Revolution in providing information to investors?
In February, the European Supervisory Authorities (ESAs) disclosed the results of a public consultation regarding the essential elements of key information documents (KIDs). These are obligatorily provided to retail investors in compliance with the Regulation on Key Information Documents for Packaged Retail and Insurance-Based Investment Products (PRIIPs). What were the outcomes of the public consultation? Will new duties arise for those who prepare KIDs?
The public consultation, held under the patronage of the ESAs at the end of 2018, dealt with potential modifications to the essential elements of key information documents, which are provided to retail investors before they invest their funds in structured retail investment products or insurance-based investment products. They include, among other things, the definition of the type of investor for whom the given product is intended, the risk profile of a product and information on the costs that investors have to bear. KIDs have a highly unified format and their length may not exceed three A4 pages. KIDs need not currently be prepared for standard investment funds. This exception will cease to apply at the end of 2019.
In their report, the ESAs propose a number of changes to the essential elements of KIDs, especially the introduction of standardised and exact wordings. Even though at the beginning of the public consultation ESAs also proposed other changes, e.g., the inclusion of product performance scenarios in the essential elements, these changes will not be incorporated in the final version after taking into account the opinions of the professional public.
The ESAs will also propose that the scope of provided information be extended by performance fees, i.e. fees paid by investors only where instruments meet performance criteria. Another proposal is to take into consideration the specifics of products containing autocallable features where it cannot be determined in advance when they will be redeemed.
Since the exception for standard funds is coming to an end, the ESAs have also prepared motions to amend PRIIPs. These derive from current information documents used with standard investment funds and include, for example, the specification of the name of a supervisory body issuing a permit to an investment company managing a standard fund, or the specification of the name of a group to which the investment company belongs.
It remains to be seen which structural changes to KIDs will finally be approved. Considering the public consultation’s results, changes may actually affect all products that currently require KIDs.