• Key Information Documents (PRIIPs)

Questions and answers on the PRIIPs KID

Terms and abbreviations

  • KID – the key information document under the PRIIPs Regulation
  • MiFID II – Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (external link in Czech, English)
  • PRIIPs Regulation – Regulation (EU) No 1286/2014 of the European Parliament and of the Council of 26 November 2014 on key information documents for packaged retail and insurance-based investment products (PRIIPs) (external link in Czech, English)
  • Commission Guidelines – Communication from the Commission: Guidelines on the application of Regulation (EU) No 1286/2014 of the European Parliament and of the Council on key information documents for packaged retail and insurance-based investment products (PRIIPs) (external link in Czech, English)
  • Q&As on the PRIIPs RTS – JC ESAs Questions and answers (Q&A) on the PRIIPs KID of 19 July 2018 (JC 2017 49) (external link in English) 
  • PRIIPs RTS – Commission Delegated Regulation (EU) 2017/653 of 8 March 2017 supplementing Regulation (EU) No 1286/2014 of the European Parliament and of the Council on key information documents for packaged retail and insurance-based investment products (PRIIPs) by laying down regulatory technical standards with regard to the presentation, content, review and revision of key information documents and the conditions for fulfilling the requirement to provide such documents (external link in Czech, English) 
  • Solvency II – Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of insurance and reinsurance (external link in Czech, English)
  • AoMCIF – Act No. 240/2013 Coll., on Management Companies and Investment Funds, as amended 
  • AoCMU – Act No. 256/2004 Coll., on Capital Market Undertakings, as amended

A. Language of the key information document (KID)

  1. In what language must the KID be drawn up?
    Pursuant to Article 7(1) and (2) of the PRIIPs Regulation KID must be written in the Czech language only in cases where it is promoted through marketing documents written in the Czech language; in other cases any language accepted by the Czech National Bank is permissible.
    The Czech National Bank (CNB) applies following approach in the course of its supervisory activities: KID written in the Czech language is always necessary only for products which are promoted through paper or electronic marketing materials written at least partially in the Czech language. KID written in foreign language is acceptable for products that are not even partially promoted through materials written in the Czech language; however the distributor of the product must be assured and must be able to prove that the retail client understands the language in a sufficient extent to be able to understand information contained in KID.
    Retail investors without sufficient proficiency in a foreign language should not be offered products that do not have KID in the Czech language. This ensues inter alia from the requirement that the language of KID should be clear, succinct and comprehensible (Article 6(1) and 6(4)(c) of the PRIIPs Regulation). Distributor must be able to prove that he or she offers the product only to retail investors who satisfy the condition on the language proficiency.
    If a retail investor is a citizen of a country where foreign language is widely spoken or is regarded as an official language or if the retail investor is a member of an ethnic minority that uses the foreign language, the CNB recognizes this as a proof that the retail investor has a sufficient proficiency in the particular language.
    In conventional situations and in the absence of an indication to the contrary, the CNB also accepts as a proof of language proficiency a statement signed by the investor and written in the language that the investor understands the language in a manner sufficient for allowing him or her to comprehend the information in the KID, in particular product’s features, risks and costs. As a condition for introducing this practice it is necessary that the distributor implements additional internal control mechanisms in his or her governance arrangements. One of these mechanisms (widely employed in the part of the financial services sector) is a recorded “welcome phone call” with the investor in a foreign language. The distributor can demonstrate or confirm whether investors understand the language by using a control sample of the recorded phone calls.

B. Drawing up, provision and publication of the KID

  1. Non-public product offering and KID publication
    Must the KID be made available on the website even if the product is being offered non-publicly?
    According to recital 12 of the PRIIPs Regulation, the requirement to publish the KID on the website (Article 5(1) of the PRIIPs Regulation) has two primary objectives: to ensure that the KID is made available (before and after the product is sold) and to ensure that investment products can be compared. These two objectives must also be safeguarded for products that are not being offered publicly. However, the requirement for availability and comparability of KIDs for non-public products must be viewed in the relevant context – the KID must be made available primarily all to clients who have at least a theoretical chance of investing in the product, and comparability with other products matters mainly for potential investors in the product. In respect of a product that is not being offered publicly, it will therefore be sufficient to make the KID available on the website pursuant to Article (5)(1) of the PRIIPs Regulation only to those investors to whom the product is being offered or who might buy it.
  2. Provision of the KID for “execution-only” services
    What procedure is applied to the provision of the KID if a bank or an investment firm only intermediates access to a foreign exchange or only purchases investment instruments on the client’s instruction (“execution-only”) under a master agreement and does not actively offer or sell those instruments and does not provide investment advice relating to them?
    Pursuant to Article 5(1) of the PRIIPs Regulation, the PRIIP manufacturer should draw up a KID for that product and publish the document on its website. Pursuant to Article 4(4), “PRIIP manufacturer” means any entity that manufactures a product or alters or individualises it in any way. Therefore, if an investment firm is not able or authorised to alter or individualise the terms and conditions of the product, it is not considered a PRIIP manufacturer pursuant to Article 4(4) of the PRIIPs Regulation and is not subject to the duty to draw up a KID. In this case, responsibility for drawing up the KID remains with the manufacturer of the product.
    Pursuant to Article 13 of the PRIIPs Regulation, a person advising on, or selling, a PRIIP should provide retail investors with a KID. Pursuant to Article 4(5) of the PRIIPs Regulation, “person selling a PRIIP” means a person offering or concluding a PRIIP contract with a retail investor. Based on recital 26 of the PRIIPs Regulation, it can be concluded that persons selling PRIIPs include PRIIP intermediaries. However, the deciding criterion for whether an “intermediary” should provide a KID is whether he or she is “selling” the PRIIP, i.e. pursuant to Article 4(5) of the PRIIPs Regulation whether he or she is actively offering or concluding the PRIIP contract with the client. Purchasing investment instruments at the client’s instruction or intermediating access to a foreign exchange does not meet the criterion referred to in Article 4(5) of the PRIIPs Regulation. Therefore, if an investment firm only provides execution-only services at the initiative of the investor or only “intermediates” access to a foreign exchange without offering the products itself and without advising on the products, it cannot be considered an entity subject to the duty referred to in Article 13(1) of the PRIIPs Regulation.
    At the same time, however, we point out that the duty to act with professional care requires sufficient information to be made available the investor, especially about risks relating to the product (Article 15d of the AoCMU).
  3. Provision of the KID through a link to a “KID web library”
    Is it possible to distribute to all clients who are provided, under a master agreement, with the investment services of receiving, submitting and executing instructions, an e-mail referring to a website where they can find relevant KIDs for all types of products offered or links to the websites of PRIIPs manufacturers where those KIDs can be found, and not to send relevant KIDs when individual transactions are concluded?
    Article 13(1) of the PRIIPs Regulation stipulates that a person selling a PRIIP “shall provide retail investors with the key information document in good time before those retail investors are bound by any contract or offer relating to that PRIIP”. Unlike Article 5(1) of the PRIIPs Regulation, which uses the term “publish”, Article 13(1) of the PRIIPs Regulation mentions the duty to “provide” the KID. Moreover, Article 14(2)(a) of the PRIIPs Regulation stipulates that the KID should be provided on paper. The PRIIPs RTS also require the specific content of the good time requirement to be assessed individually, taking into account, among other things, the knowledge and experience of the investor and the complexity of the PRIIP (Article 17 of the PRIIPs RTS). Based on the above information, we conclude that it will typically not be sufficient to publish the KID on a website containing an entire catalogue of available KIDs and to distribute an untargeted link to this website to comply with the duty set out in Article 13(1) of the PRIIPs Regulation. On the contrary, the use of the word “provision” implies a duty of targeted provision of the KID relating to the PRIIP, i.e. a duty to enable the investor to acquaint himself or herself with the specific KID relating to the specific PRIIP.
    Targeted “provision” of the KID does not exclude the website option if specified conditions are met (Article 14(5)). This mainly includes notifying the investor of the address of the website and the place on the website where the KID can be accessed (Article 14(5)(c) of the PRIIPs Regulation) and considering whether the provision of the KID by means of a website is “appropriate in the context of the business conducted between the person advising on, or selling, a PRIIP and the retail investor” (Article 14(5)(a) in conjunction with Article 14(6) of the PRIIPs Regulation). The provision thus also applies to the master agreements mentioned in the question. It is conceivable that an exact link to a specific KID located in a “KID web library” sent by e-mail will be considered an appropriate way of providing the KID in such cases. We also refer to Article 13(3) of the PRIIPs Regulation, which in defined cases allows the relevant KID to be provided later (after the transaction is concluded). This is also in line with the purpose of the PRIIPs Regulation, which, among other things, is to ensure that the investor has comprehensible and easily accessible information (see the transparency requirement in recitals 2 and 4 of the PRIIPs Regulation and elsewhere). A mere general link to a “KID web library” will not meet the transparency requirement.
  4. Form of provision of the KID
    In what form can the KID be provided?
    The client must be always entitled to choose KID in a paper form. For the choice among other suitable media, we refer to Article 14 of the PRIIPs Regulation. If the investor chooses a durable medium other than paper, the conditions of Article 14(4) of the PRIIPs Regulation must be met (i.e. CD, USB disk or e-mail may be used provided that the requirements of Article 14(4) and (6) of the PRIIPs Regulation are met). If the information is to be provided by means of a website that does not meet the definition of a durable medium (pursuant to Article 4(7) of the PRIIPs Regulation), the conditions of Article 14(5) of the PRIIPs Regulation must be met. For completeness, we add that the KID must always be provided free of charge (see recital 27 of the PRIIPs Regulation and Article 4(7) of the PRIIPs Regulation). See also Article 13(3) of the PRIIPs Regulation.
  5. Provision of the KID when the duration of the product changes
    Pursuant to Article 13(1) of the PRIIP Regulation, retail investors should be provided with the KID in good time before those retail investors are bound by any contract or offer relating to that PRIIP. How should one proceed in the event of changes to the KID?
    On the general level, the KID is an information document based on which investors make a qualified investment decision and which should be available well in advance, i.e. it is primarily pre-contractual in nature. Nevertheless, the regulation obliges PRIIP manufacturers to revise the KID every time there is a change that could significantly affect the information contained in the KID. It is thus necessary to distinguish a dual regime for the provision of information, i.e. the provision of the KID pursuant to Article 13 et seq. of the PRIIPs Regulation before the contract is concluded and when it is significantly amended, and the provision of information during the contractual relationship pursuant to Article 10 of the PRIIPs Regulation and Articles 15 and 16 of the PRIIPs RTS (see also recital 22 of the PRIIPs RTS).
  6. Creation and provision of the KID for multi-option products
    In the case of products that contain both insurance and investment options, is it necessary to draw up a KID for each insurance product where all the information is provided, or should a generic KID be produced for the product and another individual KID be created for each underlying investment?
    Article 10 of the PRIIPs RTS stipulates that where information regarding underlying investment options cannot be provided within a single KID (i.e. a maximum of three sides of A4-sized paper when printed – see Article 6(4) of the PRIIPs Regulation), PRIIP manufacturers should produce (a) a KID for each underlying investment option within the PRIIP including information about the PRIIP (Article 10(a) of the PRIIPs RTS), or (b) a generic KID referring to each underlying investment option (Article 10(b) of the PRIIPs RTS).
    Each PRIIP manufacturer must carefully consider the choice of solution with professional care, taking account of the range and variety of underlying investment options. Given the very wide range of underlying investment options for client portfolios, the purpose of the regulation must be observed. A single generic KID without additional information might be misleading for a client in this situation. See recitals 17 and 18 of the PRIIPs RTS and Article 6(3) of the PRIIPs Regulation.
    If the product allows the client to invest in several underlying options at his or her own discretion, is it necessary to provide a KID for each such option?
    It is not necessary to provide the investor with a KID for all the available underlying investment options, only for those which he or she is considering (including pre-defined investment strategies and pre-defined investment weights).
  7. Proving that the KID has been submitted to the client
    Is it necessary to prove that the KID has been submitted to the client?
    For the purposes of supervision of the activities of supervised entities and risk management, such entities should be able to prove that they have complied with the duties stipulated in the legislation, including those set out in the PRIIPs Regulation. However, since the PRIIPs Regulation does not regulate proof of provision of the KID, the choice of the manner of proving compliance with the duty lies primarily with the obliged entity. The specific form will depend on how the KID is provided, i.e. whether it is submitted electronically or on paper.
    If the KID is provided electronically, compliance with the duty to submit the KID can be proved by, for example, archiving the electronic trace of communications with the client, i.e. by making out an extract from the obliged entity’s information system. If the KID is provided on paper, it can be assumed, give the established practice in the financial sector, that the client will provide written confirmation, typically in the contract forms in the client’s declaration of documents submitted (i.e. without the client being subject any further administrative burden beyond signing the contract). Moreover, it is advisable to introduce internal systematic checks of compliance with the duty to provide the KID, for instance by means of mystery shopping. If a client is represented by another person in all investment decisions (for example the investment service of managing a client’s assets on a discretionary basis), it is possible to be released from the duty to provide the client with the KID by providing the KID to the client’s representative (Article 13(2) of the PRIIPs Regulation).
  8. Informing the client about changes to the KID
    Is it necessary to inform the client about changes to the KID or send him or her the current version?
    The PRIIP manufacturer is obliged to publish the revised KID on its website (Article 16 of the PRIIPs RTS). The regulations do not imply any duty to send revised KIDs to specific investors. However, we refer to recital 22 of the PRIIPs RTS, according to which the PRIIP manufacturer should, where possible, inform retail investors when the KIDs have been revised (for example by means of e-mail or website alerts). This recital of the PRIIPs RTS may thus be used as an interpretative guide to assessing whether a PRIIP manufacturer has acted with professional care.
  9. Notification of the KID to the Czech National Bank
    Does the Czech National Bank require the producer of a PRIIP, or the person selling a PRIIP, to provide the ex-ante notification of the key information document pursuant to Article 5(2) of the PRIIPs Regulation?
    Article 5(2) of the PRIIPs Regulation provides Member States with the option (but not the duty) to require the ex-ante notification of the key information document by the PRIIP producer or the seller of a PRIIP to the competent authority. However, the Czech Republic did not exercise this option, so the CNB is not notified of the KID under the above provision. This is without prejudice to the CNB’s right to require the KID notification where necessary.

C. The PRIIPs Regulation and OTC derivatives

  1. Applicability of the PRIIPs Regulation to OTC derivatives
    Does the PRIIPs Regulation apply to OTC derivatives, which clients use to hedge against certain risks and are therefore not investment products?
    Generally, any product, i.e. including an OTC derivative, is subject to the PRIIPs Regulation if it satisfies the definition of a PRIP (Article 4(1) of the PRIIPs Regulation) and/or an insurance-based investment product (Article 4(2) of the PRIIPs Regulation) and is not covered by any of the exemptions referred to in Article 2(2) of the PRIIPs Regulation. In Article 4(1) of the PRIIPs regulation, “PRIP” is defined as an investment where the amount repayable to the retail investor (Article 4(6) of the PRIIPs Regulation) 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 retail investor. Recital 6 of the PRIIPs Regulation specifies that the Regulation applies, among other things, to products the aim of which is to “provide investment opportunities to retail investors”. The PRIIPs Regulation does not specify in detail what is meant by “investment” or “investment opportunity”. These terms must thus be understood in the sense applied to them in everyday language in the given context.
    In everyday language, “investment” means the purchase of a financial asset with the intention of selling it on at a profit or with the intention of generating a return. However, this investment (or speculative) intent is absent when OTC derivatives are contracted solely for hedging purposes and hence do not satisfy the definition of PRIP in Article 4(1) of the PRIIPs Regulation. OTC derivatives cannot be considered an insurance-based investment product either (Article 4(2) of the PRIIPs Regulation).
    An OTC derivative contracted solely for hedging purposes thus cannot be considered a product falling within the scope of the PRIIPs Regulation, even though it is offered to a retail investor. However, if there is no certainty that the retail client is being provided with an OTC derivative with a solely hedging function, we recommend that a KID be drawn up, as such an instrument may satisfy the definition of PRIP pursuant to Article 4(1) of the PRIIPs Regulation.
  2. Essential elements of the KID for OTC derivatives
    Is it necessary for OTC derivatives to comply with all the KID parameters stipulated by law?
    Article 10 of the PRIIPs RTS stipulates that where information regarding underlying investment options cannot be provided within a single, stand-alone KID, PRIIP manufacturers should produce:
    a) a KID for each underlying investment option in accordance with Article 10(a) of PRIIPs RTS, or
    b) a generic KID, to which the standard requirements for KIDs apply, unless otherwise specified in Articles 11 to 14 of the PRIIPs RTS.
    Accordingly, if a generic KID is produced for OTC derivatives, it must comply with all the parameters stipulated by law for “standard” KIDs, except for the exemptions specified in Articles 11 to 14 of the PRIIPs RTS.
    The choice of solution must be carefully considered with professional care, taking account of the range and variety of underlying investment options. The main criterion for setting the content of the KID is the requirement for the KID to be accurate, fair, clear and not misleading. It must also be consistent with any binding contractual documents. At the same time, however, the legislation implies no duty to individualise the KID based on the circumstances of a particular transaction.
    As regards the practical implementation of these requirements in the KID, we agree with the view published in the answer to question 41 of the Q&As on the PRIIPs RTS. Therefore, among other things, the KID should be based on relevant market data, not on purely hypothetical data; the difference between the actual figures and the information in the KID may not exceed a reasonably expected margin of uncertainty on the future path of the relevant parameters; subject to the requirement for the KID to be accurate, fair, clear and consistent with the binding contractual documents, it is acceptable to draw up a single KID for a class of OTC derivatives that share the same relevant product characteristics (e.g. one KID for OTC derivative contracts with a maturity up to 3 months, one KID for OTC derivative contracts with a maturity from 3 to 6 months, etc.).
  3. Frequency of KID updates
    At what frequency should the KID be produced and updated? Is it necessary to update the KID before each transaction?
    The frequency of KID updates is specified in detail in Article 15 of the PRIIPs RTS. It states that the KID must be reviewed at least every 12 months and also every time there is a change that significantly affects or is likely to significantly affect the information contained in the KID. Examples include a change to the investment strategy, risk profile or cost structure (recital 20 of the PRIIPS RTS). The aim of the review is to ensure that the KID continuously meets the requirement for a KID to be accurate, fair, clear and not misleading (arising from Article 6(1) of the PRIIPs Regulation, also in the light of recital 13). The PRIIP manufacturer is also obliged to establish and maintain internal processes to identify any circumstance which might result in a change that affects or is likely to affect the accuracy, fairness or clarity of the KID (Article 15(3) of the PRIIPs RTS).

D. Calculation of the credit risk measure (CRM)

  1. Determining the credit risk measure (CRM) in the absence of an insurance company credit assessment
    If an insurance company that is part of a group has no credit assessment of its own, and neither does the product, can the credit assessment of the parent company be used in the calculation of the credit risk measure?
    In order to calculate the credit risk measure (CRM) of an insurance company that is part of a group and has no credit assessment of its own, the credit assessment of the parent company can only be used if it is an entity that unconditionally and irrevocably guarantees the insurance company’s activities (point 32 of Annex II to the PRIIPs RTS). The procedure for determining the credit risk measure in the absence of a credit assessment is set out in point 43 of Annex II to the PRIIPs RTS. General requirements are stipulated in points 30 et seq. of the PRIIPs RTS.
    See also answers 26 (the procedure to be applied in the absence of a credit assessment assigned to the obligor or the product) and 31 (the inadmissibility of using a credit assessment assigned to a group) of the Q&As on the PRIIPs RTS.
  2. Adjusting the insurance company’s credit risk measure (CRM)
    If an insurance company is compliant with the Solvency II conditions, can its credit risk measure be set at step 1 or 2?
    The default credit quality step of an insurance company that has no credit assessments is set at 3 (point 43(a) of Annex II to the PRIIPS RTS). This corresponds to a credit risk measure of 3 (point 45 of Annex II to the PRIIPs RTS). If the conditions for applying mitigating factors are met, the credit risk measure may be reduced by another step or steps, i.e. to 2 or 1. These mitigating factors, which include the Solvency II requirements, are listed mainly in point 47 of Annex II to the PRIIPs RTS. By contrast, points 49 and 50 of Annex II to the PRIIPs RTS contain factors which increase the credit risk measure.
    See also answer 28 of the Q&As on the PRIIPs RTS (details for applying the mitigating factors under point 47 for insurance undertakings subject to Solvency II).

E. Other KID-related issues

  1. Insurance-based investment products
    How should the KID for an insurance product be drawn up if the investment option will not be subject to the PRIIPs Regulation until 2019?
    Article 5(1) of the PRIIPs Regulation stipulates the duty for the PRIIP manufacturer (for this question, an insurance company as the manufacturer of an investment insurance product) to draw up the KID in accordance with the Regulation. It is therefore the PRIIP manufacturer’s responsibility to secure the necessary information or to obtain it from the relevant persons (such as the administrator of an investment fund) to the corresponding extent, for example on a contractual or other basis. Offering products falling within the scope of the PRIIPs Regulation without a corresponding KID constitutes a breach of the PRIIPs Regulation. See points 8 and 18 of the Commission Guidelines. Nevertheless, Article 14(2) of the PRIIPs RTS contains a specific provision regarding investment funds enabling the key investor information document to be used to provide specific information on individual underlying investment options in the form of investment funds pursuant to Article 227 et seq. of the AoMCIF.
  2. Categorisation of investors under the PRIIPs Regulation
    Does an “institutional investor” mean a professional client under MiFID?
    As regards the PRIIPs Regulation, the definition of retail investor in Article 4(6) of the PRIIPs Regulation is more relevant. For the purposes of the PRIIPs Regulation, a retail investor is a client who does not qualify as a professional client under MiFID II. The term “institutional investor” is used only in recital 7 of the PRIIPs Regulation, which states that investment funds dedicated to institutional investors are excluded from the scope of this Regulation since they are not for sale to retail investors. The link between the recital and the legislative text leads us to conclude that institutional investors are professional clients under MiFID or a subset thereof. However, the deciding factor as regards the duties to draw up and provide a KID is whether the fund is being offered to retail investors pursuant to Article 4(6) of the PRIIPs Regulation.
    See the answer to question 1 of the Q&As on the PRIIPs RTS (the relationship between the categorisation of investors provided for in national law and the PRIIPs Regulation).
  3. Change in the statute of a fund for qualified investors
    Will the CNB require a change in the statute of funds for qualified investors in order to assess whether they should draw up a PRIIPs KID
    The definition of retail investor for the purposes of the PRIIPs Regulation is given in Article 4(6) of the PRIIPs Regulation. A qualified investor who does not qualify as a professional client under MiFID II meets the definition of a retail investor under the PRIIPs Regulation. Most funds for qualified investors may thus be subject to the duty to produce a PRIIPs KID. Nevertheless, the PRIIPs Regulation obliges the entity to provide the KID “in good time before those retail investors are bound by any contract or offer relating to that PRIIP” (Article 13(1) of the PRIIPs Regulation) and draw up and publish the KID “before a PRIIP is made available to retail investors” (Article 5(1) of the PRIIP Regulation. As regards the PRIIPs Regulation, all that matters is whether the investment is actually being offered to retail investors. Any difference between the fund’s statute (which potentially enables offers to be made to retail investors) and the actual situation (no offers are being made to retail investors in reality) does not require a change in the statute of the fund for qualified investors. Nevertheless, in such a situation the CNB expects funds for qualified investors to prove in a plausible manner that no offers are being made to retail investors.
  4. KID and pre-contractual information
    The information to be provided in the KID is currently included in the pre-contractual information. Is it possible to add any extra information included in the pre-contractual information to the KID in the section titled “Other relevant information”?
    The PRIIPs Regulation assumes in Article 8(3)(i) that the section titled “Other relevant information” will contain an indication of any additional information documents to be provided to the retail investor at the pre-contractual and/or the post-contractual stage, excluding any marketing material. Pursuant to Article 8(1) of the PRIIPs RTS, the indication must also contain information about whether such additional information documents are made available based on a legal requirement or only at the request of the retail investor. The use of this section of the KID to communicate any obligatory information could only be considered if the compulsory maximum scope of the KID would not thereby be exceeded and the other relevant information was not presented in an asymmetric and unbalanced manner overshadowing the purpose of the KID. See recital 16 of the PRIIPs RTS.

Updated 22 October 2018

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