EU lawmakers plan to block Priips reforms over legal concerns

European Commission clashes with Esma over forward-looking performance assessments

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European Union lawmakers have questioned the legality of proposals to rid Priips rules of forward-looking performance assessments within fund documents.

The European Securities and Markets Association recently proposed that funds be allowed to publish historical scenarios based on past performance data rather than forecasting future returns, according to an internal document seen by the Financial Times.

But the European Commission has questioned the legality of Esma’s proposals in a letter to the regulator because forward-looking performance assessments have been enshrined in the original Priips legislation. It said this would be a barrier “even if such scenarios could allegedly better apply to the reality in the market and avoid procyclical effects”.

Furthermore, three MEPs on the European parliament’s economic and monetary affairs said in a letter this month they would block attempts to scrap future performance disclosures.

European advocacy group Better Finance said without reform, existing Priips rules would leave investors with misleading and incomparable performance scenarios. It said it would be “catastrophic” for the European Commission to block reforms.

One provider already using the rules forecast a potential annualised return of 523,000,000,000%, the Financial Times reported. Currently, the Priip rules only apply to AIFs, such as investment trusts and property funds, but they will be extended to all Ucits funds from January 2022.

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