PRIIPs – PRIIPs KID

The EU Regulation for Packaged Retail and Insurance-based Investment Products (PRIIPs) aims to enhance investor protection by introducing the Key Information Document (KID), a new type of investor information document designed to enable investors to compare investment products easily even if they are of different types.

Who does the regulation affect?

All alternative investment funds are covered by the regulation if they are sold to a retail investor as defined in MiFID II – that is, every investor not qualifying as a professional investor OR not having opted to be treated as a professional. This means the investment vehicles that may be subject to the PRIIPs Regulation include funds subject to Part II of Luxembourg’s fund legislation, SIFs, SICARs, RAIFs and other types of non-UCITS fund.

Since January 1, 2018, a KID is required for each subscription to an investment by a family office, high-net-worth individual or even ultra-high-net-worth individual, since the latter are considered retail investors unless they choose to be classified otherwise.

UCITS funds that already have a Key Investor Information Document must adapt the KIID to comply with the PRIIPs KID disclosure requirements by December 31, 2019 at the latest. While the UCITS KIID inspired the PRIIPs KID and they share common characteristics, the two documents address similar topics in a different way, including target market, performance scenarios, risk calculation methodology and cost disclosure.

What should the KID include?

The KID is a short document of a maximum size of three sides of A4 paper. It should include:

• Basic information on the nature and main features of the investment product in question
• The risk and return that investors may expect
• The overall cost arising in making the investment
• Specific information about the product’s manufacturer and regulator

Before creating a KID, the provider of an investment product should consider whether they know the nature of their distribution network, the number of KIDs they will have to produce and maintain, whether they posses the necessary data and infrastructure to do so, and who will be in charge of the production of KIDs.

They need to classify their products, determine where data will come from, and, if necessary, draw up and develop new processes, which may require new data points and calculations. The impact of creating a KID in terms of cost and time should not be underestimated.

1. Assessment

• Expertise and advice on interpretation of the regulation
• Identification of the impact of the regulation on products
• Identification of products in scope, taking into account the client’s distribution model and classification of each product

2. Design of the operating model

• Definition of the appropriate risk calculation methodology based on the product classification
• Identification of key data required and design of data flows between the various stakeholders
• Assessment of market, credit and liquidity risk for each product

3. Implementation

• Drafting and/or legal review of the narratives and disclaimers to be included in the various KID sections
• Calculation or independent review of calculation performed for the risk, performance and costs indicators
• Technical implementation support or complete KID production outsourcing

4. Dissemination

• Legal review/update of contractual arrangements with the various stakeholders including distributors
• Consistency review of marketing documents
• Advice on KID dissemination and revision process

Uniquely in Luxembourg, Arendt’s approach combines legal advice and regulatory and compliance services to meet the growing need of our clients for comprehensive support provided in the most efficient manner.

Access the RCSL Circular 16/02 – concerning reserved alternative investment funds (RAIFs)