_ On 7 April 2017, the Association of the Luxembourg Fund Industry (ALFI) issued its first Q&A on the Key Investor Documents (KIDs) for Packaged Retail and Insurance-based Investment Products (PRIIPs).
As per Regulation (EU) No 1286/2014 of the European Parliament and of the Council of 26 November 2014 on key information documents for PRIIPs (PRIIPs Regulation), all PRIIPs manufacturers must issue a PRIIPs KID before retail investors may invest in the relevant PRIIP (including investment funds).
‘Retail investors’ are generally assumed to be all investors who do not fall within the definition of ‘professional investors’ of the markets in financial instruments directive (MiFID).
Which funds are affected?
The PRIIPs Regulation will apply from 1 January 2018.
Undertakings for collective investment in transferable securities (UCITS) that were authorised pursuant to Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to UCITS, as amended, are exempt from the obligations under the PRIIPs Regulation until 31 December 2019.
Undertakings for collective investment subject to Part II of the Luxembourg law of 17 December 2010 on undertakings for collective investment, as amended (Part II Funds) fall within the scope of the PRIIPs Regulation as they target retail investors.
As further detailed below, specialised investment funds (SIFs), investment funds in risk capital (SICARs) and reserved alternative investment funds (RAIFs) may potentially be required to issue PRIIPs KIDs.
This Q&A includes questions and ALFI’s position on articles of the PRIIPs Regulation and of the commission delegated regulation (EU) 2017/653 of 8 March 2017 supplementing the PRIIPs Regulation by laying down regulatory technical standards with regard to the presentation, content, review and revision of PRIIPs KIDs and the conditions for fulfilling the requirement to provide such documents.
The Q&A covers many aspects of PRIIPs KIDs. Below are some selected topics.
- Subsequent investments
A PRIIPs KID must be provided each time an investor makes a subscription in the same class, except in the case of an investment through a savings plan with a regular subscription.
- Classes that are reserved to professional investors
PRIIPs KIDs are designed for retail investors only, and a PRIIPs KID does not need to be published for classes that are reserved for professional investors.
- Unlaunched and closed classes
No PRIIPs KID is required for a retail share class that is mentioned in the prospectus but that has not yet been launched.
No PRIIPs KID is required for a share class that has been launched but that closed for subscriptions in 2017.
- UCITS KIID-like documents
Part II Funds may, as per the aforementioned law of 2010, publish a UCITS key investor information-like document (UCITS KIID-like document). However, a Part II Fund may be exempted from issuing a PRIIPs KID if the UCITS KIID-like document is published for each retail class before 1 January 2018 and if the relevant Part II Fund amends its prospectus before 1 January 2018 to include certain references to the UCITS KIID-like document. Such Part II Funds are not required to issue a PRIIPs KID until the end of 2019.
The above exemption also applies to specialised investment funds (SIFs), investment funds in risk capital (SICARs) and reserved alternative investment funds (RAIFs) whose shares are not reserved for professional investors, subject to compliance with the above requirements.
To avoid any doubt, any Part II Fund, SIF, SICAR or RAIF launched from 1 January 2018 must issue a PRIIPs KID. ALFI is of the opinion that a new sub-fund of a Part II Fund, SIF, SICAR or RAIF launched before 1 January 2018 may benefit from the exemption.
It should be noted that it is not possible to produce a PRIIPs KID for a representative share class unless a UCITS KIID-like document has been produced before 1 January 2018.
- Well-Informed Investors vs. Professional Investors
As a reminder, only well-informed investors may invest in a SIF, SICAR or RAIF. The definition of a ‘well-informed investor’ includes institutional investors, professional investors and other investors who meet certain criteria.
Consequently, certain well-informed investors may not also be qualified as professional investors and may be classified as retail investors. Therefore, if a SIF, SICAR or RAIF is available to well-informed investors who qualify as retail investors, a PRIIPs KID must be published.
A SIF, SICAR or RAIF should disclose in its offering document that it intends to target only professional investors.
To avoid any doubt, the definition of ‘professional investors’ includes retail investors who opt to be treated as professional investors.
- Updated PRIIPs KIDs
ALFI is of the opinion that a revised PRIIPs KID does not need to be sent to existing investors, even in the case of a material change to the fund. However, the most recent PRIIPs KID must be available on a website.