Who let the PRIIP’s KID out?
No, this is not another article about parenthood and how you can understand and control your children. I would like to have the recipe for success on that.
Yes, this is an article about this “little KID” that is driving all the adults crazy. As Deloitte described — “No time for KIDding around”.
But, what is exactly this KID (Key Information Document) and PRIIPs (Packaged Retail and Insurance-based Investment Products)?
The KID, together with the PRIIPs regulation shows us the EU’s agenda to protect retail investors and help them to differentiate and understand all the products available. The uniformity and transparency of the KID gives the consumers the ability to compare products, thereafter the decisions taken are much more prudent and wiser.
PRIIPs are, in a simple way, all the packaged investments where you don’t invest directly in a specific underlying (i.e. stocks from Apple, Microsoft and etc.). Under the PRIIPs regime we can find investment funds, life insurance policies, structured product, OTC derivatives and more. I am referring to product like Swaps, Options, Autocalls, etc. One example to clarify the meaning of PRIIPs could be look at a direct investment in a specific underlying. The return or loss will be defined by the underlying’s performance. However, when you invest in a derivative (a type of a PRIIP) the performance of the underlying affects the return of the product but not in a direct 1 to 1 basis.
To illustrate how this “little KID” looks like, here’s a brief description about it.
A KID has been designed to be a simple document (no more than three one-sided A4 papers), addresses questions such as “What is the product?“, “What are the risks and what could I get in return?”, “Performance Scenarios”, “What happens if the manufacturer is unable to pay?”, “What are the costs?”, “How long should I hold it and can I take the money out?”, “How can I complain?” and “Other relevant information”.
There are two important dates that we need to keep in mind. Everything started on 15th April 2014 when the EU Parliament formally adopted the proposed regulation on KID for PRIIPs. The goal being that any person in the EU advising or selling PRIIPs will be required to provide a KID to all retail investors starting from 1st January 2017.
The PRIIPs KID regulation was originally supposed to come into force on 1st January 2017 and was postponed to the beginning of 2018. This project might seem simple but, considering that we are in the second half of the year, after regulators released a new Q&A (on the 4th of July with a possibility for another Q&A on September),the deadline becomes more unrealistic given the many issues that are still open. To call it ‘challenging’ is an understatement.
But, like every other “KID”, with hard work and perseverance everything will be on track and ready for the next step.