PRIIP KIDs

»New regulations aim to create transparency, but they are often difficult to grasp. Our interdisciplinary teams ensure that you stay in control in terms of expertise and technology.«

Thomas Hungerkamp, Partner LPA

PRIIP KIDs

New regulations mean completely new steps for banks. We provide you with expertise and technology on a personal basis to ensure the success of your customer operations in spite of all the complex innovations.

A summary of our services for PRIIP KIDs

PRIIP KIDs: transparency for your financial products

Regulation (EU) No. 1286/2014 on key information documents for packaged retail and insurance-based investment products – better known as the PRIIPs regulation – came into force at the end of 2014 and must be observed from 1 January 2018.

The objective of the PRIIPs regulation is to enhance the transparency of financial products even more so that retail investors can base their investment decisions on standardised, non-commercial key information documents. As such, the overarching goal of the regulation is to provide retail investors with more protection.

The term retail investor refers not only to private investors, but also to all the categories of client mentioned in Article 4 (1), no. 11 MiFID II (2014/64/EU) and 2002/92/EC that are not classified as professional clients. These are essentially public-sector clients and small-scale corporate clients with revenues below a certain defined threshold.

PRIIP KIDs in practice: a raft of new challenges

The objective of the PRIIPs regulation is to create transparency across a wide range of products. While this is to be welcomed, it represents a major challenge for both the manufacturers and the recipients of the associated documents.

The extension of the client group beyond retail clients means that a very large number of banking customers are now affected by the regulation. As a result, processes in retail client business must be adapted along with sales and advisory processes in corporate client care.

While the regulation was being implemented in the financial industry, it also became apparent that the narrow confines of the Commission’s regulatory technical standards (RTS) were producing what were, in some cases, difficult-to-interpret simulation results and also generalised statements, with the potential that investors might simply misinterpret certain passages of text. For this reason, it is important that sources of error are identified and ironed out. For the institutions concerned, this is an important task when it comes to providing investment advice.

PRIIP KIDs in practice: details and specific examples

In its regulatory technical standards, the European Commission clearly defined the content and structure of the key information document (KID or PRIIP-KID, for short). Among other requirements, the document has to be divided into eight sections. Many of the wordings in the document are standardised, as are the calculation methods used in risk simulation. The banks drawing up the KIDs are at liberty to insert their own wordings only at designated points in the documents.

A central element of the KID is an indicator, on a scale of 1 to 7, of the level of risk inherent in the product (this is known as the Single Risk Indicator or SRI), where 1 is the lowest risk category and 7 the highest. Except in the case of OTC derivatives, the SRI is calculated on the basis of simulations using pre-specified methods.

PRIIP KIDs in practice: details and specific examples

In its regulatory technical standards, the European Commission clearly defined the content and structure of the key information document (KID or PRIIP-KID, for short). Among other requirements, the document has to be divided into eight sections. Many of the wordings in the document are standardised, as are the calculation methods used in risk simulation. The banks drawing up the KIDs are at liberty to insert their own wordings only at designated points in the documents.

A central element of the KID is an indicator, on a scale of 1 to 7, of the level of risk inherent in the product (this is known as the Single Risk Indicator or SRI), where 1 is the lowest risk category and 7 the highest. Except in the case of OTC derivatives, the SRI is calculated on the basis of simulations using pre-specified methods.

PRIIP KIDs in practice: our services

During initial introduction of the key information documents, we provided 15 European banks with technological assistance and expertise in implementing the new regulations. In all cases, we used our LPADoc document and workflow management software.

All the clients were assigned project teams on an interdisciplinary basis to ensure high-quality interaction between financial know-how and IT expertise. The ensuing result-oriented discussions with clients mean that decisions, once made, could be put into practice quickly and efficiently.

It goes without saying that even today, long after the PRIIPs regulation has been introduced, members of LPA’s project team are still available to the clients as direct contacts for follow-up queries and adjustments.

Would you like to know more?

We will be happy to advise you.

Thomas Hungerkamp
Thomas Hungerkamp
Your partner for Regulation & Technology

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Thomas Hungerkamp
Thomas Hungerkamp
Your partner for Regulation & Technology
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