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Final details released on retail banking key information documents

Final details have been released on the key information documents (KIDs) that financial institutions will have to produce for retail investors.08 Apr 2016

For the first time, retail investors in all financial sectors across the EU will have access to simple and comparable information, the joint committee of the European Supervisory Authorities (ESAs) said.

The ESAs have finalised their proposal for regulatory technical standards on KIDs for packaged retail and insurance-based investment products (PRIIP).

These will enhance consumer protection in banking, insurance and securities, the joint committee said. A three page document will be made available for each product, detailing the risks, performance and cost.  

Gabriel Bernardino, chairman of the joint committee, said: "These new rules are a major step forward for consumers. They are an innovative and pioneering new approach to risk, performance and cost disclosures that we believe lays a strong foundation for the future. Now, for the first time, consumers can easily compare different products and make informed investment decisions fitting their particular needs."

The new rules cover the text and layout to be used in the documents. Each product will be rated out of seven for both the risks and rewards of products, and a methodology has been developed showing how each product should rated.

The rules explain how to present performance scenarios and costs. Certain products will need extra warnings and explanations, and specific layouts and contents have also been given for those products offering multiple options that cannot be effectively covered in three pages, the statement said

Each KID must be revised and republished every year, the joint committee said.  

Retail investors must be given the documents early enough to take the contents into account when making an investment decision, it said.

Financial regulation expert Josie Day of Pinsent Masons, the law firm behind Out-Law.com said: "The idea is that the KID is a key component in the decision making process, as customers can read from a set menu of information across products, and so should find it easier to compare and ultimately to choose. But what the customer sees in the KID is really just the tip of the iceberg for the PRIIP manufacturers, whose challenge is to distil their product’s key and often technical information into a simple three-page form."

Retail financial services expert Chris Davidson, also of Pinsent Masons, said that the preparation of KIDs will be a huge challenge for PRIIP manufacturers, especially those offering more complex products. 

"It is helpful that the ESAs are aware of this and they plan to publish supporting material on the details of the methodologies. These may take the form of frequently asked questions or how-to guides. Hopefully there will be consultation on those documents to ensure that they serve their purpose. It is vital that there is consistency between KIDs for products from different providers, so that KIDs can achieve the principal objective of promoting effective comparability for retail investors," Davidson said.

"One thing is for certain: PRIIP manufacturers have a lot to do in order to comply with the regulation when it comes into force on 31 December. In response to the consultation paper, most stakeholders said that there is not enough time to produce KIDs for all PRIIPs. The challenge is all the greater as the standards are still in draft form, albeit final draft and, according to the final draft, the ESAs ‘are now starting work’ on the supporting material," she said.

The new rules have been submitted to the European Commission for endorsement, and will come into force on the 31 December.