Posted: 05/12/2023
Packaged Retail and Insurance Based Investment Products (PRIIPs) is an EU regulation brought into force on 26 November 2015 which set out a requirement for the provision of Key Information Documents in relation to certain financial products.
The intention of the regulation was to improve the information provided to retail customers to help them understand certain complex financial products by making them more transparent. The regulation applies to PRIIPs manufacturers and persons advising on, or selling, PRIIPs. It only applies to retail customers; professional customers cannot rely directly on this regulation.
Following Brexit, the regulation was incorporated into UK law as a result of the European Union (Withdrawal Agreement) 2020 as amended by the Packaged Retail and Insurance-based Investment Products (Amendment) (EU Exit) Regulations 2019 (the UK Regulation). The UK Regulation has, however, now been repealed as part of the Government’s intention to replace the PRIIPs regulation with retail disclosure requirements that ‘work for the UK’s dynamic capital markets’.
A PRIIP was defined as ‘an investment where regardless of the legal form of the investment, 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 retail investor’.
These protections were intended to assist retail investors with a variety of products including stocks and shares, bonds, structured products and even financial spread betting and contracts for difference (CFDs).
A number of requirements were identified as being necessary to provide the additional transparency required by customers. The headline points are that there should be a ‘Key Information Document’ (KID) for each type of PRIIP. This has to be a short, standalone document (no more than three sides of A4) which focuses on the key information that retail investors need to understand the PRIIP. The information provided must be accurate, fair, clear and not misleading and has to be set out in language that is clear, succinct and comprehensible. The regulation also provides set information that has to be addressed in the KID which should be regularly reviewed and updated.
The KID offers a useful tool to retail investors to help them understand these complex products before deciding whether to proceed with them. It is not known currently what will replace the regulations once they are repealed fully.
While the UK Government’s consultation paper has confirmed that the existing PRIIPs regulation will be replaced with a new retail disclosure scheme, the draft of this legislation is not expected until 2024. It is therefore not yet clear what measures will be put in place in the future, and to what extent they will address a genuine concern about the information available to retail investors that had originally led to the implementation of PRIIPs.
For more information about our specialist group action litigation team and details of some of the group actions we are currently investigating, including claims against online trading platforms for potentially misleading information about the risks, costs, or product details of spread betting and CFD trading, and a claim against umbrella companies on behalf of contractors, please see our group action litigation page.
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