Financial Regulation Update: PRIIPs: Are You Ready for December?
28 September 2016
What is a PRIIP?
The definition of a PRIIP is wide and captures many investment products. A PRIIP is an investment where, regardless of the legal form of the investment, the amount repayable to the retail 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 retail investor and an “insurance-based investment product” is an insurance product which offers a maturity or surrender value where that maturity or surrender value is wholly or partially exposed, directly or indirectly, to market fluctuations.
Products such as investment funds (including UCITS funds) and insurance investment products such as unit-linked policies are therefore considered PRIIPs and come within scope of the PRIIPs Regulation. However, while UCITS funds meet the definition of PRIIPs, the existing UCITS Directive already contains a requirement for a Key Investor Information Document, which is largely similar to the KID. For this reason, the PRIIPs Regulation gives UCITS providers a transitional period up to 31 December 2019 during which they will be exempt from its terms. Alternative Investment Funds must, however, comply with the PRIIPs Regulation from 31 December 2016 and provide a KID to retail investors.
Form and Contents of KID
The KID is intended to be a standardised and simple document designed to present the main features of an investment product in a consumer-friendly manner, allowing consumers across the EU to compare investment-linked insurance policies, investment funds and investment products. It must be accurate, fair, clear, not misleading and written in a concise manner and in succinct and comprehensible language.
The Regulatory Technical Standards (RTS), published on 30 June specify the exact contents of the KID. This must include the following:
- information relating to the PRIIP and the PRIIP manufacturer
- the main features of the PRIIP, its risks and the main factors upon which return depends
- information on what happens if the PRIIP manufacturer is unable to pay out
- information on the costs involved
- recommended holding periods and consequences
- complaint redress information
All PRIIPs manufacturers and individuals advising on or selling PRIIPs must take steps to ensure that they are in a position to comply with the provisions of the PRIIPs Regulation by 31 December 2016. This includes insurance undertakings, credit institutions, investment firms and fund managers who should start the process to comply with the PRIIPs Regulation and will need to put KIDs in place for relevant products.
If you need further information or assistance in preparing your KID, please contact the Financial Regulation Law Team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.