Starting in January 2017, providers of investment products will have to hand out a Key Information Document (KID) to retail investors living in the EU when they are considering buying investment products. The new regulations will apply to Packaged Retail and Insurance-Based Investment Products (PRIIPs). These include asset management products and other “packaged” investment products sold by banks or insurance companies. Such products may include insurance investment products, investment funds and structured products. The KID needs to be produced by investment product manufacturers and is defined as a standardized and simple document giving key facts on the investment product in no more than three pages.
The aim of KIDs for PRIIPs (as the new regulation is often called) is to protect investors by creating a safe and transparent financial sector across the EU. This will help investors be more confident in their investment and will give credibility to the asset manager for adhering to strong operational processes. The documents will have to be uniform disclosure documents to enable and assure comparability and objectivity for retail investors. These goals were set by the European Commission as reaction to the financial upheavals starting in 2007. Since then different consultation papers and consumer testing studies have been issued. In November 2014 the general principles have been published into the Official Journal of the EU as Regulation (EU) No 1286/2014 of the European Parliament and the Council on of Ministers.
The general principles have been defined and approved by the European Parliament and the Council of Ministers in 2014. Recently, on 30 June 2016, the European Commission introduced regulatory technical standards (RTS) which specify the content and methodology of KIDs for PRIIPs. These policies will be effective as of 31 December 2016.
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This draft RTS addresses different sections of the KID and includes a mandatory template that will have to be used, including a detailed layout and mandatory texts. Next to requirements on the presentation of costs and further relevant information, the draft RTS also requires the presentation of at least three performance scenarios and a summary risk indicator (SRI) that comprises seven classes.
As for now the European Parliament and Council have a two-month scrutiny period, which they can extend for a further month. There might still be changes coming up, but there is no doubt that the scale of the impact on the industry is huge. We expect a strain on resources with responsibility for creating and maintaining KIDs for PRIIPs. There is no time to lose to prepare for the production and distribution of regulatory compliant documents that will require the processing of massive amounts of data.
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