KIDs for PRIIPs
As of 2017, issuers of complex investment products will be required to declare the features, benefits and risks of their products in plain language that is clear and understandable to the general public.
The wheels of government turn slowly but surely. In the aftermath of the 2008 financial crisis, in 2014 the European Union enacted a set of regulations to address one of the problems that caused the collapse of the financial markets: investments in financial products poorly understood by laypersons and retail investors. Many of those investors paid dearly for their naivety and carelessness. The resulting resentment has been fierce, and trust has been lost. The government-prescribed cure? Transparency.
In the European Economic Area (EEA), every PRIIP will thus require a KID effective as of January 1, 2017. PRIIP stands for “packaged retail and insurance-based investment products.” PRIIPs encompass, inter alia, investment funds, options, derivatives and unit-linked life insurance policies, which sometimes are highly complex securities under which the amount repayable to the retail investor is subject to fluctuations. KID is an acronym for “key information document,” which serves the same purpose as the patient information leaflet included in medication packages: to make investors aware of the features, benefits and risks of a PRIIP so that they know what they are letting themselves in for.