Key facts you need to know about PRIIPs KIDs
7th September 2018 2920 - Blog Posts - Knowledge Library
New regulations on Packaged Retail Investment and Insurance Products (PRIIPs) were introduced by the European Commission in January 2018. Part of this included the mandate that every investor considering a PRIIP must be provided with a consumer-friendly Key Information Document (KID), a standardised pre-sale disclosure which details risks, possible returns, costs, how to withdraw funds early, complaints procedures and other relevant information. This blog post covers the key facts that you need to know about PRIIPs KIDs.
What are PRIIPs?
PRIIPs make up a broad category of financial assets that are regularly provided to consumers in the European Union (EU) through banks or other financial institutions as an alternative to savings accounts. Broadly, an ‘in-scope’ PRIIP includes structured investments, hedge funds, non-UCITS unitised funds, unit-linked insurance policies and some participating insurance.
What is a KID and why has the new regulation been introduced?
A Key Information Document discloses important information on its associated PRIIP. The new regulation was introduced to help retail investors gain clarity about the risks, rewards, costs and key features of different PRIIPs, and anyone who produces, sells or advises on a PRIIP has to provide one.
A KID is a document, up to a maximum of three pages, which must be produced in line with Regulatory Technical Standards. It should include what the product is, what are the potential risks and returns, what happens if the named PRIIPs manufacturer is unable to pay out, and the costs. It should also include how long the money investment can be held for and whether it can be taken out early, how complaints can be made and any other relevant information. The Regulatory Technical Standards also specify rules on the content and layout of the KID, how to calculate some of the information, its review, revision, republication and the timing of its delivery.
When does a PRIIPs KID have to be delivered to the investor?
Distributors or advisors must provide a KID for each PRIIP in good time, before the transaction is legally binding. The only exception is where the transaction has been initiated at a distance by the retail investor or if the investor has formally agreed to receive the KID after the transaction completes. A KID for each PRIIP must also be published on the manufacturer’s website as soon as the product is widely marketed.
How often should a PRIIPs KID be reviewed or revised?
Constant monitoring of the accuracy of PRIIPs KIDs is imperative, particularly in relation to costs and fluctuating returns. The regulations call for the KID to be updated every time there is a change to the PRIIP, which affects its content, and reviewed every 12 months regardless. If a change comes into force, the KID must be updated and republished ‘without undue delay’.
What are the liabilities concerning PRIIPs KIDs?
Although, technically, the regulations say that PRIIP manufacturers will not incur civil liability based solely on a KID, unless it is inaccurate or misleading, it also says that any retail investor that can demonstrate loss based on reliance on a KID can claim damages from its manufacturer.
How can Lawson Conner help?
PRIIPs KIDs rely on the quality of the data and assumptions, including highly mathematical performance scenarios, so it is imperative that these are accurate so as not to mislead retail investors and potentially incur liability. At Lawson Conner, we have developed a complete software solution to produce KIDs, that can be used as a standalone service or as part of a managed service. It includes bespoke PRIIPs KIDs production, accurate calculation of scores and scenarios, verification of calculations and the generation of an EPT (European PRIIPs Template) file. Our compliance experts can also advise on the correct use of input data and the generator offers a six-year documentation and audit trail for any regulatory enquiries.
To reduce some of your regulatory burden and be assured of a robust, accurate and timely PRIIPs KIDs production process, contact us today.
Watch our recent webinar (video recording): ‘Solution to your PRIIPs KIDs problem‘