PRIPs/KID Key Issues

Key discussions

The Commission proposal (see below) provides a very good basis for the introduction of a Key Information Document (KID), although in our view it can be improved significantly. The Council has remained rather close to the Commission proposal in its General Approach adopted in June 2013. The European Parliament has voted on rapporteur's final report on 20 November, 2013. Its position contains many improvements over the initial Commission legislative proposal, which echoes a number of suggestions made in Finance Watch’s position and discussion papers on the KID in recent months.

Key issues for trialogue negotiations are:

  • potential enlargement of the scope to extend the KID requirement beyond packaged products only. This would enable a consumer to better compare financial investments within and between asset classes (such as packaged products, insurance products, pension products, or even shares and bonds);
  • the introduction of a health warning or product design rules which would guide manufacturers to create products that are better suited to consumers, and lead to less misselling cases and scandals;
  • improving the content of the two- to four-page Key Information Document itself. Many amendments tabled by MEPs modify Article 8 which defines the content of the KID, and the addition of all this useful information needs to be traded off against keeping the KID short and simple;
  • removal of the summary risk indicator to replace it with a multifactor scenario analysis. This would "force" consumers to look beyond the risk summary indicator (a number between 1 and 7) and better understand the best- and worst-case performance of a fund; and
  • improved disclosure of fee structures. Fund distributors can take fees upfront or annually, but also through in a hardly visible way, through biased distribution of profits (e.g. the fund bears all the losses but only receives only 90% of the gains.)

Commission proposal

The European Commission proposed a regulation on “Key Information Documents for Investment Products”, requiring that product manufacturers provide retail investors with a synthetic information document using plain language before they invest. The aim of this regulation is to make financial information easier to understand and to increase product comparability. We refer to this dossier as “PRIPs” (Packaged Retail Investment Products), as we feel this better covers its content.

In response to decreased consumer confidence in the financial sector and increased complexity of financial services, the European Commission identified information disclosure to retail investors as one area where action is needed: financial information is often full of technical jargon, too long, not understood by investors, and different across products.

The scope of the proposal is packaged investment products, which include UCITS funds (undertakings for collective investment schemes), non-UCITS funds, insurance products linked to financial markets and other types of structured retail investment products.

Under the proposal, product manufacturers are required to set up a short synthetic Key Information Document (KID), summarizing the key information of a financial product. This document must be distributed to retail investors before they invest.

The KID design is based on a similar document already in use for UCITS, the biggest category of investment vehicle covered by the proposal.

The new KID would help consumers to better understand and compare the risks and costs of products and make more informed and suitable investment decisions.