PRIIPS (Packaged Retail Investment and Insurance-based Products)

Overview

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.

Regulation (EU) 2019/1156 of 20 June 2019, which supplements the Directive (EU) 2019/1160 of 20 June 2019, extends the KID PRIIPs exemption for UCITS funds until 31 December 2021.

European Commission Regulation (EU) 2019/1866 of 3 July 2019 extends the KID PRIIPs exemption for UCITS funds until 31 December 2021.

This Regulation now confirms that the extension of the UCITS derogation until 31 December 2021 also applies to non-UCITS funds (AIFs).

The text gave the European Commission until the end of 2019 to revise the PRIIPs Regulation. The consultation on the amendments to the Regulation was published on October 16th 2019.

Main provisions

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.

POINT OF ATTENTION

The European Parliament's Committee on Economic and Monetary Affairs of 3 December 2018 on the cross-border distribution of funds approved a two-year extension of the exemption for UCITS provided for in the PRIIP Regulation.

This would postpone the implementation of KID PRIIPs for management companies until the end of 2021.

Note: funds that do not currently have the obligation to publish a DICI must already have set up a PRIIPs KID (in particular foreign retail AIFs).

Challenges and opportunities for AIFMs

MAJOR IMPACTS

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.

CACEIS SOLUTIONS

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.

More information

Regulation EU 1286/2014 was published on 9 December 2014 in the Official Journal of the European Union.