EU Fund Distribution and PRIIPs KIDs notification are two interrelated subjects. Despite the fact that the European Parliament ordered at the end of 2018 a two-year delay for the application of PRIIPs rules for UCITS, these rules remain current for other funds, like retail AIFs and ELTIFs.
In this post we will briefly touch on some of the issues related to EU Fund Distribution and PRIIPs KIDs notification, especially for what concerns the obligation to notify PRIIPs KIDs in host state domiciles where marketing, offer and distribution is intended to local retail investors.
EU Fund Distribution and PRIIPs KIDs Notification – one additional layer of compliance
EU Fund Distribution and PRIIPs KIDs Notification rules are related. The obligation to provide fund documentation to national regulatory authorities in the host state domiciles where funds are marketed, as part of both the marketing authorisation process and the maintenance of the authorisations, exists in parallel with the separate notification obligations imposed by PRIIPs regulation to notify PRIIPs KIDs. In addition to that, PRIIPs regulation also contains detailed rules on provision of PRIIPs KIDs to retail investors, including rules on the modalities as well as the timing of such provision. Fund managers distributing retail AIFs in Europe shall bear in mind that PRIIPs notification rules shall be complied with when marketing cross border in Europe those funds that are required to produce these types of documents. The complexities of EU Fund Distribution and PRIIPs Notification rules impose on fund managers additional one additional level of compliance to take in consideration when carrying out pan-European fund distribution projects.
Provision of PRIIPs KIDs to Retail Investors
As a general rule, PRIIPs KIDs shall be provided to retail investors with good time in advance before investors are bound by the offer for that specific PRIIPs and the related transaction has been entered into and finalised. However, in derogation to this rule and subject to other certain specific conditions, PRIIPs KIDs may also be provided without delay after the transaction has been concluded.
PRIIPs regulation also stipulates the form in which PRIIPs KIDs shall be provided to investors and typically paper is the main form in cases of face to face transactions. Subject to specific conditions, PRIIPs KIDs can also be provided in either
i) a durable medium other than paper;
ii) by means of a website.
By and large the specific conditions to provide a PRIIPs KID not in a paper form revolve around a clearly evidenced option of the retail investor to receive the PRIIPs KID in such durable medium or through a website, as well as an evaluation of suitability of that medium to the specific context of the transaction and the confirmation that the retail investor has regular access to the internet.
PRIIPs KIDs Notification
As part of the formalities imposed by PRIIPs regulation, article 5.2 stipulates that Member States may require ex-ante notification of the KIDs for the PRIIPs that will be marketed to retail investors in their domiciles. As at today, not all Member States across Europe have resolved for implementation of this requirement. Accordingly, PRIIPs manufacturers or advisers may have the additional burden of notification of the KIDs for the PRIIPs offered to retail investors only in selected domiciles.
EU Fund Distribution and PRIIPs KIDs notification rules are interconnected. For the PRIIPs that are investment funds, the requirement to produce and notify PRIIPs KIDs is very similar to the one imposed on UCITS funds for the KIIDs. Fund managers with UCITS type funds as well as retail qualifying AIFs, ELTIFs included, will be able to take advantage of these similarities. Of course, marketing arrangements for a specific domicile include also the specific share or unit classes of a fund that will be marketed. In the UCITS KIIDs world, KIIDs for new share or unit classes intended to be offered in a specific domicile will have to be notified to local regulators. A different approach has been adopted for PRIIPs KIDs, because the ex-ante notification requirement has not been implemented across the board in the EU.
Similarly to UCITS KIIDs, PRIIPs KIDs will have to be translated in the local language of the specific domicile where the PRIIPs are offered to retail investors and will also have to be kept up to date for any material changes.
So far only a handful of member states out of the EU 27 have decided to implement the requirement of the PRIIPs KID notification. In the majority of cases where such ex-ante notification of PRIIPs KIDs will have to be carried out, this will have to be made in advance of marketing to retail investors in that domicile.
PRIIPs regulation also imposes that in case of material changes and generally on an ongoing basis there will be a requirement to update the PRIIPs KIDs. PRIIPs KIDs will also have to be notified in the local language of the specific domicile where English is not adopted. The language used for the PRIIPs KIDs shall also be in line with the language of other marketing material.
Also, whilst the modalities of the ex-ante notification are slightly different per each domicile, by and large, with few exceptions, the PRIIPs KIDs will have to be provided to the authorities in electronic format either to a dedicated email address or through a specific portal. PRIIPs KIDs will have to be named pursuant to specific naming conventions adopted through guidelines issued by the home state authority at issue and grouped accordingly.
However, as a rule of good governance in fund distribution and to the extent that it is possible, it might prove to be beneficial, also in domiciles where there is no such notification obligation, to facilitate the task of the regulators in keeping track of the fund documentation, PRIIPs KIDs included, that is provided to local retail investors.