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PRIIPs KID: Update on Performance Scenarios

24th January 2018

PRIIPs KID Performance Scenarios

The FCA has now published a statement on performance scenarios in the Key Information Document (KID) under the PRIIPs Regulation – or to give it its full name, the Regulation on Packaged Retail and Insurance-based investment Products.

Background to PRIIPs KID

PRIIPs Regulation came into effect on 1st January 2018, which has meant from the start of the year PRIIPs manufacturers have been required to prepare and publish a stand-alone standardised document containing key information for each of their PRIIPs. This Document is called the Key Information Document, or KID. Where firms advise retail investors on PRIIPs, or when firms sell a PRIIP to a retail investor, they must provide that investor with a KID in good time before the transaction is concluded.

The Key Information Document is required to be accurate, fair, clear and not misleading and must include the following details, amongst other pre-contractual information:

• Detailed risks;
• Performance scenarios; and
• Costs

The way in which the information should be calculated within the KID is also set out (in the PRIIPs Regulatory Technical Standards).

Update on KID Performance Scenarios

In today’s statement, the regulator informs that some firms are concerned that, for some PRIIPs, the ‘performance scenario’ information required in the KID could appear too optimistic and may mislead consumers. This might be because of the strong past performance of certain markets, calculation errors or the way in which the calculations in the Regulatory Technical Standards must be carried out.

With this in mind the FCA have stated that they will allow any PRIIPs manufacturer with these concerns to provide explanatory materials that will help to contextualise the calculation as well as outline these concerns for customers to consider.

Thus, should firms that sell or advise upon PRIIPs have concerns that any specific KID performance scenario might mislead their customers, then they should consider how best to address these -such as by providing additional explanation in communications with their clients.  

Firms are reminded that the FCA’s rules require them to “ensure that their communications with clients are fair, clear and not misleading (Principle 7 of the Principles for Business). They are also required to act honestly, fairly and professionally, in accordance with the best interests of their clients (the client’s best interests rule in COBS 2.1.1R).”

Regulatory Support: Who can help?

If you would like to discuss any aspect of the PRIIPs KID Regulation that might affect your firm or if you would like assistance in planning or preparing for any of your firm’s current or future regulatory requirements, please get in touch with our helpful and friendly compliance support team.

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