Due to mounting pressure from asset managers, local authorities and Members of the European Parliament (MEP’s), the European Commission is considering extending the Key Information Document (KID) requirement for UCITS funds by two years. In the original outline, the KID requirement was scheduled for introduction on 31 December 2019. This is now under discussion and the KID requirement may not apply until the end of December 2021.
27 Dec 2018
The PRIIPs requirement applies only when the products are aimed at retail investors. The aim of this requirement is to give retail investors a better understanding of the risks and costs of the funds, while also allowing a good comparison between different funds. In addition, the costs of different products also become more transparent because there is a uniform calculation method. All in all, the KID enables retail investors to compare different investment products.
Concerns about the desired impact of the KID requirement
The reason for a possible postponement is that increasingly more concerns are being expressed, among others about the PRIIPs calculation method. An example is the way in which the costs should be calculated. This is very complex and, in some areas, the required cost information in the KID is unclear for investors and causes confusion. The European Securities and Markets Authority (ESMA) has now indicated that it is aware of the criticism expressed and that it will gather more information before taking a final decision on postponing the implementation date.
PRIIPs requirement in order since early 2018
Since 1 January 2018, the PRIIPs requirement has been applied. Since then, investment product providers and distributors must generate and publish a KID on their website. The KID is a standardised document consisting of a maximum of three A4 pages and should be accessible to retail investors. Before placing an order, a retail investor must have had access to the product’s KID. The KID requirement applies to non-UCITS funds per 31 December 2019. UCITS funds are provisionally exempt as they already need to prepare an alternative "KID", namely the Key Investor Information (“Ebi” in Dutch). The KII will eventually be replaced by the KID. For non-UCITS funds the effective date for the KID will be 31 December 2021.
Hard transition to KID
Despite the wish of many investment institutions to switch to the KID earlier in 2019, the Dutch Authority for the Financial Markets (AFM) has determined that non-UCITS funds may not replace the Ebi with the KID until 31 December 2019 at the earliest. This in itself is understandable, as it is not desirable to make both an Ebi and a KID available at the same time. That would not help the objective of providing transparent, comparable and understandable information to retail investors. On the other hand, new non-UCITS funds are obliged to prepare a KID.
Postponement has little effect on the Netherlands
If the timeline is indeed postponed, it will have a limited effect on investment funds in the Netherlands. Most investment funds have AIFMD licences and must already have a KID. Most UCITS funds in Europe are based in Luxembourg and will eventually have to comply with the KID obligation.
Regulatory Data Hub
Due to the developments in the field of new legislation and regulations, including the PRIIPs requirement, we are in constant dialogue with our clients and other business partners about the challenges that this entails. In collaboration with some clients we have developed the PRIIPs generator, part of our Regulatory Data Hub. Based on the ISIN code of a fund, historical price information will be retrieved from the data vendor. From there, the complete PRIIP can be calculated and generated. The fund managers and distributor will be provided with an up-to-date KID.
The EPTs (European PRIIPs Templates) can also be generated and send to the funds. The EPT document contains specific PRIIPs data with which a fund can demonstrate that it is 'compliant' with the requirement. The templates relate to (1) risk assessment, (2) performance scenarios, (3) costs and (4) narratives. The CEPTs (Comfort European PRIIPs Templates) are more detailed and allow the exchange of NAVs as well as the provision of substantiations in multiple languages.