Regulation 1286/2014 on key information documents for Packaged Retail and Insurance-based Investment Products
On 3 July 2012 the Commission adopted a proposal for a regulation for a new Key Information Document (KID) to be produced by investment product manufacturers and provided to retail customers when they are considering buying investment products. It aims to enable retail investors to understand and compare the key features and risks of the PRIIPs.
The PRIIPs Regulation applies to the manufacturers and persons advising on or selling financial products.
- Packaged retail investment product means an investment 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.
- Exemptions: Non-life insurance products, life insurance contracts where the benefits provided by the contract are payable only in the event of death or disability due to an accident, illness or disability, deposits other than structured deposits and securities, officially recognised pension schemes, retirement products recognised by national law as having the primary objective of providing the investor with income in retirement, individual retirement products for which an employer’s financial contribution is required.
Drawing up the KID (Key Information Document): Before placing a retail investment product on the market, the investment product manufacturer shall draw up a KID and publish this document on its website. Member States may require the initiator to notify the document in advance to the competent national authority. Before a binding agreement is made, the retail investor shall receive a KID of a maximum of three A4 pages allowing them to take an informed decision and to compare retail investment products as well as insurance products. The KID shall be accurate, fair, clear and not misleading. It shall be a stand-alone document, clearly separate from marketing materials, and be compatible with any binding contractual document.
Complex products: Some of the investment products covered by the scope of the regulation are not simple and may be difficult for investors to understand. This is why Parliament has ensured that investors receive, when necessary, the following notice: “You are about to purchase a product that is not simple and which may be difficult to understand”.
Responsibility in the case of losses: The text foresees that if a retail investor shows that they suffered a loss through the use of the KID by investing in the retail investment product for which the KID was produced, this retail investor can seek redress from the initiator of the investment product for this loss, under the provisions of national law.
Complaints: Retail investors shall have an effective way of submitting a complaint against the initiator of an investment product based on insurance. Effective redress procedures shall also be available to retail investors in the event of crossborder disputes.
Penalties: The competent authorities designated by the Member States shall have the power to impose penalties such as the suspension or prohibition of the sale of a product, by publishing a public notice and imposing administrative fines of at least EUR 5 000 000or at least 3% of annual turnover in the case of a moral person or a maximum amount of at least EUR 700 000 for individuals.
Application to UCITS and investment funds which already produce a KIID (Key Investor Information Document): Those funds have an exemption period until 31/12/2021.