June 2016


The Priips Kid regulation comes into force on December 31 2016 and creates a new EU harmonised framework for the marketing of packaged retail investment and insurance based investment products (Priips) (including most funds). All manufacturers of Priips sold to retail investors must comply with the obligation to produce a key information document (Kid).

The MiFID II implementation delay to January 2018 means that Priips Kid and MiFID II will no longer be implemented side by side, as was originally intended. This article focuses on the key overlaps and elements of MiFID II that it is worth firms bearing in mind when running a Priips implementation project.

Firms should consider the universe of in scope products for the purposes of the Priips Kid regulation through a MiFID II product governance lens. Priips Kid only requires a compliant Kid. However, MiFID II requires an assessment that a product is appropriate for the target market.

Firms should assess the universe of products in scope for Priips Kid in light of whether such products may continue to be sold to retail clients under MiFID II.

The Priips Kid regulation requires a summary risk indicator (SRI) to be included on all Kids. MiFID II product governance, on the other hand, requires firms to develop their own method for risk rating products. Firms will need to consider whether to operate different approaches to retail clients, who may be subject to the Kid SRI, and professional clients. Watch this space for the possible emergence of a professional SRI in this context.

Under both Priips Kid and MiFID II, firms are required to specify the target market for whom the product is deemed appropriate. Firms can satisfy their MiFID II product governance obligation by complying with the Priips Kid requirement to communicate the target market within the Kid. Again, MiFID II will require firms to consider the approach for professional clients and potentially aligning the two.

The Kid sets out a prescribed template for the disclosure of costs and charges associated with a product. MiFID II contains separate rules on the disclosure of cost and charges. However, Esma has helpfully said that where a firm is compliant with the Priips Kid regulation disclosure standards, they will also be complaint with the MiFID II costs and charges disclosure standards.

Even where a firm is compliant in this regard, there are further requirements that a firm must satisfy to be fully compliant with MiFID II. For example, the firm will have to consider the proportionality of the costs and the way in which the costs are presented in terms of transparency and complexity.

Further, under the MiFID II inducements rule, firms will have to consider whether any fees and charges paid to third-party manufacturers and/or distributors are proportionate to the value of the service provided to the client in accordance with the enhanced obligation in the inducement rule, to ensure that any fee or commission is only paid if it enhances the quality of the service to the underlying client.

Firms should consider these factors in the context of Priips Kid implementation to avoid having to revise fees in Kids 12 months from now.

Nicola Higgs is partner at Ashurst

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