On 3 July, 2012 the Commission proposed a legislative package which it hopes will help rebuild investor confidence in retail investment products. The proposed regulation will require all investment funds, structured products and some insurance products to put a key information document ("KID") in place.

The package contains three arms:

  • a proposed revision of the Insurance Mediation Directive;
  • a proposed amendment to the UCITS Directive; and
  • the proposed introduction of a regulation on KIDs for packaged retail investment products ("PRIPs").

For the investment funds industry this will be relevant particularly for non-UCITS funds which are sold to retail investors. The proposed regulation, when implemented, will require non-UCITS retail funds to produce a short form KID (generally two pages) in a standardised format, summarising the main terms of the product and to provide the KID document to prospective investors generally before a contract is concluded.

At this stage it is envisaged that the proposal will become effective at the end of 2014.

The European Fund and Asset Management Association ("EFAMA") have responded in a positive manner to the Commission's proposal. The UCITS KIID has been particularly praised by EFAMA. EFAMA have expressed a view that the UCITS KIID should be the benchmark for the KID. EFAMA have also noted that PRIPs cover a very wide range of products designed for different purposes and that consequently there needs to be flexibility in the content of the KID.

Key comments EFAMA have made in relation to the Commission's proposal include the following:

  • Scope of the KID

EFAMA supports private pension products being included in the PRIPs proposal and it also supports the exemption which is available for pensions that are subject to the Institutions for Occupational Retirement Provision ("IORP") Directive.

  • Nationally-regulated, open-ended, non-UCITS retail funds

EFAMA strongly recommend that non-UCITS retail funds ought to be allowed to choose to produce a KID in line with the UCITS KIID rather than a PRIP KID. EFAMA also recommends that there should be national discretion in each Member State which would allow non-UCITS funds to use a KID that is in line with the UCITS Directive instead of the PRIP KID.

  • Content of the KID

EFAMA has expressed concern with certain aspects of the KID content. For example the heading 'Could I lose my money?' could possibly mislead investors. EFAMA has also called for an expansion of the section which deals with costs.

  • Legal status of the KID

EFAMA are of the opinion that the pre-contractual nature of the KID should be clarified in order to ensure a level playing field across all investment products.

  • Consequential amendments required for the UCITS KIID

EFAMA welcomes the exemption of UCITS from KID regulation.

EFAMA's comments may be found here: http://www.efama.org/Publications/Public/PRIPS/12-4041_EFAMA%20Comments%20on%20the%20EC%20Proposal%20for%20a%20Regulation%20on%20key%20information%20documents%20for%20investment%20products.pdf

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