© Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Penny Miller Romeo Battigaglia Maria Tomillo 24 April 2014 PRIIPS and other EU developments affecting retail structured products

2 / L_LIVE_EMEA1: v1 © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. PRIIPS - Timeline Level 1 Regulation - Proposal – 3 July 2012 Level 1 Regulation – 15 April 2014 Communication on Packaged Retail Investment Products – April 2009 Consultation on legislative steps – November 2010 Coming into force – likely August 2014 and application from 2016

3 / L_LIVE_EMEA1: v1 © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Product Scope IN SCOPEOUTSIDE SCOPE (Article 2) nstructured deposits nstructured notes (including those issued by SPVs) ninvestment funds nUCITS (not for 5 years – transitional provisions) n insurance products nsecurities that do not embed a derivative ndeposits ncertain non life insurance products and life insurance contracts where the benefits under the contract are payable only on death or in respect of incapacity noccupational pension scheme ncertain pension products “An investment where regardless of the legal form of the investment the amount repayable to the investor is subject to fluctuations because of exposure to reference values or to the performance of one or more assets which are not directly purchased by the investor”

4 / L_LIVE_EMEA1: v1 © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Disclosure rules and intermediary regulation UCITS Other Open- Ended Funds Unit-linked life insurance policies Structured securities and closed-end funds Structured term deposits Rules on product information applying to manufacturers, issuers or intermediaries Key Investor Information (KII) of UCITS Directive MiFID (high-level product disclosure requirements apply to MiFID intermediaries when selling financial instruments) Solvency II (CLD rules) Prospectus Directive No rules at EU level BUT MiFID II MiFID (high-level product disclosure requirements apply to MiFID intermediaries when selling financial instruments) Insurance Mediation Directive for some product disclosure requirements MiFID (high-level product disclosure requirements apply to MiFID intermediaries when selling financial instruments) E-commerce Directive or Distance Marketing of Financial Services Directive

5 / L_LIVE_EMEA1: v1 © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Form and content of KID (Articles 6-10) What is Product? Type of product Objectives Performance scenarios (if relevant) Could I lose money? Capital protection Compensation scheme How long should I hold it for? cooling off period recommended holding period and consequences of cashing in early What are risks and what could I get in return Risk and reward profile of investment product Summary indicator of risk/reward profile Other relevant information delegated acts What are the costs? Costs associated with the investment (direct and indirect) Summary indicator of these costs What can I complain? complaints

6 / L_LIVE_EMEA1: v1 © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Who is required to produce and provide the KID (Article 5) Investment product manufacturer –Any entity who manufactures an investment product –Any entity who makes changes to an existing PRIIP including altering its risk and reward profile or costs associated with an investment in the PRIIP A PRIIP manufacturer has no liability solely on the basis of the KID unless misleading or inaccurate or inconsistent with legally binding pre contractual or contractual documentation A person advising on or selling a PRIIP must provide retail investors with KID in good time before retail investor is bound by any contract or offer or in certain circumstances after conclusion of transaction

7 / L_LIVE_EMEA1: v1 © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Timing, updating and publication (Article 10, 12 and 13) KID must be provided in good time before sale AND before an investment decision is taken (other than for distance communications) Provision of KID may be satisfied: – 3 sides of A4 sized paper –using durable medium other than paper where certain conditions met –via website where certain conditions met Updating –Product manufacturer must review KID regularly –Delegated acts will determine frequency and conditions Where retail investor demonstrates a loss resulting from reliance on a KID, damages may be claimed

8 / L_LIVE_EMEA1: v1 © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Product Governance – UK and ESMA Post sales responsibility - Business models - Product approval process Identification of target market Product design & development Stress testing and modelling - Selection and monitoring of distribution channels - Point of sale disclosure

9 / L_LIVE_EMEA1: v1 © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Product intervention in Italy Italy has a long tradition on “product intervention”, e.g. –Bank of Italy power to prevent offering of complex instruments in Italy until 2007 under Article 129 of the Italian Banking Law (subsequently repealed that year) –CONSOB “illiquid products” position in 2009 CONSOB 3 years strategic plan for 2013/2015 (published in October 2013), under Risk Area 3, emphasises that CONSOB will focus its supervision on those intermediaries distributing products marked by a complex profile More recently (March 2014), CONSOB Chief announced that it is being evaluated some kind of voluntary regime, whereby intermediaries banning from their products offering complex financial products, will benefit of a lighter supervisory regime and “less controls” by the CONSOB.

10 / L_LIVE_EMEA1: v1 © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Product intervention in Spain Spanish overview on complex products: –Increasing of complex financial products sold to retail investors –Retail investor protection is being strengthened –CNMV: to monitor the marketing + to carry out a preventive supervision –Entities are facing regulatory changes and internal adaptation is needed Latest regulatory developments in Spain –Legislative level (recent amendments to the Securities Markets Act) –CNMV Circulars (C 3/2013, C 1/2014) –Soft law (CNMV Guidelines, CNMV Communication April 2014) Other initiatives –CNMV Plan of Activities 2014: to enhance supervision of intermediaries distributing structured products –New system of classification of financial products (traffic light)

11 / L_LIVE_EMEA1: v1 © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Regulatory Revolution Tracker ‘Regulatory Revolution Tracker’ including a specific recourse on Retail Structured Products brings together information on the regulatory initiatives taking place globally in one online resource. To access the site click here (elexica registration required).here

12 / L_LIVE_EMEA1: v1 © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. Contact details Penny Miller T: E: Romeo Battigaglia T: E: Maria Tomillo T: E:

13 / L_LIVE_EMEA1: v1 © Simmons & Simmons LLP Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities. simmons-simmons.com elexica.com