Regulation (EU) No 1286/2014 of the European Parliament and of the Council of 26 November 2014 on key information documents for packaged retail and insurance-based investment products (PRIIPs).

Definition

A PRIIP can either be:

  1. an investment product where, regardless of the legal form of the investment, 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 which are not directly purchased by the retail investor; or
  2. an insurance-based 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.

A packaged retail and insurance-based investment product or “PRIIP” means a product that is one or both of the above.

The Regulation aims for the creation of a Key Information Document or KID similar to the KIID (Key Investor Information Document) that exists for units of UCITS.

The Regulation targets the PRIIPs, the “manufacturers” (issuers), and the “persons advising on or selling PRIIPs” (distributors).

A PRIIP manufacturer is an entity that manufactures PRIIPs or makes changes to existing PRIIPs including, but not limited to, altering risk and reward profile or investment costs in PRIIPs.

A person selling PRIIPS means a person offering or concluding a PRIIP contract with a retail investor as such investor is defined in MiFID II.

Scope – re: insurance-based products

First of all, this Regulation does not apply to:

  • non-life insurance products;
  • life insurance contracts under which the benefits are payable only on death or in respect of incapacity due to injury, sickness or infirmity;
  • deposits not covered by MiFID II;
  • securities not covered by the prospectus directive (but excluding private placement exemptions); and
  • pension schemes and products.

How we can assist

Manufacturers and distributors have different obligations under the PRIIPs Regulation. It is to the manufacturer to draw the KID and to the distributor to provide it to the retail client. If the manufacturer does not distribute PRIIPs to retail investors, the respective responsibilities have to be clearly determined between both parties.

As for manufacturers, Wildgen can assist them in:

  • checking legal and regulatory compliance;
  • mitigating the high complexity of certain products and issuing consumer friendly KIDs(clear, fair, not misleading, written in plain language, etc.).
  • Furthermore, Wildgen can offer expertise for both manufacturers and distributors regarding:
  • drawing and negotiating Securities Lending Agreements;
  • the classification of investment products.

Conclusion

The Regulation regarding PRIIPs entered into force on the 29th December 2014 and will apply starting from the 31st December 2016.

Many question still need to be answered especially regarding the form of the KID and how (very) complex products may be plainly presented to retail investors.

In this regard, Regulatory Technical Standards are expected to be published, as mentioned above, during the fourth quarter of 2015.