EUROPE: CESR publishes guidance on KII Document

Wednesday December 22 2010

CESR has published a series of documents with respect of the Key Investor Information Document ahead of the implementation deadline of June 2012.

The documents are:

* Guidelines on the Selection and presentation of performance scenarios in the Key Investor Information document (KII) for structured UCITS,

* Guidelines on transition from the Simplified Prospectus to the Key Investor Information document,

* A guide to clear language and layout for the Key Investor Information document,

* A template for the Key Investor Information document, and

* A Feedback statement on CESR `s level 3 guidelines on the selection and presentation of performance scenarios in the Key Investor Information document (KII) for structured UCITS

Guidelines on the selection and presentation of performance scenarios for Structured UCITS

Structured UCITS must include in their KII documents illustrations of at least three scenarios of potential performance – to show the circumstances in which the formula may generate a low, a medium or a high return, including, where applicable, a negative return for the investor.

In order to ensure comparability between structured UCITS, CESR has developed guidelines with a view of harmonising the selection and presentation of scenarios. The guidelines cover the factors to be taken into account when choosing the scenarios, such as the features of the formula (e.g. a knock-out feature or a guarantee with a conditional floor) and on the link between the market conditions and the outcome for the investor. There is also guidance on how the scenarios themselves should be presented, including on the choice between using tables or graphs. The Annex to the Guidelines contains examples of performance scenarios using a table- or graph-based presentation.

Guidelines on the transition process from Simplified Prospectus to KII

These guidelines contain some practical implications of Article 118(2) of the UCITS IV Directive, under which Member States may allows UCITS management companies up to 30 June 2012 to implement the Key Investor Information (KII) Document.

The transitional period will give UCITS time to use up their existing stocks of simplified prospectuses (SPs) and prepare replacement Key Investor Information documents. Member States can decide whether or not to allow UCITS established in that State up to 12 months (i.e. until 30 June 2012) to implement the KII. However, a Member State cannot restrict the rights of inwardly notified UCITS if their home State allows a transitional period.

In the effort to avoid consumer confusion and balance the costs to be borne by the management companies, these guidelines set out appropriate approaches for various instances including when launching a new UCITS Sub fund, adding a share class and passporting UCITS into another Member State.

A guide to clear language and layout of the KII Document

This guide describes ways of meeting the regulatory objective for Key Investor Information (KII) to achieve the clarity and simplicity of presentation that is required by retail investors.

CESR has expressly stated that this guide is intended as a statement of good practice. It does not constitute binding guidance on UCITS or their management companies.

The guide covers details on how to design a KII Document and information on each section of the Document and a guide to Plain language requirements.

KII Template

CESR has developed a template which for the KII Document whichshows the type of contents and layout that UCITS management companies would be expected to follow for a standard UCITS.

Feedback statement on CESR `s level 3 guidelines on the selection and presentation of performance scenarios in the Key Investor Information document (KII) for structured UCITS.

In this document CESR gives feedback on the responses received to the consultation on level 3 guidelines on the selection and presentation of performance scenarios in the Key Investor Information document for structured UCITS published in July 2010.

The main changes made to the guidelines involve additional clarification on the circumstances in which the scenarios should be updated, as well as clarifying the link between the outcome from the investor `s perspective and the market conditions.