February 14, 2019

FIN-FSA has made a thematic evaluation of key information documents (KIDs) required by packaged retail and insurance-based investment products (PRIIPs) regulation. The requirement to publish a KID when offering PRIIPs to retail investors came into effect from the beginning of 2018. Generally, there have been challenges to some extent in the application of PRIIPs regulation. FIN-FSA has noted these challenges and, in its thematic evaluation, has focused more on the accessibility of KIDs from the perspective of retail investors.

The objective has been to assess whether KIDs fulfill, in practice, the goals set for retail investors in terms of facilitating informed investment decisions and the comparability of products. The thematic evaluation is based on sampling and on a review and assessment of thematic entities. The thematic evaluation has examined key product groups, such as insurance products, structured investment products, and derivatives. Investment and alternative investment funds are also subject to the PRIIPs regulation, but in their case the transitional period granted to them has generally been exercised. These products have not, therefore, been subject to evaluation.

In the thematic evaluation, 30 KIDs from different product groups have been taken for closer assessment. Based on the sample of FIN-FSA, the thematic evaluation shows that the objective of PRIIPs regulation for a document that gives the information required to make an informed investment decision and facilitates the comparison of products belonging to different product groups is, in practice, challenging. In terms of product comparability, the clearest benefit brought, in practice, by the PRIIPs regulation, would appear to be the consistency in structure of the  information presented in all product groups. 

On the basis of the observations by  FIN-FSA, in structured products, for example, a balance must be struck between what the key information is and what information is necessary to make an investment decision. In structured products, the presentation of descriptions relating to the liquidity of products and to premature sale appears to be challenging and, in this area, the product manufacturers have room for improvement. In investment-linked insurance policies, opportunities for comparing products on the basis of KIDs for the insurance wrapper without selecting the actual investment assets and acquainting oneself with information about the assets appears to be quite limited. This is because the KIDs for the insurance wrapper generally appear to provide very little concrete and useful information on, for example, the risks, costs or performance outlook of products.

FIN-FSA states that it is the responsibility of product manufacturers to ensure that KIDs are of high quality, so that investors read them and are able to use them to make investment decisions. Closer attention should be paid to quality assurance, particularly when using automation or machine generation in preparing KIDs, translating them, or producing information contained in them. The thematic evaluation has not assessed the correct application of the methodology used in determining numbers or values or the accuracy of numbers or values. The thematic evaluation is not of a kind that has comprehensively assessed document-by-document or topic-by-topic whether KIDs have been prepared in the manner required by regulation.

 

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Keywords: Europe, Finland, Insurance, PRIIPS, KID, Thematic Evaluation, Retail Investors, FIN-FSA

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