Key Information Document – July 2016

Key Information Document Points

Implementation date is 1st January 2017

Aims to enable retail investors to understand and compare key features and risks of packaged retail investment and insurance-based investment products

Applies to most insurance and investment products where return is not guaranteed. Including tax-exempt savings plans, taxable endowments, ISAs, single premium bonds and Holloway contracts

The document must be no longer than 3 sides of A4-sized paper and most of the content will be prescribed

Key Information Document

Companies producing packaged retail investment and insurance-based investment products (PRIIPs) will have to produce key information documents (KIDs) as a result of EU legislation designed to make it easier for retail investors to compare products.

The new regulation lays down uniform rules on both the format and content of KIDs and on the provision of the documents to retail investors. It aims to enable retail investors to understand and compare the key features and risks of the PRIIP.

The Regulation applies to the manufacturers and persons advising on or selling PRIIPs.

The regulation comes into force on the 1st January 2017.

The European Supervisory Authorities (ESAs) have issued a final draft regulatory technical standards document.

Products Covered

• Investment funds
• Insurance based investments
• Retail structured products, including structured deposits
• Derivative instruments and contracts for differences
• Instruments issued by special purpose vehicles
• However, it will not apply to the following products:
• Investment products where return is completely guaranteed and known beforehand
• Pure protection or general insurance products
• Directly held shares and bonds
• Deposits which are not structured
• Pension products

This means that tax-exempt savings plans, taxable endowments, ISAs, single premium bonds, Holloway contracts will fall within the new regulation.

Overview

The key information document is a stand-alone pre-contractual document. It must be accurate, fair, clear and not misleading. It must be a maximum of three sides of A4-sized paper when printed and must be presented and laid out in a way that is easy to read.

The PRIIP manufacturer must review the KIDS documentation at least every 12 months or if there is a change that significantly effects the information contained within the KID.

Content

An outline of the content of the KID is given below with the prescribed headings shown in bold.

General Information

• Name of the product
• Legal name of PRIIP manufacturer
• Manufacturer website / contact details
• Name of authority responsible for the supervision of the PRIIP manufacturer
• Date of the current version of the KID

What is this product?

• The type of the PRIIP
• Its objectives and how this is achieved
• The consumer type the product is intended to be marketed for.
• Details of any insurance benefits
• Maturity date or an indication that there is no maturity date
• Advise as to whether the manufacturer can terminate the product
• Description of the circumstances under which the PRIIP can be terminated

What are the risks and what could I get in return?

• A summary risk indicator (SRI) scale 1-7 with 7 deemed to the highest risk together with a narrative explanation of the indicator
• The SRI must be derived using an assessment of the market, credit and liquidity risk of the PRIIP. The SRI may vary with term for the same product
• Description of the PRIIPs risk and reward profile with a warning, where this is the case, that the risk of the product if not held until maturity or the recommended holding period may be significantly higher than the one represented in the SRI
• Indication whether the investor is exposed to any materially relevant liquidity risk
• Three investment performance scenarios (unfavourable, moderate and favourable) based on statistical analysis of investment returns
• A performance scenario should be included if significant risk of loss is not covered by the main three scenarios
• Table showing the three possible monetary returns at the end of the recommended holding period net of costs and at interim periods allowing for any exit charges.
• Additional scenario for Insurance based products reflecting the insurance benefits the beneficiary receives when a covered insurance event occurs
• An indication of the possible maximum loss and whether additional investment payments may be required and the total loss required and the total loss may significantly exceed the total initial investment

What happens if the PRIIP manufacturer is unable to pay out?

• Indication of whether the Investor may face a financial loss due to the default of the manufacturer
• Clarification whether the loss is covered by any investor compensation scheme and whether there are any limitations.

What are the costs?

• Details of all costs associated with an investment in the PRIIP. Presented by means of summary indicators of these costs in both monetary and percentage terms
• Tables showing the how the costs vary over time and the composition of the costs split into one-off costs, recurring costs and any relevant incidental costs
• For insurance based products, a narrative explaining the impact of the insurance benefits of the product on the returns of the investment

How long should I hold it and can I take money out early?

• Indication of the recommended holding period; and the reasons for the selection of the period.
• Details of any required minimum holding period.
• The ability to disinvest before maturity, including all applicable fees and penalties.
• Information about the potential consequences of cashing in before the end of the term or recommended holding period.

How can I complain?

• Information about how the Investor can lodge a complaint about the product or the conduct of the PRIIP manufacturer or the person advising on, or selling the product
• Link to relevant website for such complaints
• Up-to-date postal and an email addresses

Other relevant information

PRIIP manufacturers may include a summary of any relevant additional information or provide website links to other relevant documents

FCA view

• The FCA will supervise compliance with the regulations.
• The FCA is considering what changes to the FCA handbook are needed
• This might include deleting or amending disclosure requirements to ensure they do not duplicate or conflict with the PRIIP requirements
• They are also considering maintaining some disclosures requirements in the FCA handbook that go beyond what is required by the PRIIPs regulations, where permitted by the regulation and where they provide additional useful information for consumers.

What Next

• The ESAs will be developing detailed guidance on the methods to follow for the calculation of the SRI, the performance scenarios, and the cost information to be included in the KID
• The ESAs also plan to issue detailed ‘FAQs’ to aid in interpretation and to develop supporting level three guidelines.
• The FCA plan to consult on amending the FCA Handbook to reflect the PRIIPs regulation.
• SDA will review the draft technical standards and agree with clients the action plan necessary in order to meet the implementation deadline.