The PRIIPs EU Regulation introduces a standardised, easy to understand, precontractual “Key Information Document (KID)” for PRIIPs, which should facilitate comparison between different products.
The Regulation applies since 1 January 2018. The original application date was delayed by one year. BIPAR actively supported this delay when it became clear that the level 2 Regulatory Technical Standards (RTS) further specifying the content, presentation, review and delivery of the KID would not be ready in time. The Regulation is binding in its entirety and is 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. BIPAR requested clear confirmation about who is responsible for the KID. Throughout the legislative process BIPAR opposed any additions to the KID regarding information on the person selling the product, which is already adequately addressed in specific instruments such as MiFID and IMD/IDD. Since the application, BIPAR discussed with its members the availability and use of KIDs in practice, for example, on risk rating and the risk scales used or on the costs/pricing scenario for the basis of the KID.
Subject matter and scope
The Regulation applies to 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 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, is 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:
Levels 2 and 3 measures
In their final technical advice, the ESAs state that: “at this time the establishment of specific and detailed standalone obligations for PRIIPs targeting specific environmental or social objectives would not be proportionate. Existing sectoral measures offer already, or are already in the process of putting in place, a sufficiently stringent and flexible basis for the sound regulation of PRIIPs targeting environmental and social objectives.”
The ESAs also recommend that:
Level 3 measures
In July 2017, interpretative Guidelines on the KID for PRIIPs from the European Commission were published in the Official Journal of the EU. The Guidelines are not legally binding as such and are based on stakeholder feedback received, amongst others, at the Commission’s workshop on the implementation of PRIIPs (July 2016 - which BIPAR attended and where BIPAR tabled questions). Their aim is to facilitate the implementation of -and compliance with- the PRIIPs Regulation. They cover issues such as application of PRIIPs rules by Multi-Option Products’ (MOPs) manufacturers, KIDs for IBIPs, PRIIPs only sold by intermediaries; etc.
In July, August and November 2017, the ESAs published “Questions and Answers” on the KID for PRIIPs. Q&As are also not legally binding, nor are they subject to a "comply or explain" procedure. They aim at “promoting common supervisory approaches and practices in the implementation of the KID”. They cover issues such as costs added by brokers, the meaning of biometric risk premium/insurance premium, the role of advisers and intermediaries in case MOPs, etc.
The Commission is due to review the Regulation by 31 December 2018. This review consists of various surveys.It also has to conduct a market survey on national online fund calculators by 31 December 2018.