The PRIIPs regulation which came into force on 1st January 2018 applies across all EU Member states and will affect banking, insurance based investment products and funds. The purpose is to standardise a new Key Information Document (KID), specifically for retail investors. The KID should be short, concise and presented in a manner which is easy to read and understand across a maximum of three pages. This will assist retail investors to review and compare key indicators of products in the market place.
In addition to the KID, there are a further two different templates which utilise results of the KID, these are a European PRIIPS Template (EPT) and a European MIFID Template (EMT) and are a prerequisite of onshore distribution and marketing platforms.
Key comparability content of the KID
The KID will provide information on key comparable areas:
• A Summary Risk indicator on a scale of one to seven
• Performance scenarios
• Cost implication calculations, as defined within the PRIIPS regulation
While the methodologies, albeit complex, are clear, PRIIP providers, specifically in the fund space, are concerned that results are far from an accurate reflection of what an investor may experience. The one size fits all calculation, for example in a favourable scenario, does not take into consideration static or known investment returns, yet still looks to significantly inflate performance, providing highly unlikely, if not impossible astronomical returns.
Equally on the costs and reduction in yield results, the calculation does not allow you to consider where returns provided are already net of costs and therefore costs should not be further deducted.
Do you need to prepare a KID?
In summary, while your offering or marketing document may not be directly marketed, suggesting the PRIIP is more suited towards sophisticated, non-retail investors, if the PRIIP is available to trade via an exchange it is therefore available to retail investors and considered to be indirectly marketed. Our view is that if a PRIIP is available for retail investors to subscribe, for example by way of a traded exchange, a KID should be produced.
Where do I distribute the KID?
When the initial KID is finalised, or future KIDs are updated, they, along with the necessary EPT and EMT, should be communicated to the market via central channels as required;
• National Storage Mechanism
• Company website
• Distribution platforms
• RNS announcements, highlighting that a KID, or updated KID is now available
International Fund Management’s (IFM) experience with KIDs
IFM already provides a similar styled Key Investor Information Document service to clients under the existing UCITS regulation. This experience has enabled IFM to leverage its wider knowledge on the KID requirements and swiftly position itself to assist both in-house and third party clients with the production of KIDs, under the new regulation.
IFM’s KID service offering;
– Creation of the initial KID, including provision of the template document and calculation of the Key Risk indicator, Reduction in Yields calculation and performance scenario analysis;
– Ongoing monitoring of the key information contained within the KID, as a requirement under the PRIIPs regulation, ensuring it remains accurate;
– Completion of interim KID updates as required;
– Annual compulsory KID updates;
– Communication of the KID and its revisions, to all relevant parties including the AIFM and Fund board, to ensure all parties can provide input and approve content.
INTERNATIONAL FUND MANAGEMENT (IFM)
IFM is a Guernsey licensed fund manager and has a strong track record in providing Alternative Investment Fund Management (AIFM) services, principal management, risk advisory and risk reporting services to funds and investment managers since 2006. Part of the PraxisIFM Group, IFM can also provide offshore AIFM services should they be required and has experience in the Private Placement notifications and obligations to a number of EEA jurisdictions. IFM has registered and maintains fund regulatory pipelines for its investors around the world currently including UK, Ireland, Germany, Denmark, Sweden, South Africa, Luxembourg and Denmark.
IFM has a board with significant fund industry and investment experience meaning we can not only provide a strong risk management, advisory and reporting services, but also give valuable input into current regulations and what is happening in the market in relation to these roles and responsibilities.