- All “investment product manufacturers” regardless of their sector, e.g. fund managers, credit institutions, investment firms, insurance undertakings or issuers of structured securities, will need to produce and maintain a KID for each of their in-scope products (PRIIPs).
- The KID needs to be drawn up and published on the manufacturer’s website before placing the retail investment product into the market, and must be kept up-to-date.
- The KID shall enable retail investors to understand the key features, risks, costs, potential gains and losses of the PRIIP, and to facilitate comparison with other products.
- The KID should be accurate, fair, clear, short and concise, and written in a non-technical, jargon-free languages.
- It should have a maximum length of three A4-pages when printed and be translated in the languages of the Member States where the PRIIPs will be distributed.
- It shall be a stand-alone document and shall not contain cross-references to marketing material.
- Also persons advising on or selling PRIIPs are in-scope, and whoever sells an investment product to a retail investor has the obligation to provide him/her with the KID in due time before a binding agreement is made.
To assess whether an investment product falls within the scope of the Regulation, two elements are to be considered:
- “Packaged retail Investment products” (PRIIPs) are defined as investments where, regardless of the legal form of the investment, “the amount repayable to the 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 investor”. This concept excludes direct holdings and presumes that a form of “packaging”, “wrapping” or “bundling together assets” exists.
- “Insurance-based investment products” are defined as “insurance products which offer a maturity or surrender value and where that maturity or surrender value is wholly or partially exposed, directly or indirectly, to market fluctuations”.
Only investment products sold to retail investors are covered, whereas products sold to professional investors are excluded.
The following instruments are considered to be in-scope:
- Investment funds (UCITS and alternative funds will benefit from a 5 years transitional period)
- Insurance policies with an investment element
- Structured deposits
Not in-scope are
- Non-life insurance products
- Life insurance contract where the benefits are payable only on death or incapacity
- Deposits other than structured deposits
- Most types of securities
- Pension products recognized by national law as having the primary objective of providing the investor with income in retirement
- Officially recognized occupational pension schemes
- Individual retirement products for which an employer’s financial contribution is required by national law.
Format & content of the KID
Each KID will have to follow a common standard as regards structure, content and presentation and shall contain inter alia
An introductory statement with
- a title “Key Information Document”,
- the name of the PRIIP,
- the identity and contact details of the PRIIP manufacturer,
- information about the competent authority,
- the date of the document,
- where applicable, a comprehension alert: “You are about to purchase a product that is not simple and may be difficult to understand.”
Specific sections are required the content of which is detailed in the Regulation:
- What is the product?
- What are the risks and what could I get in return?
- What happens if the PRIIP manufacturer is unable to pay out?
- What are the costs?
- How long should I hold it and can I take money out early?
- How can I complain?
- Other relevant information.
Rules relating to complaints, redress & sanctions
Member States must lay down rules to establish appropriate administrative sanctions and measures. Upon breach of the provisions of the Regulation, national competent authorities should have the power to impose adequate penalties.
Administrative sanctions include:
- the prohibition of the marketing of the PRIIP;
- the suspension of the marketing of the PRIIP;
- a public warning.
Administrative pecuniary sanctions include:
- for legal entities: an amount of up to EUR 5 million or up to 3% of annual turnover, or up to twice the amount of profits gained or losses avoided because of the breach;
- for natural persons: an amount of up to EUR 700 000 or up to twice the amount of the profits gained or losses avoided because of the breach.
Firms failing to comply will come under scrutiny due to an increased disclosure to the public.
- The Regulation is expected to be published in the Official Journal of the EU at the beginning of the fourth quarter of 2014 and will enter into force 20 days after its publication; it shall apply two years after the date of entry into force, i.e. Q4 2016.
- In the meantime the European Commission is expected to adopt several delegated acts as well as draft regulatory standards prepared by the ESAs, as defined in the Regulation.
- The European Commission intends to review the text four years after entry into force.
How can KPMG help you? We can provide assistance in ...
- Evaluating whether your products are in-scope
- Developing and/or reviewing your KIDs in terms of compliance
- Implementing necessary procedures
- Keeping you up-to-date via our Regulatory Scout
- All legal and regulatory texts are available in our Regulatory Scout Library