The aim of the PRIIPs (Packaged Retail Investment and Insurance-based Products) European regulation is to standardise pre-contractual information regarding packaged financial products (investment funds, derivatives, life insurance-based investment products, etc.) offered to non-professional investors (as defined by MiFID II).
The Regulation requires the product manufacturer to produce a standardised “Key Information Document” (KID) containing the necessary basic information to enable retail investors to understand the product (whether it is a financial, banking or insurance product), and to compare products.
The products concerned are:
- Investment products for which the amount repayable to the investor is subject to fluctuations depending on reference values or on the performance of one or more underlying assets.
- Insurance products exposed to market fluctuations.
- Packaged products (securitisation vehicles, structured bonds, UCITS and AIFs, derivatives, structured deposits, SPVs, etc.).
However, the following are exempt from producing a PRIIPs KID until 31 December 2019:
- UCITS producing a UCITS KIID at 31 December 2016.
- AIFs already producing a UCITS KIID on the basis of their domestic law, which is the case of France.
However, as soon as the PRIIPs Regulation comes into force1, they will have to provide some information when they are part of other investment vehicles (funds of funds and unit-linked products) which are required to produce their own PRIIPs KID.
1 Initially scheduled for 31 December 2016, and postponed until 1 January 2018 if the Council of the European Union confirms the vote of the European Parliament.
Challenges and opportunities for AIFMs:
There are a number of differences between the PRIIPs KID and the UCITS KIID:
- The PRIIPs KID is a three-page document in A4 format along the lines of the UCITS KIID into which new information obligations have been integrated: estimated transaction costs, recommended holding period, performance calculated net of costs and a presentation of three types of projected performance scenarios (unfavourable, moderate and favourable) to give investors an indication of the projected return over the recommended holding period.
- The calculation of the market risk indicator is also more complex in the case of the PRIIPs KID. This indicator is rated on a scale of 1 to 7 depending on the product’s complexity. It is produced by combining the market risk (on the basis of the Value at Risk calculation) with the credit risk.
- The PRIIPs KID must be updated at least once a year, or whenever there is a substantial change.
The CACEIS services range will be adapted according to progress in discussions between the European bodies, in particular with the RTS as finally determined and accepted by the European Parliament.
The range will include, in particular:
- Producing, translating and distributing PRIIPs KIDs.
- Providing, in accordance with market standards, the data needed by insurance companies to produce their own PRIIPs KIDs.
- Regulation EU 1286/2014 was published on 9 December 2014 in the Official Journal of the European Union.