EU unveils investment costs disclosure overhaul


Policymakers are consulting on the detail underpinning disclosure documents being brought in under new European rules.

Key Information Documents, known as KIDs, are being introduced as part of the packaged retail and insurance based investment products regulation, or Priips, which comes into force on 31 December 2016.

KIDs aim to make costs and product details clearer for investors and will be supplied by product providers. Each KID must comply with a mandatory three-page template.

A joint committee of European Supervisory Autorities – which includes Esma, Eiopa and the European Banking Authority – have today set out details of what must be included in KIDs.

The KID must set out total product costs for the investor, including entry costs, recurring costs and exit costs.

It must give a single figure for the aggregated costs of the product over time, given in both monetary and percentage terms.

Product providers will also be required to disclose transaction costs under the new rules. The paper proposes that transaction costs should be calculated based on an average of the past three years.

In addition, policymakers say the document must include a section on risks and potential returns.

This includes a risk rating for the product on a scale of one to seven – where one is the lowest risk and seven is the highest – and an indication of three performance scenarios: one unfavourable, one moderate and one favourable. These scenarios must be produced net of costs.

Where the risk of a product rises significantly if it is not held to maturity, the provider will be required to give investors an additional risk warning.

European Supervisory Authorities joint committee chairman Steven Maijoor says: “Today’s consultation is a major step forward for the EU’s retail investors by setting out clear proposals on the contents of the KID, which are aimed at improving safeguards and transparency around investment products.

“The KID, once implemented, aims to safeguard retail investors’ interests by ensuring they receive sufficiently clear, concise and understandable information to allow them to make better informed investment decisions.”

Investment Association director of public policy Jonathan Lipkin says: “European regulators are right to propose separating transaction costs and product charges in the new Key Information Document. We have consistently argued that this is a pre-requisite for meaningful disclosure, and is clearly in the interests of consumers. It will ensure that charges paid to investment product providers are visible in the context of the investment decisions they make on behalf of their clients.

“Although the KID is of course wider in scope than investment funds, we consider that the ‘ongoing charges figure’ is a valuable piece of information and we will continue to encourage the European regulators to retain the OCF as a key part of disclosure.”

A final text on Priips was agreed in April 2014, under which a previous proposal to include adviser cost information in the KID was scrapped.

However, firms and national regulators have been awaiting further details of the rules.

Today’s consultation closes on 29 January.

Example format for cost disclosure:

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Example format for product risk rating:

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