The European Supervisory Authorities (ESA) – EBA, Eiopa and Esma – have issued a joint supervisory statement on key information documents (Kids) for packaged retail and insurance-based investment products (Priips).
More specifically, the regulators are targeting the ‘What is this product?’ section following the identification of a “range of poor practices in how Priip manufacturers describe products”.
They found a “general lack of clarity” in the text making it difficult for retail investors to fully understand the key features of the products in question.
As a result, the three watchdogs have included expectations within their statement on how to improve the quality of descriptions provided by Priips manufacturers and increase the protection of retail investors.
The measures aim to ensure that information is provided to retail clients in an “adequate, clear and accessible manner,” the ESA said.
They include:
- The use of overly broad, general categories when specifying the type of product;
- Poor practices regarding the overall clarity of the language and layout of the text, including as a result of automation in creating such texts;
- Insufficient information regarding capital protection levels and potential losses for the investor;
- Imprecise description of early termination features;
- Lack of clarity concerning the nature and timing of the coupon payments;
- Limited information about the specific nature of the underlying assets to which investors are exposed;
- Inadequate description of any leverage factors and the risks related to them; and,
- Undifferentiated and abstract descriptions for the ‘intended retail investor’.
