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In this increasingly interconnected world, ideas and capital are flowing around the globe, driving growth and disrupting the status quo. New trade routes emerge, propelling emerging economies to the spotlight and creating opportunities for companies and financial institutions worldwide.
The Packaged Retail and Insurance-based Investment Products (“PRIIPs”) Regulation aims to improve the information that is provided to retail investors in the EEA in connection to PRIIPs. The PRIIPs Regulation applies if the PRIIP is made available to retail investors (as per the recast Markets in Financial Instrument Directive (MiFID) definition and/or as per the Directive 2002/92/EC).
A PRIIP manufacturer is required to prepare a Key Information Document (“KID”) for each PRIIP that they manufacture as well as publish each KID on its website. Any entity which advises a retail investor on a PRIIP or sells a PRIIP to a retail investor must, subject to certain exceptions, provide the retail investor with a KID in good time before any transaction is concluded. In addition to advisers, this will impact intermediaries such as distributors.
What is a PRIIP?
The PRIIPs Regulation defines a PRIIP as any product which meets one or both of the following definitions:
packaged retail investment product, which is an investment where the amount repayable to the retail investor is subject to fluctuations because of exposure to reference values or to the performance of one or more assets which are not directly purchased by the investor (this would include certain OTC derivatives which HSBC enters into with retail investors as well as structured notes, warrants and certificates issued by HSBC and sold to retail investors (including through a distributor));
insurance-based investment product, which is an insurance product which offers a maturity or surrender value and where that maturity or surrender value is wholly or partially exposed, directly or indirectly, to market fluctuations.
Key Information Documents Required under PRIIPs
The PRIIPs Regulation introduces a requirement to produce a Key Information Document (KID) for each packaged retail investment products and insurance-based investment product in order to improve the comparability and comprehensibility of the information provided to retail investors. As a manufacturer of PRIIPs, Global Markets is required to produce KIDs for PRIIPs which are made available to a retail investor, including where PRIIPs are sold to retail investors through a distributor.
The KID must enable retail investors to understand and compare the key features and risks of the PRIIP and must:
constitute pre-contractual information
be accurate, fair, clear and not-misleading
be consistent with offering documentation / T&Cs / contractual documentation
be a standardised stand-alone document
be no longer than three sides of A4-sized paper
be in one of the official languages of the Member State where the PRIIP is distributed
Include the content prescribed by regulatory technical standards adopted by the European Commission (e.g. product description, risk disclosures including a summary risk indicator, performance scenarios, costs and charges)
The PRIIPs Regulation and the related regulatory technical standards are expected to be prescriptive in terms of content including the risk indicator and scenario analysis.
For further information on PRIIPs, please visit the EC website.