The PRIIPs MOPs Challenge: Multiple Options! But Multiple Interpretations

Since the PRIIPs Regulation1 ("the Regulation" from here on) was published on 9 December 2014, the concept of a multi-option product (MOP)—created by the European legislator to allow PRIIPs to refer to products which offer several investment options in a wrapped structure—has been one of the most discussed topics among the manufacturers of insurance-based investment products.2

The Regulation does not provide an official definition of investment option, which would be an element essential to defining a MOP. Although the Regulatory Technical Standards have helped shed some light on the topic, each manufacturer in Europe—belonging to, and selling in, insurance markets that may differ significantly—has his or her own opinion on what an investment option, and therefore what a MOP, really is.

According to many stakeholders, the information provided by the European Supervisory Authorities in the public hearings held so far has not been clear enough in defining the investment option concept. In the Luxembourg insurance context, investment option has been defined by the insurers themselves as a combination of investments pursuant to the specific investment profile of an investor or of a group of investors, if applicable. Essentially the MOP is, for the Luxembourg insurance market, nothing else than a unit-linked contract investing in the vehicles that fall under the scope of CAA Circular 15/33 or of a multi-support contract encompassing the mentioned vehicles plus a fund in euros.

Following this understanding, Luxembourg PRIIPs KID manufacturers are approaching the MOP concept in one of two ways:

A MOP could be approached as an insurance-based investment contract linked to a fund book

...(conceiving each fund or a specific combination of funds as an investment option), which can be held through three structures:

A fund catalogue with a wide range of funds (open architecture) A fund catalogue offered to the investor (from a wider universe) by the manufacturer after the latter has assessed the profile of each investor (his or her risk appetite, ability to bear losses, knowledge, and investment objectives) A fund catalogue chosen entirely by the policyholder from the fund universe proposed by the manufacturer.

In the case described above, it is important to note that the insurer's responsibility to produce the PRIIPs KID is linked to the wrapped life insurance MOP product, not to the funds constituting the underlying investments of such a contract (the...