The aim of this document is to provide a brief overview of the EU regulation on Packaged Retail Investment Products and key information documents for investment products.
What is the purpose of the Packaged Retail Investment Product (PRIP) regulation?
The regulation aims to improve investor protection for retail investors. It intends to do this by removing inconsistencies in existing standards and disclosure requirements between different families of investment products and to apply the best requirements to all relevant products across Member States.
What is being proposed?
The regulation proposes the introduction of standard information sheets known as a 'Key Information Document' (KID). They must provide clear and comparable information and be set out in the same way for all products and should be easy to understand. The KID provides a new emphasis on keeping information short and focused on the key features of the product.
A KID must be provided to an investor before they make a decision to invest.
Are Undertakings for Collective Investment in Transferable Securities (UCITS) funds affected by the regulation?
Yes, UCITS fall within the scope of this regulation. However, Key Investor Information Documents (KIID) have recently been introduced for UCITS and the EU Commission have confirmed that the UCITS will be exempt from producing KID's for 5 years, to allow the KIID to 'flourish'.
What are PRIPs?
A PRIP is a product where the amount payable to the investor is exposed to fluctuations in the market value of assets or pay outs from assets, through a combination or wrapping of those assets, or other mechanisms other than a direct holding.
In essence, their characteristics include:
- An element of packaging.
- Satisfying capital accumulation needs over a medium to long term investment period.
- Containing investment risk for the investor (although some may provide capital guarantees).
What products are included within the definition of PRIPs?
The following products are included within the proposed definition of PRIPs:
- All investment funds (whether closed-ended or open-ended).
- All structured products (whether packaged as funds, securities, insurance or deposits) - two definitions of structured deposits have been provided, to allow the Commission to decide whether to include pure savings deposits with investment deposits.
- All life assurance products, which have a surrender value, which is linked to market movements.
- Derivatives – the Commission proposes to include these within the definition to minimise the opportunity for Regulators to implement the measures differently.
What products are excluded from the definition of PRIPs?
The following products are excluded from the proposed definition of PRIPs:
- Pure protection insurance policies.
- ‘Vanilla’ shares.
- Bonds (provided they are not packaged).
- Registered Pension Schemes
Is Old Mutual International/Wealth affected by the proposals?
Yes, all life offices with activities in the EU will need to produce a KID for EU resident investors.