Commissioner Michel Barnier reasons that retail products must be made safer and information standards clearer. Hence, the new proposal, which has yet to clear through the European parliament and national governments, will mean that, prior to purchasing, retail investors will have to be given a two-page, easy to understand, key information document (KID). It is to be based on the principle pioneered for UCITS.
The rules will apply to insurance products, investment funds, structured products, and life insurance intended as an investment. They are scheduled to be in force by 2014, two years after clearance through Brussels.
The Commission’s own assessment is that investor confidence will be boosted by the information supplied in the KID and will “lead to a general growth in retail markets”. But it, too, cannot estimate the extent of the potential shake-ups for different product sectors. This is because of unforeseen side factors.
Penny Miller of Simmons & Simmons, a law firm, says: “Don’t underestimate the difficulty in reducing complex concepts to plain language and in short form. And don’t underestimate the volume of documents which will need to be produced and the resourcing issues around generating them in order to meet the deadline, or you’ll risk delay to product launches.”
The risk assessment aspect on the KID form, she says, will be “interesting”. Under the UCITS predecessor (key investor information document, or KIID), the risk profile of a financial product has to be graded on a scale of 1-7. Ms Miller says: “We don’t know yet how that will be set for PRIPs”. She advises product manufacturers to start work on the overall template stage a year in advance.
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