Packaged Retail and Insurance-based Investment Products (PRIIPS) is a European Regulation which introduces a Key Information Document (KID) for packaged financial products. An insurance PRIIP is a product offering a maturity or surrender value wholly or partially exposed (directly or indirectly) to market fluctuation.
The KID aims at presenting a summary of pre-contractual information relative to the product and its manufacturer, with special emphasis on risks and costs. The underlying philosophy of the PRIIPS Regulation is comparability between certain financial products; the KID aims at facilitating consumer choice through standardised sections and contents.
Product manufacturers will need to ensure that their KID is accurate, fair, clear and not misleading. The KID shall be consistent with other binding documentation, and clearly separate from marketing materials. A maximum of 3 pages in length, in plain language, comprising the following sections:
- Issuer/manufacturer details, name of competent authority
- Comprehension alert (where applicable) linked to complexity of product
- Product details: type, objective, description of underlying investments, target clientele, insurance benefits if any, term
- Risk/reward profile: summary risk indicator, possible maximum loss, performance scenarios, conditions for returns or performance caps, statement relative to impact of tax
- Investor compensation scheme, if any
- Costs: direct and indirect costs, one-off and recurring, in summary and with indication of total aggregate cost expressed in monetary and percentage terms. The KID will mention that distributors will provide information relative to their costs separately
- Investment horizon and early redemption: cooling-off period, recommended and/or minimum holding period, conditions for redemption before maturity, applicable fees and penalties, consequences of cashing-in before the term or recommended holding
- Complaints procedure and contact information
- Other relevant information
Although paper or durable medium is the default option, KIDs can be made available on the product manufacturer’s website, provided consent has been obtained from the investor (an email address collected from the policyholder will be necessary to evidence access to the internet).
The document shall be reviewed on a regular basis and kept up to date. The KID must be provided to the consumer in good time before any transaction is concluded. A consumer having suffered a loss as a result of a KID being inaccurate or misleading may have a right of redress against the product manufacturer.
The PRIIPS Regulation will enter into force at the end of a two-year transition period by 31 December 2016. The European Supervisory Authorities and EIOPA in particular are busy consulting on the technical requirements of the KID, in particular where multiple investment choices are available within the product. Technical standards are expected after the summer, with further consultation planned for the autumn. Consumer testing is believed to be scheduled for mid-2015.