PRIIPs Key Information Document Will Dibble/Michael Cavers CMS 16 December 2015 Key Information Document (KID) Obligation - Regulation (EU) No. 1286/2014 on key information documents for packaged retail and insurance-based investment products (PRIIPs) - “Before a PRIIP is made available to retail investors, the PRIIP manufacturer shall draw up for that product a key information document in accordance with the requirements of this Regulation and shall publish the document on its website” (Article 5(1)) - The Regulation shall apply from 31 December 2016 2 Key Elements from the Regulation (1) - KID must be: • Accurate • Fair • Clear • Not misleading - KID shall be a stand-alone document, separate from marketing materials - May not contain cross-references to marketing material but may contain references to other documents including a prospectus and only where the cross-reference is related to information required to be included in the KID by the Regulation 3 Key Elements from the Regulation (2) - Short document written in a concise manner - Maximum of three sides of A4-sized paper when printed - Be presented and laid out in a way that is easy to read, using characters of readable size - Focus on the key information that retail investors need - Be clearly expressed and written in language and a style that communicates in a way that facilitates the understanding of the information, in particular, in language that is clear, succinct and comprehensible - If colours are used, they shall not diminish the comprehensibility of the document if the KID is then photocopied or printed in black and white - Corporate branding or logos of the PRIIP manufacturer or the group to which it belongs shall not distract the retail investor from the information contained in the document or obscure the text 4 Language and translations - The KID shall be written in the official languages, or in one of the official languages, used in the part of the Member State where the PRIIP is distributed, or in another language accepted by the competent authorities of that Member State - Where written in a different language, it shall be translated into one of these languages - The translation shall faithfully and accurately reflect the content of the original KID - If a PRIIP is promoted in a Member State through marketing documents written in one or more official languages of that Member State, the KID shall at least be written in the corresponding official languages 5 KID Format Overview - Article 8 of the Regulation sets out certain requirements as to the format of the KID - The title “Key Information Document” shall appear prominently at the top of the first page of the KID - An explanatory statement in a prescribed form shall appear directly under the title of the KID - “This document provides you with key information about this investment product. It is not marketing material. The information is required by law to help you understand the nature, risks, costs and potential gains and losses of this product and to help you compare it with other products.” - Further requirements are subject to regulatory technical standards 6 Joint Consultation Paper on PRIIPs Key Information Documents - On 11 November 2015 the Joint Committee of the European Supervisory Authorities published a joint Consultation Paper in relation to draft regulatory technical standards with regard to PRIIPs Key Information Documents (the “draft RTS”) - Comments on the Consultation Paper are requested by 29 January 2016. - Once feedback is received on the Consultation Paper, the draft RTS and accompanying impact assessment will be submitted for endorsement by the European Commission by 31 March 2016. - Relate to three Articles under the PRIIPs Regulation namely: • the presentation and content of the Key Information Document (KID), including methodologies for the calculation and presentation of risks, rewards and costs within the KID • the review, revision and re-publication of KIDs • the conditions for fulfilling the requirement to provide the KID in good time 7 There is a Template! - PRIIP manufacturers shall comply with the section order and titles set out in the template. - This does not fix parameters regarding the length of individual sections and the placing of page breaks. 8 Template of Key Information Document 9 At the beginning of the KID - Name of the PRIIP assigned by the PRIIP manufacturer - PRIIP ISIN or any other universal identifier, where available - Legal name and contact details of the PRIIP manufacturer - PRIIP manufacturer’s specific website address providing retail investors with details of how to contact a PRIIP manufacturer, or a telephone number - Name and the Member State of the competent authority of the PRIIP manufacturer - Date of production and of any subsequent revision of the KID - Where applicable, a comprehension alert which shall read “You are about to purchase a product that is not simple and may be difficult to understand” 10 What is this product? (1) - Type of PRIIP by reference to the legal form taken by the PRIIP and, as appropriate, may be supplemented by the classification of the PRIIP as may be commonly used by PRIIP manufacturers to group specific products - Purpose - Summary of objectives of PRIIP as well as means of achieving them • brief, clear and easy to understand • providing the retail investor with an appropriate overview of the investment policy and strategy of the PRIIP • identify main factors upon which return depends, the underlying investment assets or reference values and how the return is determined, as appropriate, and the relationship between the PRIIP’s return and that of the underlying investment assets or reference values 11 What is this product? (2) - Description of the type of retail investor to whom the PRIIP is intended to be marketed • reflect target market identified by PRIIP manufacturer’s product oversight and governance processes, taking into account financial interests, knowledge, objectives and characteristics of the type of retail investors for whom the PRIIP has been designed, including their ability to bear investment loss and their investment horizon - Term of PRIIP and an explanation under which circumstances the PRIIP can be automatically terminated 12 What are the risks and what could I get in return? (1) - Summary Risk Indicator 13 What are the risks and what could I get in return? (2) - Include a narrative explanation of that indicator, main limitations and a narrative explanation of the risks which are not materially relevant to the PRIIP and which are not adequately captured by the summary risk indicator - Ranked on the basis of an assessment of its aggregated level of market risk and credit risk - Each must be adequately documented and reviewed and revised regularly and always in the case of a material change - Description of possible maximum loss of invested capital including whether the retail investor can lose all invested capital and where the PRIIP includes capital protection against market risk and the details of its cover and limitations 14 What are the risks and what could I get in return? (3) - Appropriate performance scenarios and the assumptions made to produce them - For recommended holding period and two interim holding periods preceding the recommended holding period. - Three performance scenarios based on features of the product and economic conditions that could lead to outcomes for the retail investor that are: • Unfavourable • Moderate • Favourable - Additional scenario to be added to illustrate significant downward impact features of the product if those features are not adequately covered in the three scenarios 15 What are the risks and what could I get in return? (4) - Reasonableness of each scenario based on the analysis of available market data of the financial variables which can influence pay-off e.g. underlying assets - Selected to give a balanced presentation but only those which can be reasonably expected - Performance presented in monetary units – EUR1,000 for PRIIPs other than insurance based investment products and in percentage terms, as the average annual return - Net of costs for the relevant period - N.B. fair, accurate, clear and not misleading 16 Performance Scenarios (1) 17 Performance Scenarios (2) [a] This [table/graph] shows the money you could get back over the next [recommended holding period] years, under different scenarios, assuming that you invest €[…] [per year]. [b] The scenarios shown are a simplified representation of possible outcomes. You can use these scenarios to compare with the scenarios of other products, because they are calculated under similar conditions. [c]The scenarios presented are not an exact indicator of future performance, but an estimation to that effect. What you get will vary depending on how the market performs and how long you keep the investment/product. [d] For the favourable scenario a rise in the market of […]% is shown. So if the market goes up by […]% the money you may get back will [not rise /equally with the market/ not rise any longer/be cancelled]. 18 Performance Scenarios (3) [e] For the moderate scenario a [rise/drop] in the market of […%] is shown. So if the market goes up/down by […%] the money you get back will [not rise/ not rise equally with the market/ not rise any longer/ be cancelled]. [f] And for the unfavourable scenario a fall in the market of […%] is shown. So if the market drops by […]% the money you get back will [not drop any further/ not drop equally with the market price/is cancelled]. [g] This product cannot be [easily] cashed in, meaning it is very hard to estimate the money you would get back if you cash in before the recommended holding period/maturity. It may be that cashing in is not possible or, if possible, by incurring high costs or by making a large loss. [h] The figures shown take into account all costs associated with the product, but may not include all the costs that you pay to your advisor or distributor, and do not take into account your personal tax situation, which may also impact on what you get back. [i] For a more complete overview of the assumptions that were made in producing the performance scenarios, please see our [insert name of where the document is where this information can be found] 19 What happens if the PRIIP Manufactuerer is unable to pay out? - Brief description of: • whether the retail investor is directly exposed to the default of an entity • whether the retail investor may face a financial loss with only partial or no capital reimbursement • identity of the entity where the entity is not the PRIIP manufacturer • whether or not the default or loss is covered by an investor compensation scheme or guarantee scheme and whether there are any limitations to this cover 20 What are the costs? (1) - Presented using two tables: • Costs over time • Composition of costs - Format of Presentation of Costs - The RIY (Reduction in Yield) shows the impact total costs have on what you get back. The total costs take into account one-off, recurring and incidental costs. - The costs that are shown here are the costs of this product. There may be other costs charged to you by the person who is either selling this product to you or advising you on this product. They will provide you with information about these costs, and show you the impact that all costs will have on your investment over time. 21 What are the costs? (2) - The table shows what the costs, including potential exit penalties, could mean for different holding periods. The figures assume you invest €1 000 (or €15 000 for insurance PRIIPs). The figures shown are partially based on data from the past and therefore may change in the future 22 What are to costs? (3) - Composition of costs 23 How long should I hold it and can I take my money out early? - State whether there is a cooling off period or cancellation period for the PRIIP - An indication of the recommended and, where applicable, required minimum holding period - Ability to make, and the conditions for, any disinvestments before maturity, including all applicable fees and penalties, having regard to the risk and reward profile of the PRIIP and the market evolution it targets - Information about the potential consequences of cashing in before the end of the term or recommended holding period 24 How can I complain? - May be provided in a summary format - Shall give detailed directions on how and where to lodge a complaint about the PRIIP or the conduct of the PRIIP manufacturer or the person advising on, or selling, the PRIIP on the relevant website - May refer to the relevant website in respect of complaints related to the person advising on, or selling, the PRIIP where that person is not the same as the PRIIP manufacturer - Shall include an up-to-date postal address and/or e-mail address to which complaints can be submitted 25 Other relevant information - Indicate any additional information to be provided in relation to the PRIIP and whether this information is only available on request - May be provided in summary format including by reference to a website where further details and links to documents are provided 26 Periodic and ad hoc review of the information contained in the KID - The PRIIP manufacturer shall review the information contained in the KID by: • 12th month following the date of the initial publication of the KID; and • every 12th month following the latest review of the KID. - Include a verification of whether the information contained in the KID continues to be accurate, fair, clear and not-misleading and compliant with the Regulation - Ad hoc review required where the PRIIP manufacturer becomes aware of a change that affects or is likely to affect the information contained in the KID, - PRIIP manufacturer shall maintain adequate processes throughout the life of the PRIIP to identify without undue delay any circumstances which might necessitate an ad hoc review 27 Review of KID - PRIIP manufacturer shall without undue delay revise the KID following • a periodic review • an ad hoc review • where the PRIIP manufacturer concludes that the document is no longer accurate, fair, clear or not-misleading or not compliant with the RTS or the Regulation - Where KID is revised, the PRIIP manufacturer shall update all information in the KID as may be necessary so that the whole KID is up to date - Publication shall occur without undue delay and at the latest five business days as after the KID has been revised 28 Provision of the KID by the seller - Regulation requires the KID to be produced 'in good time' to the retail investor before the investor is bound by any contract to purchase the PRIIP - “good time” consider satisfied where person advising on, or selling, a PRIIP have provided the KID “sufficiently early for the retail investor to read and consider the document” - Need to take into account: • Knowledge and experience of the retail investor with PRIIP or PRIIPs of a similar nature; • Complexity of the PRIIP; and • Urgency for the retail investor of concluding the proposed offer 29 CMS Legal Services EEIG (CMS EEIG) is a European Economic Interest Grouping that coordinates an organisation of independent law firms. CMS EEIG provides no client services. Such services are solely provided by CMS EEIG’s member firms in their respective jurisdictions. CMS EEIG and each of its member firms are separate and legally distinct entities, and no such entity has any authority to bind any other. CMS EEIG and each member firm are liable only for their own acts or omissions and not those of each other. The brand name “CMS” and the term “firm” are used to refer to some or all of the member firms or their offices. 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