EUROPEAN UNION: PRIIPS Implemented as of 1st January 2018

Thursday January 4 2018

The PRIIPS Regulation has been implemented from 1st January 2018.

The Regulation applies to persons who:

• manufacture PRIIPs
• advise on or sell PRIIPs

A PRIIP manufacturer (or any other person who changes an existing PRIIP, such as a distributor) is required to:

• prepare a KID for each PRIIP that they produce
• publish each KID on their website

A person who advises a retail investor on a PRIIP or sells a PRIIP to a retail investor must provide the retail investor with a KID in good time before any transaction is concluded.  In addition to advisers, this will impact intermediaries such as distributors.

Where the retail investor initiates the transaction by means of distance communications, the KID may be provided after the conclusion of the transaction, as long as it is not possible to provide the KID in advance and the retail investor consents. The retail investor must be told that it is not possible to provide the KID in advance, and that they can delay the transaction in order to receive and read the KID before concluding the transaction.

Financial Conduct Authority (FCA) expect the Regulation to apply to:

• retail investment product providers
• life companies
• discretionary investment management firms
• firms providing services in relation to insurance-based investments
• fund managers
• stockbrokers and other firms that provide advice to retail clients on funds, structured products and derivatives
• financial advisers
• firms operating retail distribution platforms

The Regulation will also apply to persons outside the FCA’s regulatory remit, such as those who are exempt from the need to obtain FCA authorisation.

The Regulation only applies if the PRIIP is made available to retail investors. Retail investors are defined as:

• retail clients defined in the Markets in Financial Instrument Directive, or
• customers as referred to in the Insurance Mediation Directive, where they would not qualify as professional clients under MiFID

A PRIIP is defined as: an investment where, regardless of its legal form, the amount repayable to the retail investor is subject to fluctuations because of exposure to reference values or to the performance of one or more assets that are not directly purchased by the retail investor; or an insurance-based investment product which offers a maturity or surrender value that is wholly or partially exposed, directly or indirectly, to market fluctuations.

The PRIIPs Regulation requires that a KID is a stand-alone, standardised document prepared for each investment. A KID can be up to a maximum of 3 sides of A4-sized paper and may refer to other documents such as a prospectus if the cross-reference is related to the information required to be included in the KID, or refer to where detailed information can be found. A KID may also provide information about underlying options for one product (such as a life policy) within one document.

Each KID will need to contain the following information, presented in a pre-determined sequence of sections. The sections are:

• What is this product?
• What are the risks and what could I get in return?
• What happens if [name of the PRIIP manufacturer] is unable to pay out?
• What are the costs?
• How long should I hold it and can I take money out early?
• How can I complain?
• Other relevant information

The Regulation outlines the layout of the KID. The Regulatory Technical Standards (RTSs) contains detailed rules on:

• the content and presentation of the KID
• how to calculate some of the information in the KID
• the review, revision and republication of the KID
• the timing of delivery of the KID

Please click on the above link for more information.