The new PRIIPS regulation, and what it means for you
It is been over three years now since the European Parliament adopted Regulation (EU) 1286/2014, which covers key information documents for packaged retail and insurance-based investment products (the PRIIPs Regulation)—but it is set to enter into force January (a year later than originally planned). So this is a good time to bring you up to speed on the ins and outs of the Regulation and to explain what it can mean for you.
The PRIIPS Regulation in a nutshell
The PRIIPs Regulation will affect any person that offers a ‘packaged retail investment product’ to retail investors—i.e., non-professional clients within the meaning of MiFID II Directive 2014/65/EU, including, for the avoidance of doubt, high-net-worth individuals and their investment vehicles). Many products qualify as packaged retail investment products which are defined as an investment product where the amount repayable to the retail investor is subject to fluctuations because of exposure to reference values or to the performance of one or more assets not directly purchased by such retail investor. Consequently, also Swiss fund managers (and other financial-services providers in Switzerland) offering interests in collective-investment schemes to retail investors in the European Economic Area (EEA) will be affected by the PRIIPs Regulation. The obligation to comply with the PRIIPs Regulation comes in addition to other (regulatory) requirements that may apply to gain access to markets within the EEA.
The importance of the key information document
Under the PRIIPS Regulation, a Swiss fund manager will be required to provide retail investors in any EEA country with a key information document (KID) before they decide whether to invest in the collective-investment scheme. The PRIIPS Regulation includes detailed requirements for the KID, including that it should:
- be presented and laid out in such a way that it is easy to read
- focus on key information
- be clear, succinct and comprehensible
The KID must also comply with other strict requirements in the PRIIP regulatory technical standards regarding both form and content, including that it incorporates performance scenarios and a risk/reward indicator that in turn requires detailed formulae to be analysed and complied with. If no KID is available, the marketing to retail investors of the product in question is prohibited.
The key information document versus the Basisinformationsblatt
For the Swiss market, it is worth noting that the requirements for a KID will be comparable to the basic information document—Basisinformationsblatt, or BIB—that the Swiss Federal Services Act (Finanzdienstleistunggesetz, FIDLEG) will, in certain cases, require to be prepared in instances were financial instruments are offered to private clients. For clients offering interests in collective investment schemes to retail investors in Switzerland and EEA countries, the requirement to provide for a BIB may be less relevant: under FIDLEG, a KID can be used instead of a BIB for interests that are offered in Switzerland.