Are you a finance industry player (asset manager, banker or insurer) who manufactures financial products (e.g. Investment funds, Life-insurance products, structured products, derivatives etc.) sold to retail clients? Then you have to provide a KID (Key Information Document) to your final clients prior to the sale.
Each KID has to be designed according to the standards laid down by the PRIIPs (Packaged Retail Investment and Insurance Products) regulation.
What is a PRIIP KID?
A PRIIP KID is a mandatory, precontractual, standardised disclosure document, designed to give essential information about the PRIIP to the retail investors about the risks and rewards, in no more than three pages. Financial products falling within the scope of PRIIPS can only be sold if a KID has been provided to investors in the first place.
The European Commission has proposed the KIDs requirements as part of wider efforts to enhance the investor protection standards for retail clients, particularly with respect to sales and distribution. This is consistent with other regulations, such as the Markets in Financial Instruments Regulation (MiFID 2).
The aim of the PRIIPS KID is to enable more transparency and comparability between PRIIPS for retail investors. This is possible due to the information disclosed in nine different sections:
General information
What is this product?
What are the risks and what could I get in return?
Performance Scenarios: predictive performance scenarios over the Recommended Holding Period.
What happens if the PRIIP 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.
AIFs (alternative investment funds), structured products and derivatives sold to retail investors fall under the scope of the regulation.
To whom it applies ?
The regulation applies to all manufacturers and financial intermediaries (advisors) who distribute "Packaged Retail and Insurance-based Investment Products" to be invested by retail clients. Authorities have intentionally kept a wide scope to cover most of the market.
You have to prepare a KID if you offer one of the following products:
- Investment funds (UCITS have exemption until 31 December 2021);
- Life insurance-based investment products (such as unit-linked or with-profits policies);
- Retail structured securities (including instruments issued by securitisation institutions and corporate bonds);
- Structured term deposits;
- Derivatives;
- Convertible bonds and other structured securities with embedded derivatives;
- Pension products and annuities not recognised by the national law.
Your challenges
- You need to produce fully compliant KIDs for all PRIIPs you produce;
- You have to review and adapt the organisation, its processes and workflows to gather all the required information on your products.
You have to produce KIDs on a manual or ad hoc basis and this can impact significantly the time to market for new investment products;
You need to implement streamlined internal processes with a robust governance structure;
You must update KIDs on a regular basis, according to market conditions;
You need a dedicated team responsible for overseeing and documenting the lifecycle of your KIDs, as well as compiling, verifying and updating them;
You have to set up a dedicated website containing the library of KIDs. This will facilitate the exchange of information between distributors and retail clients.
With an increased focus on the risk assessment, you need technical expertise to evaluate each product’s unique risks and rewards;
You will also need to present information about the performance scenarios and costs throughout the lifetime of a product;
Explaining each product in a simple, understandable, non-technical language will require special attention so that key information is not diluted in the process.
How can we help ?
Production
The Regulatory and Risk Management team of PwC Luxembourg can support you in the preparation of the PRIIPs KIDs. Our service offering includes the Summary Risk Indicator (SRI) computations, the performance scenarios computations, the calculation of cost, the drafting of the different narratives and finally the production of the KIDs in the necessary languages.
A dedicated platform allows to work efficiently on a large number of PRIIPS KIDs over a short period of time and ensure appropriate updates.
Third party review / validation
We combine the expertise of both our Regulatory and Risk Management teams to review and validate your company’s proposition when it comes to KID preparation and provide assurance beyond financial audit.
We provide tailored solutions under the Third Party Assurance umbrella, using reporting standards.
Our wide range of services enables you to prove to your clients that you provide reliable information and operate effectively within a well-controlled environment.
What is coming ?
In October 2019, the ESAs (European Supervisory Authorities)1 emitted a consultation paper to receive amendments proposition regarding the Commission Delegated Regulation (EU) 2017/653 of 8 March 2017. The aim of this consultation paper was to:
- Review the temporary exemption of the PRIIPS KID for UCITS Funds that ends up on 31 December 2021.
- Address the main regulatory issues that have been identified since the implementation of the PRIIPs KID.
However, in July, European regulators failed to agree on the changes for the first time and were unable to deliver a final proposal. This means that in the absence of legislative changes, from 1 January 2022, UCITS will be required to prepare a PRIIPs KID and a UCITS KIID.
This consultation paper included, among others, a discussion about the inclusion of past performances, a review of the probabilistic performance scenarios model and a review of the transaction cost computation methodology.
1. ESAs include : EBA (European Banking Association: Banking industry), ESMA (European Securities & Markets Authority: Asset Management), and EIOPA (European Insurance & Occupational Pensions Authority: Insurance sector)
