Legal framework



Regulation (EU) No 1286/2014 of the European Parliament and of the Council of 26 November 2014 on key information documents for packaged retail and insurance-based investment products (PRIIPs)


On 9 December 2014, the Regulation on Key Information Documents (KIDs) for packaged retail and insurance-based investment products (PRIIPs) was published in the Official Journal of the EU. The Regulation, which came into force 29 December 2014, introduces a standardized pre-contractual disclosure document for packaged retail and insurance based investment products (PRIIPs) and applies to investment products such as investment funds, life insurance policies with an investment element and structured deposits.

Improving the transparency of PRIIPs offered to retail investors is an important investor protection measure and a precondition for rebuilding the confidence of retail investors in the financial market, in particular in the aftermath of the financial crisis. The Regulation aims to ensure that retail investors are able to understand the key features and risks of retail investment products and to compare the features of different packaged investments, whilst ensuring a level playing field between different investment product manufacturers and those advising on or selling those products.

The PRIIPS Regulation sets the overall principles on the approach and content of the KID, which will be supported by detailed delegated/implementing acts. Regulatory technical standards (RTS) will standardize the presentation of the information required by the Regulation as far as possible. These RTS will then apply from the same date as the Regulation itself.

The Regulation applies to PRIIP manufacturers and persons advising on, or selling, PRIIPs. The PRIIPs KID obligation will arise wherever there is a sale of a "packaged retail investment product" to a "retail investor". The definition of investment product in the Regulation refers directly to 'packaged' form.

The Regulation lays down uniform rules on the format and content of the key information document and on the provision of the key information document to retail investors in order to enable retail investors to understand and compare the key features and risks of the PRIIP. It is the responsibility of PRIIP manufacturers to draw up a PRIIPs KID for each investment product it produces and publish the document on its website before the investment product can be sold to retail investors.

It is also the responsibility of persons advising on, or selling PRIIPs to retail investors to provide them with the PRIIPs KID "in good time before those retail investors are bound by any contract or offer relating to that PRIIP". The Commission will provide further detail by way of delegated acts in relation to the meaning of "in good time". The ESAs are mandated to submit draft RTS to the Commission specifying such conditions by 31 December 2015.

The KID is to be short (no longer than 3 A4 sides) and plain-speaking, and is to be drawn up in a common format so that investors are able to easily compare between different investment products. The KID must be accurate, fair, clear and not misleading. Amongst other, it must be a stand-alone document, clearly separate from marketing materials. It must contain information such as the name of the PRIIP, the identity and contact details of the PRIIP manufacturer, information about the competent authority of the PRIIP manufacturer and the date of the document, the type of PRIIP and term if known, its objectives and the means for achieving them, its risk and reward profile, costs, and a brief description of whether a related loss is covered by an investor compensation or guarantee scheme and if so, which scheme it is.

RTS specifying the details of the presentation and the content of the above and the methodology will be developed by the European Supervisory Authorities to be submitted to the Commission by 31 March 2016.

The Commission will also specify detailed rules as to the conditions and the frequency for reviewing, revising and republishing the PRIPs KID as required under Article 10 of the Regulation.

By harmonizing disclosure across all retail investments through PRIIPs, it is hoped that, from now on, retail investors will be able to better understand and more easily compare similar products.

Since several directives already cover product disclosure, the Regulation is complementary to measures in the Insurance Mediation Directive (IMD), the UCITS Directive and MiFID II, while it will be directly applicable from 31 December 2016 without the need for implementing legislation. As such, Member States will not have the ability to put their own interpretation on the provisions. Given that, manufacturers of PRIIPs and those advising or selling PRIIPs, will have 2 years to prepare before the Regulation becomes applicable.

Given that UCITS KIID requirements have only recently come into force, the Commission is proposing transitional provisions that will permit UCITS funds to continue to comply with the UCITS KIID requirements for five years after the PRIIPs legislation comes into force. Following the expiry of that transitional period and in the absence of any extension thereto, UCITS should become subject to this Regulation. That transitional period should also apply to management companies, investment companies and persons advising on, or selling, units of non-UCITS funds when a Member State applies rules on the format and content of the key information document, as laid down in Articles 78 to 81 of Directive 2009/65/EC, to such funds.