No time for KIDding around
PRIIPs is on the way
At the start of this year, the EU regulation that will introduce Key Information Documents (KIDs) for Packaged Retail and Insurance-based Investment Products (PRIIPs) entered into force, marking a significant milestone in a process that has already been seven years in the making.
From the end of 2016, all persons in the EU advising on or selling PRIIPs will be required to provide the KID to retail investors. KIDs will be highly standardised documents, no longer than three sides of A4-sized paper. They will be drawn up by the PRIIP ‘manufacturer’ and include information such as the PRIIP’s risk-reward profile and the total aggregate costs.
The KID regulation is a key pillar of the EU’s consumer protection agenda, intended to improve the ability of retail investors to understand and compare investment products across sectors. Hence the term ‘PRIIP’ covers a range of products including investment funds, life insurance policies with an investment element, structured products and structured deposits.
Importantly, as UCITS already have their own Key Investor Information Document (KIID), they will be exempt from the regulation for at least five years, after which the transitional period could be extended, the UCITS KIID could be replaced with the PRIIPs KID, or the two documents could be deemed to be equivalent. The same transitional rules will also apply where Member States have already extended UCITS KIID rules to non-UCITS funds sold to retail investors.
The investment management sector will already be well aware of the operational challenges that were involved in implementing the UCITS KIID. Firms that manufacture UCITS will be able to draw on these experiences to some extent, while firms that focus on non-UCITS PRIIPs (e.g. retail Alternative Investment Funds (AIFs)) will have a higher mountain to climb. When set alongside other regulatory initiatives addressing investor protection, such as MiFID II, PRIIPs may also have wider strategic implications for firms by enhancing competition across products, sectors, and ultimately, countries.
Performance issue 16 - January 2015
Performance is a triannual digest, dedicated to investment management professionals, which brings you the latest articles, news and market developments from Deloitte’s professionals and clients.