IA Fintech Member Insights: Mirrorweb
Of all the requirements under PRIIPs, the KID requirement has proved particularly complex for compliance departments to adhere to since the regulation was first introduced in 2018.
However, developments are in progress and firms everywhere need to be aware of further potential changes.
What is the current requirement?
Under the regulation for Packaged Retail and Insurance-based Investment Products (PRIIPs), the current requirement for regulated firms is to have a key information document (KID) displayed on their website and issued to retail investors in good time before they buy certain investment vehicles.
What are PRIIPs?
• Mutual funds
• Insurance-based investment products
• Structured products and deposits
• Convertible bonds
• Products issued by SPV
What aren’t PRIIPs?
• Bonds & shares
• Non-structured deposits
• Life insurance contracts and indemnity insurances contracts
• Non-life insurance contracts
• Pension funds
What has to be in a KID?
Essentially, a KID has to be clear, concise and for the benefit of investors – there are different requirements for both manufacturers and distributors of these products but essentially the content of a KID breaks down into eight areas:
1. Basic Information: PRIIP name, manufacturer, competent authority, etc
2. What is this product? type, investment objectives and main characteristics .
3. A brief description of the risk/return profile.
4. Information regarding whether the related loss is covered by a compensation scheme.
5. Associated costs.
6. Applicable cancellation period, minimum holding period, consequences of cashing in early.
7. Information on how and to whom send complaints.
8. Other relevant information.
What’s been happening?
Since the 2018 introduction of PRIIP regulations, ESMA has issued a consultation on further changes to KID requirements.
In a bid to improve comparability of products for retail investors, new regulatory technical standards (RTS) being proposed have included mandatory form/text to use, requirements for past performance to help investors contemplate a range of investment outcomes, a specific format of cost calculations, a summary risk indicator (SRI) to summarise a wide range of risk profiles and the requirement for annual revision/republication of KIDs.
The consultation has since closed as of mid-January 2020 and responses have been published, from around Europe, on ESMA’s website. Even though this is an EU-based regulation, the EU Withdrawal Act means PRIIPs will continue to apply in the UK throughout the Brexit transition period (until the end of 2020 at the very least).
And, potentially aware that these RTS changes (due to be introduced as soon as 2022 if greenlit) could still apply to them, many UK firms and trade bodies have issued lengthy consultations in response to the paper. We’ve sifted through these and come to the conclusion there is widespread concern and objection in how these RTS will impact current PRIIP disclosure. Not least because of the enhanced regulatory reporting burden, but also due to the perceived complexity of information to be added.
Trying to summarise so much information for a PRIIP concisely, and in an accessible way for the benefit of retail investors, is a significant challenge and several concerns have been raised about uniform systems and models that firms will have to adhere to (especially when it comes to summarising risk profiles and cost calculations).
In particular, the inclusion of past performance has been divisive – a long-running staple of financial promotions regulation in the UK has been the caveat ‘past performance is not a guide to future performance.’ In communicating this to retail investors, many have raised concerns these new RTS could ironically end up confusing and misleading investors.
However, ESMA has anticipated some of this blowback and in the consultation paper, it already stressed it was planning on developing detailed guidance on cost calculation methods as well as an FAQ guide on interpretation for investors. Comparability, no matter how hard (or impossible depending on who you ask) it may be, is evidently at the focus of ESMA’s ambitions.
To what extent the concerns raised in this consultation paper are incorporated into the end PRIIP regulations remains to be seen. And, you could argue, how much would retail investors pay attention to a KID in any format and would they skim past it in the same way T&Cs and disclaimers are treated?
In this post-crisis era where regulators are more likely to introduce new legislation than leave matters in the hands of the regulated firms, we could well be set for further changes to KIDs under the PRIIP regulations. As ever, it’s impossible to try and comply with regulations before it’s exactly known what they will ask. In the meantime, before more information is made available, firms need to ensure they are complying with existing regulations as best they can and therefore – when PRIIPs are involved – including a KID on their website that is readily accessible.
Being able to demonstrate you comply with regulations is now almost as important as meeting them in the first place. With the onus on evidence now critical, many firms use solutions such as the MirrorWeb Platform which creates reliable and 100% accurate archives of their entire digital presence (including websites and social feeds).
If you’d like to find out how our web archiving platform is helping regulated firms capture, archive and monitor electronic communications (to meet MiFID II, FCA, GDPR and FINRA requirements) then simply request a demo by clicking below.