In April 2014, the European Parliament finally approved the Regulation on key information documents for investment products (“PRIPS Regulation”) proposal following the agreement reached with the Council. The PRIPS Regulation will enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.
The PRIPS Regulation is not yet published as it is being translated into all the relevant languages of the European Union. The purpose of the PRIPS key information document ("PRIPS KID") is to help retail investors to understand, compare and use information that is made available to them about different investment products. The PRIPS Regulation will therefore require the provision of basic information about investment products, the risk and return that can be expected, as well as the overall aggregate cost that will arise in making the investment. This information must be provided in a consistent manner and therefore the PRIPS Regulation lays down uniform rules on the format and content of the PRIPS KID and its provision to retail investors.
The PRIPS Regulation will apply where "investment products" (such as investment funds including UCITS, insurance-based instrument products, structured securities, structured term-deposits) are sold to "retail investors" and therefore not where a product is restricted to institutional investors.
The PRIPS Regulation introduces two separate obligations:
- Firstly, product manufacturers must prepare and publish a PRIPS KID and take responsibility for its content.
Before a PRIP is made available to retail investors, the PRIP manufacturer must produce a KID and publish the latter on its website. The manufacturer may delegate the production of the document, but remains ultimately responsible for its content. The KID shall constitute pre-contractual information. It shall be accurate, fair, clear and not misleading.
It may contain cross-references to certain documents such as a prospectus where applicable but shall not contain cross-references to marketing materials.
The KID shall be drawn up as a short document written in a concise manner (maximum of three sides of A4-sized paper when printed) which promotes comparability and is focused on the key information that retail investors need before investing.
- Secondly, sellers (for instance the distributor or the product manufacturer in the case of direct sales) must ensure that the PRIPS KID is provided, free of charge, to retail investors.
As a matter of principle, the provision shall be made in good time before the conclusion of the transaction.
As the PRIPS proposal is in the form of a regulation, it will be directly applicable in Member States of the European Union without the need for implementing legislation. As such, although domestic implementing regulations are likely, Member States will not have the ability to put their own interpretation on the provisions. Details of the method, timing and conditions for the provision of the disclosure to a retail investor will be clarified by delegated acts.
Manufacturers of PRIPS and those advising or selling will have 2 years after its entry into force to prepare before the PRIPS Regulation becomes applicable.
A transitional provision is included to allow UCITS management companies and persons selling units of UCITS to continue to use the UCITS KIID in accordance with Directive 2009/65/EC for five years from the entry into force of the PRIPS Regulation.