EUROPE: Concerns on Key Investor Information Document

Friday September 24 2010

The Committee of European Securities Regulators (CESR) has published feedback statements to four of its consultations on the UCITS Key Investor Information Document.

The Consultations were in relation to:

* CESR `s template for the Key Investor Information document;

* Guide to clear language and layout for the Key Investor Information document (KIID);

* CESR `s Guidelines for the transition from the Simplified Prospectus to the Key Investor Information document; and

* Level 3 guidelines on the selection and presentation of performance scenarios in the Key Investor Information document (KIID) for structured UCITS

The consultations attracted a total of 63 responses from various stakeholders including Industry Bodies like the Investment Management Association (IMA) and the European Fund and Asset Management Association (EFAMA).

While both the IMA and EFAMA welcomed the new KIID documents, specific concerns were raised.

In relation to the Template of the KIID, EFAMA noted that the proposed template did not include all the compulsory items required in the regulation for each specific type of fund (e.g. specific information about share classes, fund of funds, feeder UCITS).

The IMA and EFAMA were unanimous in expressing regret to the fact that CESR has not included examples of “real” information in the template and, or, produced a “mock-up” of such a document, as promised in CESR `s technical advice to the European Commission on the format and content of Key Information Document disclosures for UCITS dated 19 April 2010.

In regards to the use of clear language and the size of the KID, both EFAMA and IMA thought that the translation of the KID to another language could lead to an inevitable increase in the size of the document as the current proposals are based on the use of English.

In view of the requirement for the Management Company to provide the same type of document in the UCITS home and in the host Member States, if a Member State chooses to implement early the KIID, some EFAMA members believed that the use of the KIID on a cross border basis should also be allowed prior to the official implementation date of 1 July 2011.

In a statement issued by the IMA, Julie Patterson, Director of authorised funds and tax at the IMA said:

“We support a harmonised document for ordinary investors and agree this should be the benchmark for disclosure for all retail investment products.

“However, we call upon CESR to address three key concerns. The uninformative risk rating, the retention of performance history for merged funds and the KIID `s small print format. Changes are needed in these areas to ensure the KIID gives the best possible information to investors.”

Ms Paterson also raised about the small print saying that: “Since CESR requires the KIID to fit onto two sides of A4, firms will inevitably have to display the required information in small print. Consequently, graphs and numbers will stand out unnecessarily. This small print format will make it even less likely that investors will read important information about the fund.”