Luxembourg - April 2014

FSO Alert: PRIIPs KID endorsed by European Parliament

Parliament backs Key Information Document (KID) for packaged retail and insurance-based investment products (PRIIPs)

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On 15 April 2014, the European Parliament voted in favor of the Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation introducing the Key Information Document (KID) which must be given to retail investors before they invest in packaged investment products. The KID contains summary information on the investment product. It is designed to help investors understand PRIIPs. The KID represents a significant challenge for both product manufacturers and distributors, including banks, investment firms, insurance undertakings and asset managers.



In July 2012, the European Commission issued a Proposal for a Regulation on key information documents for investment products. The proposal followed the introduction of the Key Investor Information (KII) document for UCITS in 2011 and 2012.

In early April 2014, a trialogue agreement was reached between the European Parliament, Council of the European Union and the European Commission on the Regulation on key information documents for packaged retail and insurance based investment products (PRIIPs). An additional “I” was introduced during the legislative negotiations to include insurance-based investment products in the scope of the Regulation. This trialogue agreement has now received the backing of the European Parliament.


Summary of the key provisions are as follows:

  • Under the new PRIIPs Regulation, a product manufacturer must draw up a Key Information Document (KID) and publish the KID on its website before a packaged product or an insurance-based investment product is made available to retail investors. The KID will be a standardized document of up to a maximum of three-pages of A4 sized paper
  • The person advising or selling the packaged or insurance-based product will be required to provide the KID to retail investors in good time before he makes an offer to sell or sells the product
  • KIDs are designed to help consumers to understand packaged retail and insurance-based investment products (PRIIPs), estimate the total cost of their investment and make them aware of the riskreward profile and also enable consumers to compare different PRIIPs
  • KIDs must be accurate, fair, clear and not misleading
  • For products which are not simple and products which are difficult to understand, the KID must also include a “comprehension alert”
  • KIDs must be written in each of the official (or authorized) languages used in the c ountries (i.e., EU Member States) where the product is distributed
  • KIDs should be clearly separate from advertising materials, consistent with any binding contractual documents and prepared by a clearly identifiable entity that created the product (the manufacturer)
  • The product manufacturer is required to review the information contained in the KID regularly and revise the document where the review indicates that changes need to be made. The updated KID must be made available promptly



KIDs will have to be produced for all packaged retail and insurance-based investment products (PRIIPs) which are intended for retail investors:

  • A packaged retail investment product is an investment where the amount repayable to the investor is subject to fluctuations because of exposure to reference values or to performance of one or more assets which are not directly purchased by the investor (e.g., a structured product)
  • An “insurance-based investment product” is an insurance 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 (e.g., some unit-linked contracts)

The following types of products are excluded from the scope of the Regulation:

  • Non-life insurance products
  • Life insurance contracts, where the benefits under the contract are payable only on death or in respect of incapacity due to injury, sickness or infirmity
  • Simple deposits
  • Most types of securities
  • Pension schemes and products



The key information document must contain, inter alia, the following information:

  • Title: “Key Information Document” and a required explanatory statement
  • The name of the investment product, identity of the investment product manufacturer and competent authority
  • A “comprehension alert” for certain products such as:
    • A product which invests in assets that are not commonly invested by retail investors
    • A product which uses different mechanisms to calculate the final return
    • A product which takes advantage of investors’ behavioral biase
      The “comprehension alert” reads: “You are about to purchase a product that is not simple and may be difficult to understand”
  • Specific sections:
    • “What is this product?”
    • “What are the risks and what could I get in return?”
    • “What happens if the PRIIP manufacturer is unable to pay out?”
    • “What are the costs?”
    • “How long should I hold it and can I take money out early?”
    • “How can I complain?”
    • “Other relevant information”

The PRIIPs Regulation lays down general requirements on the content of each section.

The European Supervisory Authorities (ESAs1) are required to develop Technical Standards specifying the details of the presentation and content of the KID, for adoption by the European Commission.


MiFID and PRIIPs: enhanced investor protection

The KID is one element of a wider initiative launched by the European Commission to enhance investor protection. While the recast of the Markets in Financial Instruments Directive (MiFID II) focuses, inter alia, on appropriate product governance and distribution of investment products to retail clients, PRIIPs focuses on providing the key information on the product to the investors.

To comply with PRIIPs and MiFID II requirements, financial institutions should review and upgrade their product governance and distribution processes as producers and as distributors.


Why should financial institutions take timely action on PRIIPs?

Financial institutions including banks, investment firms, insurance undertakings and asset managers, which make products for, or sell products to, retail clients are impacted and should therefore prepare for PRIIPs. The two main challenges are:

  • The preparation and management of KID, and robust governance thereof:
    • The KID will include information from multiple internal sources
    • The information in the KID must be accurate and consistent with other product documents
    • For products distributed on a cross-border basis, the KID will, in practice, generally have to be translated into at least one of the languages of the Member State where the product is distributed
    • The KID must be viewed as a living document, and updated in a timely fashion
    • There may therefore be many different KIDs and different versions of KIDs to manage for a single product; for each KID, appropriate records should be kept
    • The KID publication (e.g., on the website) and dissemination (e.g., to competent authorities and distributors) must be timed precisely
  • The new responsibilities as producer and distributor:
    • Product manufacturers should ensure that distributors acting on their behalf systematically provide the KID to investors in due time before they invest
    • Product manufacturers should review their distributor relationship, and may need to update their distribution agreements
    • PRIIPs and MiFID require the manufacturer to identify the consumer type for which the product is intended to be sold; there is, therefore, a risk of mis-selling if an investor does not meet the identified consumer type
    • If an investor could show that a loss was caused by the information in a KID, or was inaccurate or inconsistent with any binding contractual documents, then the investment product manufacturer could be liable under national law



In order to enter into force, this Regulation must be approved by the Council of the European Union and then published in the Official Journal of the European Union. The Regulation applies two years after publication in the Official Journal.

If the Council approves the Regulation within a short period of time after this vote in the European Parliament, the PRIIPs KID could become mandatory at the beginning of the third quarter of 2016. This would, in addition, synchronize implementation of PRIIPs with MiFID II.


How EY can help

EY supports financial institutions, including credit institutions, investment firms, managers of investment funds and insurance undertakings across the whole PRIIPs value chain:

  • Oversight and responsibilities
  • Data capture and content
  • Consistency
  • Production
  • Dissemination
  • Publication
  • Lifecycle and record keeping

EY services include:

  • Design of the KID, and the KID production, dissemination, lifecycle management and governance processes
  • Project management and implementation
  • Assurance and review
  • Training

In this field, in the context of the new requirements introduced by MiFID II, EY supports financial institutions, inter alia:

  • Reviewing and upgrading product governance
  • Reviewing distribution processes


Download the FSO Alert (pdf, 2mb).

1 A Joint Committee of the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA).