Are you an investment product provider? You are required to prepare a document containing the key information of your product, the KID. What should such a document contain? How can you implement it? We explain how you can do this!
What is a KID?
A KID, or Key Information Document , is a short document containing key information about a specific investment and insurance product.
The obligation to draw up a KID was introduced by a regulation of the European Parliament and of the Council, in order to strengthen investor protection. The EU lawmaker noted that investment products are often complex and difficult to understand, especially for those who are new to the financial market.
With the KID, each individual investor is expected to learn more about a particular product and make an informed investment decision. So the idea behind the KID is simple: make it easy for clients to understand the salient features of a product, allow them to quickly compare two products against each other, and assess investment risks and costs.
Does the obligation to prepare a KID apply to every PRIIP?
An individual KID must be prepared for each PRIIP, which is a packaged retail and insurance-based investment product. The catalogue of these products is extensive. In practice, these are investment products offered, for example, by investment companies, banks, insurance companies or credit institutions.
Examples of PRIIPs include:
mutual funds ;
exchange traded funds (ETFs);
insurance products, especially insurance mutual funds;
a number of financial instruments issued by special purpose entities;
In addition, the obligation to provide a KID to the investor applies to persons who sell or advise on PRIIPs.
Consequences of not providing a KID
As a PRIIP developer, you must have KIDs! Otherwise you shall be liable to the investor for damages. You are accountable to the regulatory authority of the state where the product is marketed. This authority may suspend the marketing of PRIIPs and apply a range of administrative sanctions (up to the value of €5 million).
According to the regulation, damage to a client may arise from the use of a KID that is not consistent with pre-contractual or contractual documents, incorrect or misleading. This potential harm will have to be demonstrated by the investor and prove that they made the wrong decision based on the wrong KID.
The exception in KID implementations are UCITS – undertakings for collective investment in transferable securities (in Poland these will be FIOs and SFIOs). They are not subject to the regulation until 1 January 2022. This is due to the existing obligation to prepare Key Investor Information Documents (KIIDs) under the UCITS Directive.
However, European Commission member Mairead McGuinness, in a speech on 22 April 2021, stated that the deadline for UCITS should be delayed until the end of July 2022 and combined with the elimination of the KIID requirement for UCITS. We await the Commission’s decision on this matter.
What should a KID contain?
The KID has a form standardized and strictly defined by the EU service provider. All this is to make it easier for investors to compare specific products with each other. Even if these fall into different investment categories and differ strongly from each other.
The information contained in the KID must be accurate, reliable and not misleading to the client. The document is to be a separate item, clearly separated from the marketing materials. It is important that it is written in concrete and understandable language. It should not exceed three A4 pages.
Each document must consist of identical elements that should appear in the same order.
The KID document must contain the following information:
identification and contact information for the PRIIP manufacturer;
on the competent authority for the product manufacturer;
what the product is;
what are the risks and possible benefits;
what happens if the issuer is insolvent;
what the product costs are;
what is the recommended investment horizon and whether it is possible to withdraw money early;
how to file a complaint;
additional information (e.g. reference to prospectus).
The investor should know what they are dealing with after reviewing such a document. Understand the features of the particular investment product they want to buy.
The idea seems right, although for financial institutions it means more work related to the introduction of additional documentation. Turbine Analytics can help you do just that!
How can I implement a KID for my PRIIP?
Navigating the intricacies of KIDs is not easy, which is why we at Turbine Analytics prepared a service to automatically generate KID documents. Our offer is available in three flexible cooperation models . Depending on your needs, you can choose:
We prepare the entire process from scratch: descriptive content, periodic updating of KID documents for each investment product. The whole process is carried out using our own IT tools and analytical resources designed for this purpose.
It includes automatic generation of KID documents based on content provided by the client. The PRIIP manufacturer is responsible for providing a template of documents with the content of the product description. In turn, we at Turbine Analytics take care of the calculation and automatic generation of the final KID document.
Calculation support – “Calculation Engine” service
“Calculation Engine” is a service implemented through a dedicated API, through which the client receives a set of numerical data (in real time). Based on such calculations, it updates the KID independently and on its own.
In the variants of: full outsourcing and standard service , we provide computational support that includes 4 parts of the document:
Summary isk Indicator.
Costs over time.
Composition of costs.
In the “Calculation Engine” variant, we make only the above calculations available through a dedicated API. And the investment management company independently updates and generates the document.
How much will I pay to implement the KID?
It all depends on what support you need.
For our part, we offer cooperation on a permanent subscription basis for updating KID documents. With such a subscription, you have the opportunity to use as many as 18 KID updates per year!
In addition to this, the subscription model has the advantage of making the investment management firm independent of the frequency of changes in KIDs, which is not entirely predictable. It depends on how the key indicators for a particular fund change (deviations from the previous value).
The subscription fee will depend on the number of mutual funds and share classes we are to service. In each case, we charge a one-time fee for setting up the management company’s data in the system and for the initial preparation of document templates. This will make your pricing predictable.
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