EUROPE: EC publishes KII disclosure report

Monday July 13 2009

The UCITS IV directive will see the replacement of the current Simplified Prospectus for UCITS funds with a new form of disclosure entitled Key Investor Information (KII).

The KII is intended to be a concise and focused presentation of the information which it is important for a prospective investor in a UCITS fund to be aware of. The intention is that this core document can be used virtually unchanged across Europe, with the ultimate goals of both maximising investor protection and improving the single market in UCITS.

The EC has published a report entitled “UCITS Disclosure Testing Research Report” which details findings of a research project designed to provide input from both consumer and intermediaries into the way in which information should be presented in the KII document.

The KII is intended to be strongly led by investor testing so that it responds to both investor need and ability to comprehend/use information which in turn will maximise its contribution towards informed decision-making in the market.

The project took place in two phases; the first exploring presentation options for the individual elements of disclosure to be contained with the KII while the second aimed to assess opinions and understanding of complete mocked-up KII documents.

The published report summarises the overall findings from the research programme but focuses in particular on the findings from the second phase which consisted of 3 key elements:

* An online quantitative survey of individuals who have recently taken out a UCITS product or who plan to do so in the near future;

* Qualitative telephone depth interviews with intermediaries responsible for selling UCITS Products

* Qualitative telephone depth interviews and face-to-face group discussions with individuals who have recently taken out a UCITS product or plan to do so in the future (either the near future or the medium-term).

The overall findings of the report conclude that the KII is an improvement on the pre-sales information that is currently available.

The survey also highlights the following key characteristics of consumers while examining the documents :

* Heavy reliance on the Sign-Posting of each section

* Technical financial terms are not well received

* Lack of Investor Education leading to confusion between investment and capital guarantee

* Investors are unaware as to when they could withdraw their money

* Investors give most attention to the term risk itself and it maybe necessary to align this so as risk and rewards are collectively understood.

Click on the above link to download the report.