PRIIPs cost disclosures should be avoided with ELTIFs – ALFI

The Association of the Luxembourg Fund Industry (ALFI) has said that the European Securities and Markets Authority (ESMA) must avoid known errors of cost disclosures under the European Long-Term Investment Fund (ELTIF) Regulation.

In a response to the ESMA consultation paper on draft regulatory technical standards under Article 25 of the ELTIF Regulation, ALFI said the framework used for packaged retail investment and insurance products (PRIIPs) have been problematic, and using this for ELTIFs could affect credibility.

“ALFI is of the view that it should be avoided to repeat known errors by expanding the PRIIPs cost disclosures to the prospectuses of ELTIFs. Therefore, we strongly advocate to wait for the outcome of the PRIIPs RTS revision before addressing the cost disclosure and calculation rules applicable to ELTIFs,” the association said in a statement.

While supporting the harmonising rules around disclosures of information regarding costs and charges in order to increase retail investors’ understanding of financial products ALFI said the ESMA consultation paper rightly stated that the PRIIPs framework has “revealed to be problematic in several ways”.

“The PRIIPs framework has not achieved its objective to provide retail investors with a practicable, understandable document that adequately reflects the features of the underlying product. This problem applies also and in particular to the PRIIPs cost disclosures.”

The financial industry has raised concerns in relation to the PRIIPs Regulation and its regulatory technical standards, contributing to the rescheduling of the original PRIIPs timeline.

“Furthermore, the currently proposed rules for ELTIFs will have as a consequence that retail investors would be provided with different disclosures/documents (prospectus, KID and periodic reports) indicating different costs because of different factors of calculation.

“We fear that instead of rendering the ELTIF more transparent, this may create considerable confusion and affect the credibility and attractiveness of the ELTIF for investors,” ALFI said.

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