Regulation on Key Information Documents for packaged retail and insurance-based investment products (PRIIPs)

The EU Regulation on "key information documents for packaged retail and insurance-based investment products (PRIIPs)" introduces a standardised, easy to understand “Key Information Document (KID)” for PRIIPs, which should facilitate comparison between different products. Its application date was postponed to 1 January 2018.

The legal instrument of the Regulation was chosen to ensure a true harmonisation of the new rules in the EU. Contrary to a Directive that leaves the national authorities the choice of form and methods of implementation, a Regulation is binding in its entirety and directly applicable in all Member States.

Key issues for intermediaries/financial advisers

BIPAR agreed, from the outset, that for all products which include an investment risk, specific, proportional and relevant pre-contractual information should be available. It, therefore, supported the rationale behind the European Commission’s proposal, i.e. to have a key information document for the consumer, which is produced by one party, the product manufacturer, which deals with the investment product and which can be handed over to the client by the intermediary/person selling. BIPAR requested clear confirmation about who is responsible for the KID and throughout the legislative process BIPAR opposed any additions to the KID with regard to information on the person selling the product, which is already adequately addressed in the specific Regulations such as MiFID and IMD/IDD.

The PRIIPS Regulation states that intermediaries have responsibilities when they potentially make changes to an existing PRIIP (in this respect see the definition of the manufacturer). Intermediaries also have responsibilities in terms of handing over the KID to the client and in terms of information about costs.

Subject matter and scope

The Regulation applies to packaged retail investment products, insurance-based investment products and packaged retail and insurance-based investment products, which are, broadly speaking, products where the amount repayable, or the maturity or surrender value is subject to fluctuations. It does not apply to non-life insurance or to life insurance contracts where the benefits under the contract are payable only on death or incapacity due to injury, sickness or infirmity. It does not apply either to “simple” deposits, certain securities and pensions (for pensions, the Commission should assess the situation by December 2018).

The Regulation only aims at the protection of retail investors (i.e. “client” as defined in MiFID II or “customer” as defined in IMD I where that customer would not qualify as a professional client as defined in MiFID II).

Responsibilities of the manufacturer/person selling

The manufacturer is defined as "any entity that manufactures PRIIPs and any entity that makes changes to an existing PRIIP, including, but not limited to, altering its risk and reward profile or the costs associated with an investment in a PRIIP".

The person selling a PRIIP is defined as "a person offering or concluding a PRIIP contract with a retail investor".

The product manufacturer - before making a PRIIP available to retail investors - draws up the KID and publishes it on his website. The person advising or selling has to provide the KID to the investor for free and in good time before the latter is bound by any contract or offer.

The Regulation also contains a reference to persons advising or selling, along with the manufacturers, regarding the establishment of appropriate procedures and arrangements that ensure that retail investors have an effective way of submitting a complaint against the manufacturer, that they receive a substantive reply in a timely and proper manner and that procedures are also available in case of cross-border disputes.

Form and content of the Key Information Document

The KID is a maximum of 3 pages long, has to be clear and understandable/readable and is intended to provide information on the nature, risks, costs, potential gains and losses of the product and help comparison with other products. It contains information on the manufacturer and supervisor, the date, if needed a comprehension alert warning to the investor that the product is not simple, the nature and main features of the product (type, objectives and means for achieving them, description of the type of retail investor to whom the PRIIP is intended to be marketed, details of insurance benefits, if any, terms of the PRIIP); the risk-reward profile; the consequences of default of the manufacturer, the costs (summary indicators of costs and total aggregate costs) - reference to distribution costs to be provided by the advisors, distributors or any other person advising on or selling the PRIIP.

Level 2 measures

The PRIIPs regulatory technical standards (RTS) provide more detail on the content and presentation of the KID, including the calculation of costs; the review/revision of the KID; and the provision of the KID. The three European Supervisory Authorities (ESAs: EIOPA, EBA and ESMA) consulted on and published draft RTS on 7 April 2016. The European Commission adopted the RTS on 30 June 2016.

During the consultation rounds and in the run-up to the Commission’s adoption, the European Parliament and BIPAR, together with many other stakeholders, criticised the timing and the content of the ESAs’ draft RTS:

  • Due to the delays in the development of level 2, the 31/12/2016 deadline was not realistic anymore.
  • Regarding the content, BIPAR expressed concern on various occasions of the lack of recognition of the specificity of insurance-based investment products (e.g. how including biometric risk premium in the cost section of the KD makes IBIPs seem more expensive/less attractive than “pure” investment products). BIPAR also called for the RTS to provide more clarity on the treatment of multi-option products (MOPs).

When the Commission did not take its comments into account, the European Parliament used its scrutiny powers and rejected the RTS on 14 September 2016.

The Parliament’s main concerns related to:

  • Need for comparability of consumer information in order to promote a level playing field in the market
  • Removing credit risk from the calculation of risk categorisation of insurance products is misleading to investors
  • Need for clarification of the treatment of “MOPs” (particularly in relation to the explicit exemption granted to UCITS funds)
  • Flaws in the methodology for the calculation of future performance scenarios (for example for some PRIIPs lack of information that investors could lose money)
  • Lack of detailed guidance on the “comprehension alert”

The Parliament called upon the Commission to:

  • submit a new Delegated Act reflecting its concerns
  • consider a proposal postponing the application date (without changing any other provision of level 1)

On 9 November 2016, the European Commission confirmed a one-year extension of the application date of PRIIPs. The Commission also asked the ESAs to provide an opinion on the amended RTS. The ESAs however, did not find agreement within the given 6-week timeframe. The file was thus given back to the Commission who adopted the revised RTS on 8 March 2017, reflecting the Parliament’s concerns. In April 2017, the Parliament acknowledged that the reviewed RTS took into account its concerns and decided not to object to them. With the Council not objecting either, the reviewed RTS as adopted by the Commission in March, were published in the Official Journal of the EU on 12 April 2017.

The final Delegated Regulation with the RTS contains:

  • Requirements regarding the content and presentation of the KID (chapter 1). These include amongst others:
  • for PRIIPs that offer multiple investment options to the retail investor, the RTS set out two approaches that manufacturers may follow (chapter 2)
  • requirements for the review and revision of the KID (chapter 3)
  • requirements on the person selling or advising on the PRIIP for the KID to be provided sufficiently early to the retail investor (chapter 4).
  • information on the product, including information on insurance aspects
  • a specific template for the risk and reward section of the KID, including a summary risk indicator (SRI) that comprises 7 classes and a methodology for the assignment of each PRIIP to one of these classes
  • requirements on performance scenarios (for different time periods and at least a stress, an unfavourable, a moderate and a favourable scenario) and a format for the presentation of the scenarios.
  • requirements on the presentation of costs, including the figures that must be calculated and the format to be used
  • specifications on the holding period and the impact of disinvestment
  • specifications on how to complain

The Delegated Regulation contains several annexes, with, amongst others, the template to be used for the KID.

BIPAR believes that the final RTS are an improvement compared to drafts that were consulted upon by the ESAs and compared to the RTS that were adopted by the Commission in June 2016 and it sees its main points reflected in the text.

The Level 1 Regulation also foresees Delegated Acts on the details of procedures to establish if a PRIIP targets specific environmental or social objectives (“EOS PRIIPs”) and on the (temporary) EIOPA powers regarding product intervention.

Regarding EOS PRIIPs, the ESAs consulted on draft technical advice in March 2017. BIPAR could support the draft advice and stressed that distributors also need to receive all information regarding EOS PRIIPs from manufacturers. The ESAs were due to submit their final technical advice to the European Commission by 30 April 2017.

Regarding product intervention, the Delegated Act (a Regulation) was published in the Official Journal on 29 October 2016. It contains criteria and factors to be taken into account by National Competent Authorities and EIOPA in determining when there is a significant investor protection concern or a threat to the orderly functioning and integrity of financial markets or to the stability of the whole or part of the financial system of at least one Member State or respectively of the Union. The factors and criteria include amongst others the selling practices associated with the IBIP.

Level 3 measures

On 11 July 2016, the European Commission and the ESAs organised a workshop on the implementation of the PRIIPs framework and on the preparation of Questions and Answers, which BIPAR attended. BIPAR tabled questions regarding biometric risk and regarding UCITs (see above). At the workshop, early guidance on frequently returning questions regarding the RTS was given, to be reflected in the ESAs technical level 3 “questions and answers” (Q&A). A first set of ESAs Q&As was expected mid-May 2017, a second set in July. The Commission was expected to publish Q&As on more general legal interpretation issues in May.

Next steps

The Regulation and its level 2 measures apply as of 1 January 2018. The Commission is due to review the Regulation by 31 December 2018. This review consists of various surveys. The Commission also has to conduct a market survey on national online fund calculators by 31 December 2018.

For more recent news concerning this dossier, please contact your national association.

Looking for an insurance intermediary near your home or business?Find one