The Packaged Retail and Insurance-Based Investment Products Regulation (PRIIPs) has been in force since 1 January 2018. The Regulation (1286/2014/EU) aims to increase the transparency of investment products so that retail investors have all the essential information to invest in an informed manner.
The PRIIPs Regulation covers all types of financial products with an investment component offered to non-professional investors, regardless of form or structure. Examples include structured products, units in investment vehicles, investment insurance and structured deposits. ‘Ordinary’ shares, bonds and deposits, and certain pension products are excluded from PRIIPs.
The core of the PRIIPs Regulation is that developers of financial products with an investment component (such as insurers, banks and investment firms) must prepare a key information document for the PRIIPs products they offer. This key information document provides retail investors with a better understanding of the features, risks and costs of an investment product so that they can better compare products.
The KID must be prepared before the product is first offered to a consumer or investor. The developer of the product is further required to keep the document up to date, periodically review it and amend it where necessary.
The information document may, if relevant, refer to the product’s prospectus. However, the document should be clearly distinct from marketing materials and the document should also not refer to marketing materials.
The KID should be actively provided to investors or consumers and should also be available on the product developer’s website. Providing the EID to the non-professional investor or consumer is an obligation placed on the firm advising or distributing the product. This may therefore be a financial firm other than the product developer.
For now, the obligation to prepare and distribute a KID does not cover investment institutions. Managers of investment institutions that offer products to non-professional investors have been obliged for a number of years to provide investors with a document similar to the key information document, namely the ‘Key Investor Information Document’ (KIID). As of 31 December 2022, the KIID obligation will expire. Then, all managers of investment funds and UCITS offering units to non-professional investors will have to have an KID.
Specifically for PRIIPs that have an insurance component, the PRIIP Regulation provides that the European regulator or the national regulator may ban specific PRIIPs.
A ban on the distribution of certain PRIIPs may only be imposed where the supervisor has significant consumer protection concerns or sees a threat to the orderly functioning and integrity of financial markets or the stability of the financial system in the European Union.
In principle, such a distribution ban should be imposed by the national supervisor of the company that developed the PRIIP in question. In case this supervisor fails to act, EIOPA has the power to impose the relevant ban.
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