The Key Information Document
- What is a Key Information Document?
- Who must prepare the KID?
Manufacturers of PRIIPs and any entity which makes changes to an existing PRIIP must prepare a KID and publish it on their website. The Regulation suggests that fund managers, insurance undertakings, credit institutions and investment firms are to be regarded as PRIIPs manufacturers, because they are in the best position to know the product.
- Who must deliver the KID?
A person advising on or selling a PRIIP must provide the retail investor with the KID on paper or using a durable medium, and in good time before the retail investor contracts for a PRIIP.
The fact that the KID is available on the manufacturer’s website does not exempt the distributor from this requirement. However, the KID can be delivered by way of a website if certain specific conditions are met.
In exceptional circumstances, retail investors may be provided with the KID after they have contracted for a PRIIP.
- How often does the KID need to be updated
A PRIIP manufacturer shall review the information contained in the KID every time there is a change that "significantly affects," or is "likely to affect significantly," the information contained in the KID and, at least every twelve months following the date of the initial publication of the KID. When it is concluded, following such review, that a change needs to be made, the KID shall be revised without undue delay.
- Are there any filing requirements
- Sanctions for breach
- The KID in more detail
The KID must:
- be written in a concise manner
- not exceed three sides of A4, and
- be clearly expressed and use clear, succinct and comprehensible language.
It must be translated into the languages of all EEA member states in which the PRIIP is distributed.
The first section of the PRIIP must describe:
- the type of PRIIP
- its objectives and the means for achieving them eg exposure to particular underlying assets in particular markets etc
- the intended retail investor
- the term of the PRIIP
- (for insurance PRIIPs) key features of the insurance contract, definition of each benefit and examples of overall premium, biometric risk premium and details on frequency of payment.
Click here for the ESA draft KID template.
- Producing the Risks / Return section of the KID
PRIIPs manufacturers are required to produce a risk measure based on market risk and credit risk on the basis of a prescribed methodology set out in the final draft RTS (to be re-issued, please see section titled "The European Parliament rejects final draft RTS"). The market risk measure is allocated according to the volatility of the PRIIP, or the type of PRIIP. Derivatives, for example, automatically fall into category 1 however, will return a risk category of seven on the standard form summary risk indicator with seven risk classes. The risk and return section should also include certain standard narratives eg to warn of liquidity risk and currency risk, where relevant.
- Producing the performance scenarios for the KID
The KID must include a table showing an unfavourable, moderate and favourable performance scenario in respect of the PRIIP. These are forward looking, based on previous volatility data. The KID does not include past performance indicators. New proposals suggest an inclusion of a fourth "Stress Scenario".
- Producing a cost breakdown applicable to the KID
The KID must disclose the impact of total costs and a breakdown of the different types of costs applicable to the PRIIP. This includes:
- one-off costs (eg entry and exit costs)
- ongoing costs (including portfolio transaction costs), and
- incidental costs (eg performance fees).
Costs are presented in two tables showing the amount of costs in absolute terms and as a percentage reduction in yield.
For new PRIIPs, the PRIIPs manufacturer should estimate costs by adopting as proxy a comparable PRIIP or peer group.
This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.