An important milestone was reached in the pursuit of improved investor protection when the European Parliament gave its seal of approval to the Regulation on mandatory key information documents for banking, insurance, securities and fund products that target the retail segment. The long awaited PRIIPs Regulation will apply directly in all Member States from Q2 2016 and is complementary to the MiFID and IMD regulation of the sales process.
Entities operating across all financial sectors will need to produce a key information document for their in-scope products to enable retail investors to understand the key features, risks, costs, potential gains and losses of the PRIIP, and facilitate comparison with other products.
The in-scope products are investment products intended for the retail market such as funds insurance policies with an investment element and structured deposits, and excludes non-life insurance, life insurance payable on death or disability, deposits, securities, pensions, and occupational pensions. UCITS funds already produce a KIID and benefit from a five year transitional period before a PRIIPs compliant version may be necessary. The KID is separate from marketing materials and although much of the technical detail on content and calculation methodologies is still to come, product manufacturers should start an impact analysis early to determine their in-scope product range and decide how best to produce and disseminate up-to-date KIDs across their distribution networks.
Non-conformity with the requirements of PRIIPs risks the suspension of sales and marketing activities and manufacturers may be held liable for any losses by a retail investor due to misleading or inaccurate information contained in the KID. Co-ordination with the sales network will be of utmost importance to ensure that the advisors or sellers of PRIIPs provide the most recent KIID to the retail client before the transaction is concluded. The experience from implementing the KIID in the UCITS sector has shown that the challenges of issuing a plain language document in the concise pre-determined format should not be underestimated.
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