PRIIPs disclosure: Key Information Documents

Find out about the Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation and how it will affect the retail investment market. Understand that changes will be made to the FCA Handbook in 2018 as a result of this Regulation, which are expected to apply from 1 January 2018.
 

PRIIPs Regulation 

The aim of the PRIIPs Regulation is to encourage efficient EU markets by helping investors to better understand and compare the key features, risk, rewards and costs of different PRIIPs, through access to a short and consumer-friendly Key Information Document (KID).

PRIIPs: who it affects 

The Regulation applies to persons who:

  • manufacture PRIIPs
  • advise on or sell PRIIPs

A PRIIP manufacturer (or any other person who changes an existing PRIIP, such as a distributor) is required to:

  • prepare a KID for each PRIIP that they produce
  • publish each KID on their website

A person who advises a retail investor on a PRIIP or sells a PRIIP to a retail investor must provide the retail investor with a KID in good time before any transaction is concluded.  In addition to advisers, this will impact intermediaries such as distributors.

Where the retail investor initiates the transaction by means of distance communications, the KID may be provided after the conclusion of the transaction, as long as it is not possible to provide the KID in advance and the retail investor consents. The retail investor must be told that it is not possible to provide the KID in advance, and that they can delay the transaction in order to receive and read the KID before concluding the transaction. 

We expect the Regulation to apply to:

  • retail investment product providers
  • life companies
  • discretionary investment management firms
  • firms providing services in relation to insurance-based investments
  • fund managers
  • stockbrokers and other firms that provide advice to retail clients on funds, structured products and derivatives
  • financial advisers
  • firms operating retail distribution platforms

The Regulation will also apply to persons outside the FCA’s regulatory remit, such as those who are exempt from the need to obtain FCA authorisation.

The Regulation only applies if the PRIIP is made available to retail investors. Retail investors are defined as: 

  • retail clients defined in the Markets in Financial Instrument Directive (MiFID), or 
  • customers as referred to in the Insurance Mediation Directive (IMD), where they would not qualify as professional clients under MiFID 

PRIIP definition 

A PRIIP is defined as: an investment where, regardless of its legal form, the amount repayable to the retail investor is subject to fluctuations because of exposure to reference values or to the performance of one or more assets that are not directly purchased by the retail investor; or an insurance-based investment product which offers a maturity or surrender value that is wholly or partially exposed, directly or indirectly, to market fluctuations.

Identifying whether a particular product is a PRIIP may not be straightforward as the concept of ‘exposure to reference values’ is wide. In some cases, you will need to consider the specific terms of a product before determining whether or not it is a PRIIP.

Retail products defined as a PRIIP 

We consider that these retail products (some overlap) would fall within the PRIIPs definition:

  • regulated collective investment schemes including:
    • non-UCITS retail schemes (e.g. authorised unit trusts, open-ended investment companies (ICVCs) and authorised contractual schemes)
    • qualified investor schemes
    • individually recognised overseas schemes (FSMA s272 recognised schemes)
  • unregulated collective investment schemes (which may also be alternative investment funds) including:
    • some unauthorised unit trust schemes
    • venture capital trusts
    • private equity funds
  • other alternative investment funds which are not collective investment schemes, such as investment trusts
  • insurance-based investment products where the surrender or maturity values are determined indirectly by returns on the insurance company’s own investments or the profitability of the insurance company itself (e.g. unit-linked policies and with-profits policies)
  • derivatives (including options, futures, and contracts for differences)
  • structured investment products 
  • structured deposits (as defined in MiFID Article 4(1) point (43))
  • securities issued by certain SPVs 
  • annuities (that are not pension products) with features that result in fluctuating amounts being paid to the annuitant because of exposure to reference values (such as indices) or to the performance of one or more assets that are not directly purchased by the annuitant (e.g. purchased life annuities with variable returns)

This list is intended to be indicative only and is not exhaustive. New product types may also fall within the scope of the PRIIPs definition. 

Products that are not PRIIPs 

We consider that these products do not fall within the PRIIPs definition:

  • non-life insurance/general insurance, and life insurance that only pays benefits on death or incapacity due to injury, sickness or infirmity (insurance products that do not offer investment opportunities are excluded from the scope of the Regulation)
  • deposits other than structured deposits (deposits solely exposed to interest rates are excluded from the scope of the Regulation)
  • investment funds dedicated to institutional investors are excluded (since they are not for sale to retail investors)
  • corporate shares and bonds held directly (including other instruments that are assets held directly by the retail investor and shares beneficially owned by investors, but held on their behalf under custody arrangements)
  • pension products − pensions recognised under national law as having the primary purpose of providing the investor with an income in retirement and which entitle the investor to certain benefits, occupational pension schemes officially recognised in accordance with certain EU directives and individual pension products for which a financial contribution from the employer is required by national law and where the employer or the employee has no choice as to the pension product or provider
  • annuities (that are not pension products) where the amount payable to the annuitant does not fluctuate (e.g. a purchased life annuity that pays a fixed amount of income for life or an annuity that pays a fixed income for a specified term)
  • certain securities such as, subject to certain conditions, securities issued by Member States, their regional or local authorities, central banks, public international bodies, non-profit making bodies or credit institutions

UCITS schemes and EEA UCITS schemes 

Although UCITS schemes and EEA UCITS schemes are PRIIPs, the requirements in the PRIIPs Regulation will not apply to such schemes until 31 December 2019, due to exemptions detailed in the PRIIPs Regulation Article 32 and recital 35. For these schemes, firms will need to apply the existing key investor information document (KIID) requirements in the Conduct of Business sourcebook (COBS) and the Collective investment schemes sourcebook (COLL). (Firms also need to take account of the UCITS KIID technical requirements in the EU KII Regulation 583/2010, specifying the form and contents of key investor information (see text in COLL Appendix 1EU)).

Key Information Documents 

Find out about Key Information Documents (KIDs) required under PRIIPS

The PRIIPs Regulation requires that a KID is a stand-alone, standardised document prepared for each investment. A KID can be up to a maximum of 3 sides of A4-sized paper and may refer to other documents such as a prospectus if the cross-reference is related to the information required to be included in the KID, or refer to where detailed information can be found. A KID may also provide information about underlying options for one product (such as a life policy) within one document.

Each KID will need to contain the following information, presented in a pre-determined sequence of sections. The sections are:

  • What is this product?
  • What are the risks and what could I get in return?
  • What happens if [name of the PRIIP manufacturer] 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

The Regulation outlines the layout of the KID. The Regulatory Technical Standards (RTSs) will contain detailed rules on:

  • the content and presentation of the KID
  • how to calculate some of the information in the KID
  • the review, revision and republication of the KID
  • the timing of delivery of the KID

The European Supervisory Authorities (ESAs) have published final draft RTSs.

Disclosure requirements in the FCA Handbook – planned changes

As the requirements relating to PRIIPs are contained in an EU Regulation, the requirement to prepare and provide a KID for each PRIIP will apply directly to persons affected. Further, the FCA will be required to supervise compliance with the Regulation.

Where existing disclosure rules currently implement EU legislation, such as MiFID, which co-exists with the PRIIPs Regulation, these rules will continue to apply. For certain products, the KID will not be the only document or information consumers need to receive.

In CP16/18 we proposed changes to the FCA Handbook to take account of the introduction of the KID. These include:

  • Deleting or amending disclosure requirements to ensure they do not duplicate or conflict with the requirements in the PRIIPs Regulation.
  • Amending or maintaining certain disclosure requirements in the FCA Handbook that set out how firms may provide additional information to supplement the KID.
  • Amending provisions relating to the use of colours to align with the approach in the PRIIPs regulation.

Next steps 

We consulted on amending the FCA Handbook disclosure requirements to reflect the introduction of the PRIIPs Regulation in CP16/18 and plan to publish a Policy Statement making final rules during the first half of 2017.

A number of disclosure documents or information requirements will be directly or indirectly affected by the introduction of the KID.