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Preparation for PRIIPs KID Regulation

**Update 11/2016: Since the article below was written the European Commission have informed PRIIPs Regulation will be delayed by 12 months until 1st January 2018**

13th April 2016

New Regulation for Packaged Retail & Insurance-based Investment Products

The Packaged Retail and Insurance-based Investment Products Regulation, or PRIIPs, is set to affect the retail investment market at the end of the year, but what is PRIIPs?

What is PRIIPs?

The PRIIPs Regulation aims to encourage efficient EU markets by helping investors have a greater understanding and ability to compare the fundamental features of investment products that are targeted at retail investors. To this end, the regulation obliges the manufacturers of PRIIPs, such as credit institutions, investment firms, fund managers and insurance companies, to create a clear, concise summary document of this key information – also known as the Key Information Document or KID.  

As with other EU Regulation (such as the Market Abuse Regulation that will become effective in July), the PRIIPs KID regime will be implemented as a Regulation rather than a Directive and thus will be directly applicable to all EU member states, without the need for transposition into national laws.

PRIIPs Key Information Document (KID):

The Key Information Document or KID is a standardised stand-alone document that will provide investors with comparable information for an investment product such as risk, rewards and costs. The regulation sets out the rules for its content and format - for example, it can only be up to a maximum of 3 sides of A4 paper in length - and as well as the timing for delivery and review periods.

Who does PRIIPs KID apply to?

Whilst the PRIIPS KID regime applies to PRIIPs manufacturers, it also applies to “any person advising on or selling a PRIIP”, which could be the manufacturer itself for direct sales, or other intermediaries and distributors for indirect sales.

Those affected are required to prepare a KID for each PRIIP that they produce and to publish each KID upon their website as well as provide any retail investor with a KID “in good time before any transaction is concluded”.

The FCA notes that the Regulation will also apply to those outside of the regulatory remit of the Financial Conduct Authority, such as those exempt from the need to obtain FCA authorisation.

PRIIPs: Affected Sectors & Products:

The FCA have advised that they expect the regulation to apply to the following types of financial services firms:

• fund managers
• discretionary investment management firms
• stockbrokers and other firms that provide advice to retail clients on funds, structured products and derivatives
• financial advisers
• life companies
• retail investment product providers
• firms providing services in relation to insurance-based investments
• firms operating retail distribution platforms

In addition, whilst non-exhaustive, those retail products the FCA expects to fall within the definition of a PRIIP include:

• derivatives (including options, futures, and contracts for differences (CFDs))
• structured investment products 
• structured deposits
• securities issued by certain Special Purpose Vehicles (SPVs)
• regulated collective investment schemes including:
• unregulated collective investment schemes (which may also be alternative investment funds)
• other alternative investment funds which are not collective investment schemes, such as investment trusts
• insurance-based investment products where the surrender or maturity values are determined indirectly by returns on the insurance company’s own investments or the profitability of the insurance company itself
• annuities (that are not pension products) with features that result in fluctuating amounts being paid to the annuitant because of exposure to reference values (such as indices) or to the performance of one or more assets that are not directly purchased by the annuitant

Other PRIIPS KID Regulation requirements:

PRIIPS KID Regulation also specifies other requirements for affected firms, one being that those who manufacture or advise or sell PRIIPs must establish appropriate procedures and arrangements for complaints handling.

PRIIPs KID Key Implementation Dates:

Whilst the PRIIPs KID Regulation came into force in all EU member states on 29th December 2014, the European Supervisory Authorities (ESAs) have yet to publish the final Regulatory Technical Standards, which are expected this summer.

Those firms affected by the PRIIPs KID regulation within EU Member states are required to comply with the regime by 31st December 2016 and it should be noted that the EU PRIIPs KID Regulation also requires for member states to establish administrative sanctions and measures for infringing the regulation.

However there is one exemption: Whilst UCITS funds fall within the definition of PRIIPs, as the UCITS regime also has a requirement to produce a Key Investor Information Document (KIID), UCITs have been granted an exemption period of five years until they must comply.  During this transitional period, UCITs may continue to use the UCITS KIID, until they must comply with PRIIPs KID by 31st December 2019.

PRIIPs Support: What needs to be included in PRIIPs KID?

To find out more about the content, presentation and calculation of content to be included within a PRIIPs Key Information Document (KID) or to discuss any questions you may have about how the PRIIPs Regulation may affect you, please contact our experienced regulatory consultants.

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