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PRIIPs and PRIIPs KID Update

PRIIPs and PRIIPs KID Update
  • United Kingdom
  • Financial services - Asset managers and funds


Packaged Retail Investment and Insurance Products (PRIIPs) is an umbrella term which covers a number of financial products that might be sold to retail investors.

As highlighted in our earlier briefing on 3 February 2015, the PRIIPs KID Regulation (the Regulation) introduced a new, EU-wide disclosure standard, the Key Information Document (KID). The KID must be provided to retail investors from 31 December 2016 (the Effective Date), although four European trade associations have recently written to the European Commissioner, Jonathan Hill, to request a one year delay to the introduction of the PRIIPS KID (to coincide with the expected delay to MiFID II).  Given the close link between the PRIIPs proposals and MiFID II  the very short amount of time available for providers to develop their KID  this does seem to be a sensible proposition.

Background of the PRIIPs regime

The PRIIPs regime’s origins date back to 2007 so it is relatively novel in today’s climate in that it wasn’t prompted directly by the financial crisis. However, the regime now forms part of a tranche of EU measures aimed at a regulatory convergence of investor protection standards for retail clients, particularly with respect to sales and distribution.

Most of this legislation comes in the form of supplements to existing sector-specific regimes, most notably the Markets in Financial Instruments Directive (Recast MiFID) and MiFID II as well as the Insurance Distribution Directive (IDD (formerly known as the Insurance Mediation Directive)).

However, by contrast, the Regulation is unusual in that it cuts across traditional financial services sectors, creating an entirely new common framework. This approach was favoured due to recognition that PRIIPs – products including investment funds, life insurance-based investment products and structured term deposits – could have similar outcomes, strategies and risk profiles, but have, until now, been subject to different pre-contractual disclosure rules.

Where are we in the legislative process?

The regime is to be implemented by way of the Regulation and Regulatory Technical Standards (which have been drafted and published by the European Supervisory Agencies (ESAs) and are to be finalised and adopted by the European Commission) (the Final RTS) that directly address and bind EU citizens, businesses and member states. This reduces the risk of regulatory arbitrage and should ensure a high level of uniformity in implementation.

The Regulation was published in December 2014, setting out the scope, framework and timetable for the regime, and the high-level form and contents of the KID. The Final RTS, which look at the KID in greater detail, were published on 7 April.

We would expect the Final RTS to be adopted 3 months after publication (ie early July 2016). In addition, the ESAs have stated that they will be producing Q&As and other guidance. Within the funds world we hope that the European Securities and Markets Authority (ESMA) will also be proactive in providing practical guidance to firms as they build their solutions. There are clearly a number of areas where more detail will be needed, and quickly, if manufacturers are to achieve the planned deadline for implementation.

Scope of the Regulation

A KID needs to be prepared only where an in-scope product is being sold to retail investors (institutional-only business does not require the KID). The obligation to produce the KID rests with the “product manufacturer”, and they are the person who either originates the product or makes changes to an existing product that alter its risk profile or the costs associated with it.

Whether a product is in scope can be determined by considering whether it falls within the broad definition of a PRIIP and then whether any of the exclusions and transitional arrangements apply.
In scope

"PRIIP" is actually a two-in-one definition incorporating packaged retail investment products and insurance-based investment products. Its two components are themselves separately defined in the Regulation:

"packaged retail investment product" means “an investment, including instruments issued by SPVs... where, regardless of the legal form of the investment, the amount repayable to the investor is subject to fluctuations because of exposure to reference values or to the performance of one or more assets which are not directly purchased by the investor”

"insurance-based investment product" means “an insurance product which offers a maturity or surrender value and where that maturity or surrender value is wholly or partially exposed, directly or indirectly, to market fluctuations”.
There are a number of products explicitly excluded from these definitions. In summary these include:

  • non-life insurance products
  • pure protection products (with no surrender value)
  • (non-structured) deposits
  • vanilla shares
  • government bonds
  • pensions products recognised by Member States as retirement vehicles.

The following products are therefore likely to fall within the definition of a PRIIP:

  • collective investment schemes
  • life insurance-based investment products
  • market-exposed, structured securities
  • market-exposed, structured term deposits
  • derivatives
  • certain corporate bonds

Transitional provisions

UCITS funds, although falling within the definition of a PRIIP, are specifically excluded for a period of five years after which they will fall under the regime (unless the period is extended or UCITS KIIDs found to be equivalent to PRIIPs KIDs).

Those non-UCITS funds which are permitted by their regulator to produce a UCITS KIID-equivalent document may also be able to benefit from this transitional period (as long as their regulator continues to permit that concession). Therefore UK NURS could also be out of scope as long as the FCA continues to allow the modification by consent for ‘NURS KIIs’ which may be thought to benefit from the transitional.  We expect this to be a point that the FCA will address in the consultation paper(expected later this year). It also remains to be seen whether providers of non-UCITS funds that could benefit from this exemption will be able to choose to adopt the PRIIPs KID early.

What do we know about the form and content of the KID?

The Regulation more or less defines the framework for the KID, and is supplemented by the RTS. We now have a roadmap for the creation of the KID although the Q&As should further assist with implementation.

Form and layout

The KID must be formed of a maximum of three sides of A4, remaining easy to read and using characters of a legible point size. It must also use clear and understandable language.
The document will be standalone and must be separate from marketing materials, though it can use corporate branding and the product manufacturer’s (or its group’s) livery.
The order and content of the document is heavily prescribed.

Industry template

The Final RTS incorporates a “compulsory template”.  This was anticipated to be a very useful tool though in practice it does little more than set out the mandatory titles from the Regulation on a word processed layout. Although there is some clarity in the Final RTS as to how rigidly the template must be followed (e.g. section order and titles are compulsory, page breaks are not),  it has not been made clear which other attributes of the template are compulsory (e.g. layout, style and emphasised text). Further information and developments on these points are highly anticipated.

Multi-option products

Product manufacturers have a choice in how they produce the KID where the same core product has a number of investment options for the investor. The manufacturer can choose either to produce a complete KID for each option or a single, generic KID and a supplemental document explaining the options (by way of either a series of tailored pages or a guide to the options). This may be extremely useful in some contexts and further information is eagerly awaited from the ESAs. In the table below, we have set out the expected requirements for the contents of the KID at the time of writing.

Section of the PRIIPs KID

What will be included


The label “Key Information Document” must appear at the top of the first page.

Explanatory statement

A prescribed statement setting out the purpose of the document is to be included.

Product manufacturer information


The product (and its International Securities Identification Number (ISIN) or other identifiers), information on the product manufacturer, its contact details (including a website and telephone number) and its regulatory authorisations. The date that the document is published or revised should also be included.

Comprehension alert

If the product might be difficult to understand, a comprehension alert must be included. This states that the investor is about to purchase a product that is not simple and may be difficult to understand.


Please note: it currently is not clear when firms should be using the alert. Further guidelines on this are expected.

What is this product?

What the product is, its objectives, its typical investor profile, how its rate is calculated and return.

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

A summary risk indictor (SRI), a diagram that combines market risk and credit risk on a 1-7 scale. Other risk factors not captured by the SRI have to be explained in words (including liquidity risk). The methodology to determine the SRI varies from product to product.


Manufacturers also have to provide at least three “performance scenarios” that are performance projections based on an investment of ten thousand euros over the PRIIP’s minimum recommended holding period as well as up to two shorter durations. The scenarios are to cover “unfavourable”, “favourable” and “moderate” market conditions which are calculated using a formulaic method.  

What happens if [name of the PRIIP manufacturer] is unable to pay out?

Description of whether the investment is covered by a compensation scheme and, if it is, details about the scheme, including the name of the guarantor/scheme and which risks are covered/excluded. 

What are the costs?

A summary of costs including ongoing and one-off costs, including the compound effect of these. These are presented in two costs disclosures tables.

  • The first sets out costs in monetary terms, aggregates them and then states a reduction in yield figure based on some assumptions.
  • The second sets out costs in percentage terms in a way similar to the UCITS KIID.

Please note: this approach has been developed with the aim of being compliant with MiFID II cost disclosure requirements. However, some sections such as transaction costs are inherently difficult to quantify, and the RTS states how these are to be quantified or approximated for the purposes of the KID.

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

The minimum recommended holding period and the consequences of cashing in early.


Please note: the minimum recommended holding period is extremely prominent in the KID being repeated a number of times and forming the basis of performance and costs disclosures.

How can I complain?

Practical information on making complaints.


Please note: UK houses may be able to copy from their existing COBS disclosures although an email address for complaints must be included.

Other relevant information

Information on additional documents that are available to the investor (either pre-contract or post-contract).

What are the rules on providing KIDs to investors?

Although the KID can be provided after execution in certain circumstances, such as long-distance contracts, the KID is primarily a pre-contractual document.

It must generally be provided in “good time” before execution, meaning sufficiently early for the retail investor to read and consider the KID before being bound by a contract. What this will mean in practice will depend on the retail investor in question – taking into account their knowledge and experience, the complexity of the PRIIP and the urgency for the investor to conclude the purchase, for instance.

These considerations are apparently completely independent of MiFID II suitability and appropriateness tests. Additionally, it is not clear how relevant these considerations are in the context of execution only transactions.

We note the importance of “providing” the KID, which means that, although publication on a website is required, simple publication cannot be relied on in itself to satisfy the disclosure requirements. This is true of any other passive/broadcast distribution methods.

The emphasis will be on active distribution. 

How often does the KID need to be updated?

KIDs must be reviewed at least annually but ad hoc reviews will be required where there are changes made to the PRIIP that might affect information in the KID.

Following a review, the KID must be revised if it is no longer accurate, fair or clear, not misleading or otherwise not compliant with the Regulation.

Any revision triggers an update to all of the information in the document, and the revised document must be published without undue delay on the product manufacturer’s website.

The PRIIPs’ KID is the culmination of almost a decade of politics, consultation and consumer testing. The regime’s aims are more ambitious now than at its conception and the unprecedented level of regulatory convergence is perhaps indicative of the direction of travel for EU financial services regulation. 

During this time, the form and content of the KID have been hotly discussed and the Regulation and the Final RTS that has been published (which should be adopted in early July 2016) does help. However, a number of areas require more detail.

As mentioned above, the ESAs will be producing Q&As and other guidance but there is no indication of the timelines for this. Affected firms therefore have a little under seven months to digest the final rules and create their KIDs in order to comply before 31 December 2016.