01 October 2012

EBF Position on the regulation on Key Information Documents for investment products

The EBF supports that relevant information is available on a standardised template across financial products when these are offered to retail clients. Nevertheless, the Federation stresses that not all aspects of a financial product can be made comparable and the Key Information Documents must not include any over-simplified or otherwise misleading information.

The Key Information Document (KID) is intended to be a short, comparable and standardised document describing key risks of an investment product and therefore an appropriately shaped liability regime as in the case of UCITS’ KIID which provides legal certainty to product manufacturers and product distributors should be introduced.

Since the KID cannot be exhaustive and a strict liability regime has been introduced, the EBF believes it should remain possible that the KID may contain references to other offering documents (e.g. prospectus). As a short-form, summary document, the KID cannot contain all information relevant to an investment.

The EBF stresses the need for consistency across all relevant financial services legislation, in particular between Packaged Retail Investment Products (PRIPs), Undertakings for Collective Investment in Transferable Securities (UCITS) and the Prospectus Directive (PD). In this respect, the EBF reiterates the importance to apply the current UCITS’ liability regime also to PRIPs.

The EBF is satisfied with a number of provisions included in the regulation on key information documents for PRIPs. However, there are areas of concern which will require amendment to ensure the legislation is well adapted to the needs of retail investors and product manufacturers who will use/produce the KID.

The EBF would like to point out that the market needs sufficient time to develop the KID for investment products sold to retail investors. This is particularly important in light of the fact that there are essential provisions that will be left to Level 2 legislation – there is uncertainty at this stage which makes it very difficult for product manufacturers to assess how long it will take to implement the PRIPs requirements effectively.

Implementation may be complicated further if it is decided that more than one risk indicator formula is necessary to take into account the varying types and characteristics of investment products that fall within the scope of PRIPs. For this reason, the Federation stresses the importance to foresee in the regulation a reasonable period of time (i.e. minimum two years) to carry out the required development after the Level 2 measures have been completed in order to comply with the regulation.

The EBF believes that the KID should provide the retail investor with an adequate base for making his/her investment decision. However, before the final investment decision is taken, the investor may need to read the detailed and comprehensive information contained in the prospectus and/or contractual basis. Therefore, it must be possible to have references in the KID to other documentation such as the full prospectus.

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