Khepri's A to Z: Key Information Document - Buy and Sell-Side Compliance
What is a KID?
A Key Information Document (KID) refers to a standardised document required under the European Union's Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation. The PRIIPs Regulation was introduced to improve the transparency and comparability of different investment products for retail investors.
What is a KID needed?
In the context of investment business, a KID is required when certain in-scope products (e.g. funds) are being distributed to Retail Investors.
What are Retail Investors?
Retail Investors are those persons who are neither Per Se Professional or Elective Professional Investors (“Professional Client”) as defined under The Packaged Retail and Insurance-based Investment Products (Amendment) (EU Exit) Regulations 2019 where a professional client’ means a professional client as defined in point (8) of Article 2(1) of the markets in financial instruments regulation (MIFID).
What’s in a KID?
Product Overview: This section provides a brief description of the investment product, its issuer, and its type.
What is this product?: This part explains the nature and objectives of the investment product, including its main features and the type of investor it is intended for.
What are the risks and what could I get in return?: This is a crucial section that outlines the risk and reward profile of the investment. It includes information about the potential returns, but also highlights the various risks associated with the product, including a summary risk indicator.
What happens if the issuer is unable to pay out?: Here, the KID outlines what might happen if the issuer of the investment product experiences financial difficulties or is unable to meet its obligations.
What are the costs?: This section details all the costs and charges associated with the investment, including any initial charges, ongoing fees, and transaction costs. The aim is to provide investors with a clear understanding of the expenses they will incur.
How long should I hold it and can I take money out early?: This part explains the recommended holding period for the investment and whether there are any restrictions or penalties for withdrawing money before a certain period.
How can I complain?: This section provides information about the complaints process, including contact details for relevant authorities or organisations.
Other Relevant Information: Depending on the specific investment product, the KID might also include additional information about any specific features, tax implications, or other relevant considerations.
Performance Scenarios: One of the distinctive features of the PRIIPs KID is the inclusion of performance scenarios that illustrate potential future returns under different market conditions. These scenarios are designed to give investors a better understanding of the potential outcomes.
Key Information in a Nutshell: A summary of the most critical information from the KID is often provided in a concise format for easy reference.
What is changing in the UK?
On 11 July 2023, HM Treasury published a consultation response (link) setting out its intention to repeal the packaged retail investment and insurance products regime (PRIIPS) and establish an alternative framework for a new UK retail disclosure regime which will include UCITS funds and ensure that retail investors have access to the right information on which to base their investment decisions.
What is the timeline for the changes?
The government will publish a draft Statutory Instrument by 2024 to enable the FCA to deliver the new retail disclosure regime, following the repeal of the PRIIPs Regulation (and related secondary legislation).
The FCA will also publish a consultation paper seeking industry feedback on their draft rules for the new retail disclosure regime, building on the principles discussed in this consultation and their December 2022 Discussion Paper.
Will there be a transition period?
To provide certainty to industry and support them as they adapt to the UK's new tailored retail disclosure regime, there will be a period of transition prior to the new FCA retail disclosure rules coming into force.
The government and FCA will ensure that there is no gap between the old regime being removed and the new regime being put in place, to ensure certainty and minimal costs for firms.
Further detail about this transitional period, and the intended change in disclosure requirements for UCITS vehicles, will be communicated in due course.
