Investment Funds Update: PRIIPs and Funds – What You Need to Know
05 October 2017
From 1 January 2018, Key Information Documents (KIDs) will be required when a ‘Packaged Retail and Insurance-Based Investment Product’ (PRIIP) is offered to retail investors. PRIIPs include investment products such as investment funds, structured products, structured deposits, instruments issued by special purpose vehicles and life insurance policies with an investment element.
Who needs to consider producing a KID?
All manufacturers and financial intermediaries that distribute PRIIPs to retail investors fall within the scope of the EU Regulation on Packaged Retail and Insurance-Based Investment Products (EU 1286/2014) (the Regulation). These include fund managers, credit institutions and investment firms. A retail investor includes any investor who is deemed not to be a MiFID professional investor possessing the experience, knowledge and expertise to make their own investment decisions and to properly assess the risks.
Alternative Investment Funds (AIFs) aimed at retail investors must comply with the requirement to produce a KID.
Who is exempt?
In particular, investment funds offered solely to institutional investors will be exempt from the scope of the Regulation. Individual and occupational pension products, recognised under national law as having the primary purpose of providing the investor with an income in retirement, are also excluded.
What do I need to do if the Regulation applies to me?
The Regulation introduces an obligation on the PRIIP manufacturer to produce a KID when investment products are sold to retail investors. The principle behind the KID is that retail investors should have access to certain pre-contractual information that is accurate, fair, clear and not misleading. The KID should aid the retail investor in its consideration of the PRIIP so as to make an informed investment decision.
The KID must be a stand-alone document and cannot exceed three A4-sized pages. The following information must be set out in a KID:
- General information on the relevant PRIIP including its name, identity and contact details of the PRIIP manufacturer, the competent authority responsible for supervising the PRIIP manufacturer and the date of the KID
- An alert to investors that the PRIIP is not simple and that it may be difficult to understand
- A “what is this product” section outlining the nature and main features of the PRIIP
- A “what are the risks and what could I get in return?” section including a brief risk-reward profile
- A section detailing whether any losses incurred by an investor will be guaranteed, and if so, details on such a scheme and the risks covered
- A “what are the costs?” section detailing both the direct and indirect costs that the retail investor will need to bear
- Information on any applicable cooling off period, minimum holding period, how divestments will be dealt with before the maturity of the PRIIP, the consequences of cashing out before maturity of the PRIIP, the complaints procedure available to retail investors and details of any further information available to investors
What if my fund is a UCITS?
The PRIIP Regulation provides for a transitional regime for UCITS until 31 December 2019, the effect of which is that the current UCITS key investor information document (KIID) regime remains in place and UCITS / management companies are not required to produce a KID under the Regulation.
How we can help
We are available to assist you in determining whether the Regulation applies to you and on the drafting of the KID. It is important that managers evaluate their investor base as the effective date of the Regulation is around the corner.
If you would like to discuss whether the Regulation applies to you or if you require additional information, please contact a member of our Investment Funds team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.