Financial Services Providers: Are You Prepared for New PRIIPs Regulations in the EU?
Starting on Jan 1, 2018, EU manufacturers of packaged retail and insurance-based investment products (PRIIPs) will be required to provide their investors with annually updated Key Information Documents (KIDs). These standardized documents are meant to help investors make more informed decisions on whether an investment is right for them. KIDs were introduced by EU Regulation No. 1286/2014 and are part of the EU’s greater plan to help rebuild investors’ confidence in the financial market in the aftermath of the global financial crisis.
Are you going to be affected?
According to Article 6, “This Regulation should apply to all products, regardless of their form or construction, that are manufactured by the financial services industry to provide investment opportunities to retail investors, where the amount repayable to the retail investor is subject to fluctuation because of exposure to reference values, or subject to the performance of one or more assets which are not directly purchased by the retail investor.” Examples of PRIIPs include investment funds, life insurance policies with an investment element, structured products and structured deposits.
The legislation goes on to clarify that it’s not talking about the kind of investments that involve buying or holding assets themselves. Instead, it’s referencing “products [that] intercede between the retail investor and the markets through a process of packaging or wrapping together assets so as to create different exposures, provide different product features, or achieve different cost structures as compared with a direct holding.”
The purpose of KIDs
Investing in the PRIIPs market is a complicated and potentially risky venture to the uninformed consumer. As noted in Article 1 of the new Regulation, “Existing disclosures to retail investors for such PRIIPs are uncoordinated and often do not help retail investors to compare different products, or understand their features. Consequently, retail investors have often made investments without understanding the associated risks and costs and have, on occasion, suffered unforeseen losses.”
One reason for the confusion is that up until now, there have been different PRIIPs rules for different industries and countries. Regulation No. 1286/2014 will put an end to those discrepancies in the EU. The new law applies to all Member States participating in the PRIIPs market – full stop. By creating uniform rules on transparency at the Union level, regardless of where the PRIIP manufacturers are located or what they’re selling, Regulation No. 1286/2014 should create a level playing field for disbursement of investor information. It’s hoped that the new mandatory Key Information Documents will enhance investor protection and encourage new investors to enter the market.
A uniform KID template must be followed for all products across all industry sectors. These documents are subject to an overall maximum of three sides of A4 paper and must include the following sections:
- What is this product?
- What are the risks and what could I get in return?
- What happens if [PRIIP Manufacturer] is unable to pay out?
- What are the costs?
- How long should I hold it and can I take money out early?
- How can I complain?
- Other relevant information
Since the very nature of this law is to provide consumer-friendly documents that are easy to read, understand and compare, it makes sense that the documents will need to be made available in the investors’ native language.
According to the official EU guidelines on Regulation No. 1286/2014, “a KID must be provided in a language prescribed by the [EU] Member State where the PRIIP is distributed in order to ensure that retail investors can understand it.”
If the PRIIP is to be made available cross-border, the PRIIP manufacturer must provide a translated KID for each relevant Member State – and any time a translated KID is made available to retail investors, the PRIIP manufacturer must publish the translation on its website next to the original.
Translation quality and liability
As the guidelines point out, Regulation 1286/2014 does not provide any references for a reliable translation agency, but it does place responsibility for the accuracy of all translations on the PRIIP manufacturer. As such, manufacturers will be accountable for any mistakes or unclear translations that they provide to retail investors.
To avoid such issues, PRIIP manufacturers should partner with a professional translation company that has a certified quality management system. At Morningside, for example, we are ISO 9001:2008 & ISO 13485:2003 certified. Our quality assurance process includes multiple rounds of editing and proofing with built-in redundancies to ensure accuracy, proper terminology, and correct localization for the target audience. We rely on a team of 8,000+ certified in-country translators with a wide variety of subject matter expertise so that you can feel confident that every document translation is technically accurate.
For help translating your Key Information Documents, contact Morningside for a quote today.