The Regulation will affect firms, both at a strategic and operational level.
The aim of the KID is to increase transparency for retail investors, allowing them to directly compare like-for-like products as well as different products that may also meet their needs. Investors will be able to compare, for example, insurance investment products with other investment funds across similar categories as set out in the KID.
This is likely to drive competition across retail investment products. Investors and distributors are likely to favour well-written KIDs – it will be important to get this right.
Manufacturers which find they have multiple products with similar characteristics may want to rationalise their product range so that retail investors are offered a meaningful choice of products. This would also reduce the challenge of producing and maintaining multiple KIDs which have similar offerings.
The manufacturer will need to take stock of existing products and determine which products are in scope of the Regulation. They will need to assess IT requirements, people aspects including capacity and existing and required processes.
Where a gap is identified, the manufacturer will need to determine whether to fill the gap themselves or whether to outsource, whilst taking into account that liability for the KID will remain with the manufacturer.
Manufacturers will need the right information and present it in the right way, ensuring language is simple, consistent with other materials and translated appropriately.
Lessons learnt from implementing UCITS KIIDs suggest frequent content issues that arise are: the difficulty of expressing complex terms in plain language whilst remaining consistent with other materials; and the use of excessive information or generic wording. Unstructured text and weak translations are also common problems.
Data quality and integrity will also be important in calculating risk, charges and performance. Learning from the UCITS KIID example, the risk indicator will depend on product classification and will need to be monitored on an ongoing basis.
The definition and isolation of elements that will need to be included in the charge figure may become a cumbersome process and drive review of charge structures if it appears that costs compare unfavourably with competitors or other investment products.
A key impact on product manufacturers is likely to be the sheer number of KIDs that will need to be produced from scratch. Manufacturers will need to take stock of all their investment products and are likely to need a production process on an industrial scale.
A key issue identified in the UCITS KIID implementation process has been ensuring that all teams are working off the same lists to avoid unnecessary clarification and reconciliation discussions.
In addition to producing the KID, manufacturers will also need a process in place to ensure that their KIDs are kept up to date (and reviewed at least annually), identifying when an update is needed and then implementing the update.
A process will need to be established whereby distributors can access up-to-date KIDs in good time.
Manufacturers will need to train staff in KID production and process and distributors will require training on how to review KIDs.