not geographically limited to the member state of the particular product being assessed). National regulators would play a supervisory role, carrying out random checks and using an outlier analysis.
• For IBIPs, manufacturers would, as part of their product governance process (and on a review basis), carry out their VfM assessments against EIOPA supervisory benchmarks, which would be organised in clusters. National regulators would perform a supervisory role to identify deviations from the benchmarks.

Inducements: to ban or not to ban

The Commission appears to have moved towards the Parliament and Council stance, with an XO/RTO ban off the table – although it doesn’t specifically say this! Instead it leans into the Council’s inducements test proposals (which, by way of reminder, the Council proposed in place of an XO/RTO ban). The Commission suggests that it would “not object to the deletion or a significant streamlining of the inducements test” but if the inducements test proposals are retained it should be made clear that it is a back-office (not client facing) assessment. Is the Commission saying it would be happy with no inducements ban and no or minimal inducements test? It seems so. Good news potentially for those in the market seeking that outcome.

The more (professional clients) the merrier

If you recall the opt up criteria to professional client has already been widened in the RIS proposals. In its latest iteration, the Commission suggests further widening the opt up criteria to reduce the burden in relation to more sophisticated investors. For example, lowering the transaction frequency criteria for large investments, further broadening the experience criteria to include entrepreneurial and general management experience. Interestingly in a new suggestion, the Commission also moots the idea of a one-off opt-up for certain sophisticated transactions (e.g. a single transaction above EUR500k).

Suitability and appropriateness

The Commission suggests that its proposed 3-fold best interest test (specifically the cost-efficient limb) is integrated with suitability to create a new combined test; which could be partially disapplied for independent advice. Other suggestions include deleting the standardised suitability report and clarifying that suitability questions can be filed online.

On appropriateness, the Commission suggests that its proposals on standardising of the warning that distributors need to provide to retail investors when products are not considered appropriate, could be deleted.

PRIIPs KIDs

Deleting the proposed sustainability section from KIDs (on the basis these can be revisited in line with the SFDR Review in Q4) is suggested, but the 3-page limit remains.

Disclosures

Across the swathe of enhanced disclosure-related proposals the Commission suggests that these could be set at maximum harmonisation - meaning no gold-plating from member states. It also, helpfully, suggests an alignment of the costs and performance disclosure requirements across MiFID, IDD and PRIIPs, with methodology set out in underlying legislation and potentially introducing graphical representations to make information easier for retail investors to understand.

What’s the bigger picture?

The EU RIS is part of the broader plan for the EU Savings and Investments Union (SIU) agenda, pushing for simplification across the regulatory landscape. See our March EU RIS View for more detail. Most recently the Commission launched a Targeted Consultation aiming to reduce barriers to EU financial market integration. It closes on 10 June, a short response window. Whilst this is not a RIS-focussed consultation it’s important because it will inevitably steer RIS’ direction of travel.

What’s next

With the EU’s push for retail investment in the capital markets and the latest simplification suggestions from the Commission moving closer to the Parliament and Council positions, we're anticipating a final RIS by H2 2025, with rules in force by 2027. Based on the latest direction of travel, we’re expecting the outcome will be some form of VfM process through peer grouping, no inducements ban (but possibly an inducements test), wider professional client opt-up criteria, some uplift on KIDs, uplift in disclosures and reporting generally, and a move towards maximum harmonisation.

From what we’ve been hearing, the Parliament and Council are next due to have their respective internal meetings on RIS on 14 and 19 May, at which they will discuss the Commission’s simplification suggestions above. The second trilogue is then due to take place in early June.

We’ll keep you updated as we hear more.