AT FIRST SIGHT, THE OBLIGATIONS CONCERNING THE ENTRY INTO FORCE OF THE PRIIPs (PACKAGED RETAIL AND INSURANCEBASED INVESTMENT PRODUCTS) REGULATION MAY APPEAR TO BE A MERE FORMALITY. THE REALITY IS QUITE DIFFERENT.
PRIIPs in a few words
Transparency toward investors is at the heart of the PRIIPs regulation.
Scope: All packaged investment products intended to be sold to retail investors (consumers) are concerned: UCITS, alternative investment funds, insurance-based investment products and structured products.
Principle: The KID (Key Information Document) must be provided for each product. The KID is a standardised and pre-contractual document; it is comparable to the UCITS KIID (Key Investor Information Document). The KID must be provided to each investor in good time before they invest.
Key elements: The primary aim of the KID is to inform investors about the costs, performance scenarios and risks associated with investment in a product. It also enables the comparison of similar products, or even different types of products.
Style: The information is disclosed in a form of questions and answers, in a language which is understandable to a retail investor with no prior experience in the financial industry – plain language. In terms of distribution, investors must be provided with the KIDs in an official language prior to any investment.
Sanctions: In case of breach of the PRIIPs regulations, the competent authorities will be empowered to impose administrative measures and sanctions, such as the suspension of or the baning of the marketing a product, issuance of a public notice including the name of the person responsible, and fines.
Ready to go?
Deadline: The first KIDs must be published on 1st January 2018.
The work-load should not be underestimated.
Challenges: The first challenge relates to the data management, for example being able to establish the transaction costs. The second is implementing a production process which includes the translation, the publication, the communication and the management of updates or each significant change.
Implementation: In order to avoid any delays, as it happened in the past with the implementation of the UCITS KIIDs, the manufacturer of a PRIIP should already be analysing the requirements, the constraints and the specificities related to each product.
Impact on distribution
Responsibility: The manufacturer is responsible for producing the PRIIPs KID and the distributor is responsible for providing it to the investor. However, in practice, in the event of a problem, the reputational risk would be borne by both entities.
Cooperation: The implementation of the PRIIPs Regulation, combined with the forthcoming MiFID II requirements, will necessitate a stronger cooperation between product manufacturers and distributors – for example, in the identification of the target market of the product and the cost transparency.
First impacts:
- The manufacturers of retail AIFs will be required to produce and make available the KID in all the European Union Member States where they are distributed, and also in certain third countries
- The management companies which distribute UCITS to insurance companies will have to provide information so that each insurance company can prepare their own KIDs.