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Questions and answers for retail investors subject to CMVM supervision who subscribe to PRIIPs


latest update: 3 July 2019

p​ublished: 4 January 2018


 

1. What are PRIIPs?
2. What is meant by the European regulation of PRIIPs?
3. Types of PRIIPs and what kind of products are they associated to?
4. What kind of products are excluded from the PRIIPs' classification?
5. Does the PRIIPs regulation apply to products that are traded on the secondary market?
6. What is the Key Information Document (KID) and what is it used for?
7. Who is responsible for drawing up the KID?
8. What is the format and contents of the KID?
9. For whom is the KID document intended for?
10. By whom should the KID be made available?
11. When should the KID be made available?
12. How should the KID be made available?
13. Can the KID change during the life of the product?
14. How do I know whether my KID has been changed?
15. If I wish to subscribe or acquire a PRIIP marketed by an entity from another Member State or third country, I am entitled to a KID?
16. May one subscribe or purchase a PRIIP based on advertising alone?
17. What are the rights of the investor in case of non-compliance with the PRIIPs?
18. How can I submit a complaint under the PRIIP regime and to whom should I address the complaint?
19. May I complain to the Portuguese authorities even though the non-compliance was committed by an entity from another country?
20. In the event of non-compliance with the PRIIP regime, may national authorities impose sanctions?
21. In the event of non-compliance with the PRIIP regime by another Member State or a third country, may national authorities impose sanctions?
22. How may non-compliance be reported to national authorities?

 

1. What are PRIIPs?
PRIIPS are packages of retail investment products and insurance-based investment products. The acronym PRIIPs is derived from the English language – Packaged Retail and Insurance-based Investment Products (PRIIPs) provided for in Regulation (EU) No. 1286/2014 of the European Parliament and of the Council of 26 November, usually referred to as the "PRIIPs Regulation".
 
2. What is meant by the European PRIIPs regulation?
The European PRIIPs regulation aims to harmonise pre-contractual information provided to retail investors in the marketing and provision of advisory services on these products. The main objectives are to increase the protection of retail investors and to restore confidence in the markets by improving transparency and product comparability. 

3. Types of PRIIPs and what kind of products are they associated to?
 A PRIIP may be:

  • A Packaged Retail Investment Product (PRIIP): an investment where, irrespective of its legal form, the amount to be repaid is subject to fluctuations due to exposure to reference values ​​or to the performance of one or more assets indirectly acquired by the retail investor; and/or
  •  An Insurance-Based Investment Product (IBIP): an insurance product that offers a maturity or redemption value that is fully or partially exposed, directly or indirectly, to market fluctuations.

The following are examples of products included within the scope of the PRIIPS: 

    • Structured deposits,
    • Structured products,
    • Derivative instruments,
    • Unit-linked,
    • Capitalisation operations whereof the global amount of the provision of the insurer at maturity or redemption, is somehow dictated by the financial market's fluctuations; and
    • Profit-sharing insurance and capitalisation operations (provided that these are, even if partially, financial results and thus depending on financial market fluctuations). 

4. What kind of products are excluded from the PRIIPs' classification?
By way of example, the following products are excluded from the PRIIPs classification:

  • Corporative shares, sovereign bonds;
  • Simple term deposits yielding fixed interest rates or floating interest rates directly linked to an interest rate index such as Euribor or Libor;
  • Life insurance products that are payable on death, incapacity due to injury, sickness or disability;
  • Non-life insurance products;
  • "Pension Products", therefore contracts structured under national law to provide investors with retirement income and entitle them to receive certain benefits - the most relevant example is that of the PPR – Plano de Poupança Reforma (retirement savings plan), whether in the form of life insurance contracts, pension funds or investment funds;
  • Closed or open pension funds, and pertaining to the open pension funds, both the collective and individual memberships – wherein all are specifically intended to provided retirement income;
  • Group life insurance contracts that national law, including tax law, recognises as financing occupational pension plans - for the reason stated in relation to the preceding category. 
5. Does the PRIIPs regulation apply to products that are traded on the secondary market?
Products qualifying as PRIIPs that on 1 January 2018 still allowed for subscription/ acquisition originating in the primary market (i.e., the market wherein the creation and subscription operations of PRIIPs take place) and whose acquisition at a later date is possible in a secondary market ( (i.e., the market wherein PRIIPs are traded by those who previously subscribed or acquired them) must have a Key Information Document (KID) that will be made available to the investor prior to the respective acquisition.
 
But, if: 
 
(i)  on 1 January 2018, the products no longer accepted subscriptions/acquisitions originating on the primary market and could only be traded on the secondary market, or 

(ii) the PRIIP producer has defined (e.g. in the prospectus) that the product is not intended to be marketed for retail investors, then there may not be a KID for such products. ​
 
6. What is the Key Information Document (KID) and what is it used for?
The KID is a standalone pre-contractual information document, clearly differentiated from trade promotion materials and cannot be cross-referenced and wherein key information is provided for retail investors to comprehend and compare key characteristics, risks and returns and product costs.
 
Consulting the KID does not diminish the importance of other specific informative elements of each product (e.g. Prospectus, Final Terms, General and Special Conditions, Depositor Information Form or others).
 
7. Who is responsible for drawing up the KID?
The responsibility for drawing up the KID, including the accuracy of its contents, lies with the producer of the respective PRIIP (which may not coincide with the respective marketer). 
 
8. What is the format and contents of the KID?
The KID is presented in A4 format, written clearly and succinctly and contains a maximum of 3 pages, in the same order of headings and titles as indicated in the European Technical Standards whose function is to harmonise the organisation and language used in each KID to facilitate product comparability.
 
The characters of the KID shall be readable and shall exclude anything that makes it difficult to understand and read. At the beginning of the KID, the name of the PRIIP, the identity and contact details of the respective producer, the identity of the competent authority for PRIIP supervision and the date of preparation of the document, are indicated.
 
The KID is structured by sections. In addition to the initial sections entitled “Purpose” and “Product” and a final section called “Other Relevant Information”, reserved for any additional relevant information, there are an additional 6 sections. The title of each of these 6 sections corresponds to one question. The questions relate to topics whose answers retail investors need to know in order to shape their decision to invest or not.

The 6 sections of the KID referred to above are titled by the following issues:
  • ​"What is this product?", wherein the nature and main features of the PRIIP are mentioned;
  • "What are the risks and what may I get in return?", wherein a brief description of the PRIIP risk-level is given (namely by a summary risk indicator with a numerical scale from 1 to 7, where 7 corresponds to the highest risk), the maximum potential loss of invested capital, four possible performance scenarios of the product and its assumptions, the return conditions, if applicable, and the indication that the tax legislation of the retail investor's home Member State may have an impact on the effective return;
  • "What happens if [name of PRIP producer] can't pay it?", where mention is made of the existence of a compensation or guarantee scheme for retail investors and, if any, what are the conditions of coverage and exclusions;
  • "What are the costs?", where total costs associated with the PRIIP are mentioned and the impact of these costs on the PRIIP's annual return;
  • "How long should I keep a PRIIP? And may I make early capital mobilisations?", where the reflection or cancellation period is mentioned, if there is a recommended or minimum holding period required and what are the consequences of a product redemption before maturity or recommended holding period, indicating the commissions and penalties applicable in this case;
  • "How can I lodge a complaint?", where it is indicated how a complaint can be lodged, either from the PRIIP or from the conduct of the producer, trader or a consultant.
In some cases, there is still an obligation in the KID after the initial sections to give the following warning to the retail investor: “You are about to buy a product that is not simple and is difficult to understand”. 

See the KID model ​here
 
9. For whom is the KID document intended for?
The KID shall be made available to retail investors or the person mandated in writing for making investment decisions on their behalf, as defined in that mandate.
 
Professional investors are entities listed in the Securities Code, such as:
  • Credit institutions;
  • Investment companies;
  • Insurance companies;
  • Collective investment institutions and their management companies;
  • Pension funds and their management companies.
Retail investors are those who do not meet the requirements to be classified as professional investors and are commonly referred to as retail investors.
 
10. By whom should the KID be made available? 
The KID should be made available to the retail investor by who provided consultancy whenever the investment proposal involves a PRIIP or directly by the entity that markets it (whether it is a bank or another financial institution).
  
11. When should the KID be made available? 
The KID should be made available, as a rule, before the retail investor becomes bound by the subscription or acquisition of the PRIIP (before signing the subscription or acquisition document or, in online sales, before clicking on the sign "I accept", "Accept" or similar).
 
Disclosure of the KID should be made in advance to allow the retail investor to review it prior to being bound by the subscription or acquisition of the PRIIP.
 
But there are special cases where it is permissible for the KID to be made available after the time of subscription or acquisition of the PRIIP, and those where the following conditions occur cumulatively:
 
a) the retail investor has the initiative to contact the retailer by means of distance communication and to complete the subscription or acquisition of the product through the same kind;
(b) it is not possible to provide the KID prior to the commitment (this is the case, for example, by telephone sale only);
(c) the entity obliged to make the KID available has informed the retail investor prior to the subscription or acquisition of the impossibility of providing it prior to the subscription or acquisition and has clearly stated that the retail investor may postpone the transaction to receive and read the KID before completing the transaction;
d) upon receipt of the information under the preceding paragraphs, the retail investor chooses to receive the KID after the transaction has been completed but without undue delay rather than postponing the transaction until receipt of the KID.
 
In the case of successive subscriptions or acquisitions of the same PRIIP, in accordance with instructions given by the retail investor to the trader prior to the first subscription or acquisition, the obligation to make the KID available covers only the first subscription or acquisition (as well as the first subscription or acquisition after KID’s revision, when it occurs). 

12. How should the KID be made available?
The KID must be made available free of charge, in one of the following mediums:
 
a) on paper - this is the rule regime in the subscription or in-person acquisition of PRIIPs and in the provision of consulting services related to PRIIPs, and the use of another support is only possible if the retail investor has indicated as such;
(b) on another durable medium - if it is suitable for the context of marketing or advisory services and the retail investor, having been placed in a position to choose between paper and another medium, has chosen the other and choice can be proved;
c) through a website - if this medium is suitable for the context of the subscription or acquisition or provision of advisory services and the retail investor has been able to choose to receive between paper and the website and this choice can be demonstrated; in this case the retail investor shall also be notified electronically or by other means in writing of the website address and the exact location of its availability on that website, and the KID shall be accessible for download or storage on a durable medium for the period required for  consultation by the retail investor.
 
The trader or advisory service provider shall inform the retail investor of his/her right to request (and therefore, to receive) a free paper copy of the KID, at all times in case the KID is made available by one of the means set out in subparagraphs (b) and (c) above. 
 
13. Can the KID change during the life of the product?
Yes. In the case of PRIIPs that are still available for subscription or purchase, their producers review the information contained in the KID at least on a yearly basis, noting in particular:
  • whether the KID information remains in accordance with the form and content requirements of the European PRIIPs legislation;
  • if there are changes in the PRIIP's risk level;
  • if the return on the PRIIP's moderate performance scenario varied by more than 5%. 
The PRIIP producer revises and updates the KID whenever a re-examination leads to the conclusion that changes should be made. 

 

14. How do I know whether my KID has been changed?
Under European law, the PRIIP producer publishes the revised KID on its website.
 
In addition, pursuant to CMVM Regulation No. 8/2018, the PRIIP trader communicates to each customer any significant changes that are made to the KID following their revision. This communication shall identify and specify the changes concerned, refer to the location and mode of consultation of the revised KID and, where applicable, refer to the information concerning the rights that clients have under legal and contractual terms due to the changes that led to the revision of the KID. But it does not necessarily imply sending the revised KID to the customer. 
 
15. If I wish to subscribe or acquire a PRIIP marketed by an entity from another Member State or third country, I am entitled to a KID?
The PRIIPs Regulation applies to producers, traders and entities providing advisory services to retail investors in the European Union, including third country entities authorised to carry out these activities in Union territory.
 
Consequently, a retail investor wishing to subscribe to or acquire a PRIIP from an entity in another Member State or an authorised third country entity within the European Union is entitled to have the KID made available to him/her prior to its contracting, and the same in the context of the provision of PRIIP advisory services on European Union territory.
 
If a PRIIP is only offered to investors outside the European Union, it will not be necessary to comply with the requirements of the PRIIPs Regulation. In this case, there is no obligation to make the PRIIP’s KID available. 

16. May one subscribe or purchase a PRIIP based on advertising alone?
No, PRIIPs advertising or other commercial promotion elements is insufficient to subscribe or purchase a PRIIP, as it is understood that they do not contain all the necessary information for the retail investor to make a sufficiently informed decision as to the nature of the product and its characteristics, including the inherent risks. Hence the availability of the KID is mandatory. In addition, the PRIIP trade promotion elements must make explicit the existence of a KID and provide information on where and how it can be obtained, including the PRIIP producer's website.
 
Trade promotion elements cannot contain information that contradicts the KID’s information or that in any way diminishes the importance of the KID. 
 
17. What are the rights of the investor in case of non-compliance with the PRIIPs?
In the event of non-compliance with the PRIIP regime obligations, the retail investor may lodge a complaint with the producer, the trader and the consultancy service provider. They have a duty to establish effective means for complaints by retail investors to ensure a concrete, timely and appropriate response to the complaint. They should also have effective remedies in cases of cross-border disputes, particularly if the PRIIP producer is located in another EU Member State or in a third country.
 
The respective supervisory authorities (CMVM, ASF and Banco de Portugal, depending on the specific type of PRIIP concerned) are also entitled to receive complaints from retail investors in the context of supervising production, marketing and consultancy service activities concerning PRIIPs. 

18.  How can I submit a complaint under the PRIIP regime and to whom should I address the complaint?
Retail investors may file complaints through the complaint books compulsorily made available by financial institutions to clients, pursuant to Decree-Law No. 156/2005 of 15 September.
 
In addition, they may file complaints directly with the competent supervisory authorities, i.e. the CMVM, ASF or Banco de Portugal. The choice of the entity to file a complaint with, will depend on the type of PRIIP concerned:
  • When the production, marketing and provision of financial instrument (PRIP) advisory services is concerned, then the complaint should be filed with the CMVM.
  • If the production and marketing of insurance-based investment products (IBIP, including unit-linked) is concerned, and the provision of related advisory services, retail investors may complain directly to the Insurance and Pension Funds Supervisory Authority, preferably through their own form available on the Consumer Portal.
  • But if it concerns the production and marketing of structured deposits and the provision of advisory services on this type of product, then the competent authority is Banco de Portugal. Retail investors may submit a complaint directly to Banco de Portugal, preferably through their own form available on the Bank Customer Portal. 
19. May I complain to the Portuguese authorities even though the non-compliance was committed by an entity from another country?
Yes. Also, in these cases, although the non-complainant comes from another EU Member State or from a third country, if the PRIIP is marketed in Portuguese territory, the Portuguese supervisory authorities may receive and deal with their complaints.

20. In the event of non-compliance with the PRIIP regime, may national authorities impose sanctions?
Yes. Failure to comply with legal obligations regarding the preparation, availability and revision of the KID may be punishable with fines and ancillary sanctions under the applicable national legislation (Annex II to Law No. 35/2018 of 20 July), applicable to producers, traders and consultancy providers responsible for non-compliance.
 
In addition to sanctions, the supervisory authorities (CMVM, ASF and Banco de Portugal, depending on the specific type of the PRIIP concerned) may also exercise their supervisory powers by determining the remedy of non-compliant practices and, at the limit, the prohibition or the suspension of the PRIIP’s marketing, as well as a ban on the availability of a KID, requiring the drawing up of a new version. 

21. 
In the event of non-compliance with the PRIIP regime by another Member State or a third country, may the national authorities impose sanctions? 
Yes. Failure to comply with the obligations under the PRIIPs regime by entities of another Member State or third country may give rise to the imposition of fines and ancillary sanctions and may also justify the exercise of supervisory powers by the national authorities, provided that the PRIIPs are marketed in Portuguese territory.  
 
22.  How may non-compliance be reported to the national authorities?
If non-compliance is suspected, and in addition to the fact that a complaint may be filed, the national supervisory authorities make available on their websites open channels for reporting actual or potential infringements of the PRIIPs regime, guaranteeing the confidentiality and enforcement of the legal regime for the protection of the personal data of the complainant and the suspected offender.