What is a PRIIP?
The PRIIPs Regulation defines a PRIIP as (1) a packaged retail investment product or (2) an insurance-based investment product. These are defined in turn as follows:
- Packaged retail investment product - an investment where, regardless of the legal form, the amount repayable to the retail investor is subject to fluctuation because of exposure to reference values or to the performance of one or more assets which are not directly purchased by the investor.
- Insurance-based investment product - an insurance product which offers a maturity or surrender value where that maturity or surrender value is wholly or partially exposed, directly or indirectly, to market fluctuations.
The regulation on key information documents for packaged retail and insurance-based investment products (the PRIIPs Regulation) is part of a wider package of EU reforms aimed at enhancing investor protection and improving confidence in financial markets.
Manufacturers of packaged retail and insurance-based investment products (PRIIPs) will be required to produce a highly prescriptive three page "key information document" (KID) to allow retail investors to easily understand and compare products and the risks, costs and returns associated with them. Following a decision by the Commission in November 2016, the implementation date for the entry into force has been pushed forward to 01 January 2018.
Which products are in and out of scope?
A non-exhaustive list of products which are caught and excluded from the PRIIPs definition is set out below:
In Scope
- structured deposits
- derivatives
- structured notes (including those issued by SPVs)
- alternative investment funds (AIFs)
- UCITS (not for three years - click here for more information)
- insurance products
Out of Scope
- deposits
- certain non-life insurance products and life insurance contracts where the benefits under the contract are payable only on death or in respect of incapacity
- occupational pension schemes
- certain pension products
- corporate shares or sovereign bonds held directly
There are no grandfathering provisions in the PRIIPs Regulation or final draft RTS, ie, nothing addressing PRIIPs manufactured and sold prior to 01 January 2018 but which continue to exist after 01 January 2018.
Territorial scope of the Regulation
In its consultation paper issued on 18 July 2016, the FCA stated that its current view is that the PRIIPs Regulation will apply to persons outside the EEA (manufacturer or distributor) who deal with EEA retail clients. Accordingly, a third-country manufacturer or distributor of a PRIIP to retail clients in the EEA (e.g. an AIFM for schemes from the Channel Islands or Isle of Man sold in the UK) will be required to prepare and produce a KID. Conversely, if the manufacturer or distributor is based in the UK EEA and targets only non-EEA retail clients, the FCA’s view is that the PRIIPs Regulation will not apply and no KID will need to be prepared.
The Key Information Document
The PRIIPs Regulation introduces a new mandatory key information document (KID) for packaged retail and insurance-based investment products from 31 December 2016.
This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.
Key contacts
If you have any questions, contact a member of the PRIIPs team for assistance:
