PRIIPs

Regulation 1286/2014 on the provision of Key Information Documents (KID) for Packaged Retail and Insurance-based Investment Products (PRIIPs) came into force on 29 December 2014 – although it will not apply in Member States until 31 December 2016 – so giving impacted firms sufficient time to put into place necessary changes to processes and procedures.  Being a Regulation, rather than a Directive, the rules will have a direct effect on Member States without the need for any individual legislation within each State.

The Regulation will apply to both those persons advising on, or selling, PRIIPs and to PRIIP ‘manufacturers’.  The definition of the latter isn’t that well defined (“any entity that manufactures PRIIPs … or makes changes to an existing PRIIP…”), although Recital (12) does reference “PRIIP manufacturers – such as fund managers, insurance undertakings, credit institutions or investment firms …”.

The intention of the Regulation is to make available adequate, and consistent, information to a retail investor before investment; Articles 6 to 8 sets out the required form and content of the KID, including the requirement that it should consist of a maximum of three sides of A4-sized paper when printed.

A PRIIP, which is not quite the same as the ‘Retail Investment Product’ or the ‘Packaged Product’ that both appear in the FCA Handbook, is defined in Article 4 and is broadly ‘a product’ that is exposed to market fluctuations, so a ‘fund’ would be captured but not an individual share.  Certain products are specifically excluded from the definition of a PRIIP (Article 2) including pension products, occupational pension schemes and deposits.  It will be noted from Article 4 that a PRIIP can be either a Packaged Retail Investment Product or an Insurance-based Investment Product (or both).

Penalties for infringement of relevant Articles can be an ‘administrative fine’ of at least up to €5m for a legal entity (€700k if a natural person) or up to twice the amount of the relevant profits gained or losses avoided.

As mentioned above, the Regulation applies from 31 December 2016.  However there is an extension to 31 December 2019 for UCITS Management Companies (Article 32); the extended time frame reflects the fact that UCITS schemes are already required to have something similar – a Key Investor Information Document (KIID) (see COLL 4.7.2).  Having said that, the Commission is required to review the situation by the end of 2018 to see whether this transitional arrangement should be prolonged or whether the KID should replace the KIID.