The KIID - A Summary of the Requirements of the Key Investor Information Document

Author:Mr Carl O'Sullivan and Kevin Murphy
Profession:Arthur Cox
 
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Originally published 10th February 2011

One of the key provisions of the UCITS IV Directive, which was approved by the European Commission on 13 January 2009, is the implementation of the key investor information document ("KIID"). This document replaces the simplified prospectus which was required pursuant to the UCITS III Directive and which was seen to have a number of shortcomings.

The KIID is to be a short document containing key investor information the aim of which is to facilitate retail investors' understanding of the product being offered. It is intended to allow direct comparisons to be made more easily between UCITS funds. This briefing sets out the requirements relating to the KIID.

Reasons for the KIID

The aim of the simplified prospectus was to provide investors with a short document which would distil the pertinent details about a UCITS taken from its prospectus. It soon became clear that the objective that this document was intended to achieve was "lost in translation" in more ways that one. First, certain EU Member States imposed their own content requirements in relation to the document, hindering the ability to make comparisons between funds. Secondly, the time it took to prepare and update was significant and costly. Also, the nature of the disclosures required in the document meant that for UCITS with multiple sub-funds and multiple share classes what was meant to be a short document became a lengthy one. In some cases the simplified prospectus runs to over 10 pages in length. Also, notwithstanding the fact that the simplified prospectus often may be lengthy, detail about the real costs of investing in a fund and the risks of investing are not clearly identified in the simplified prospectus.

The purpose of the KIID is to seek to avoid these problems and create a uniform document that will communicate all relevant and pertinent information about a UCITS to investors. It is intended to enhance transparency and comparability through the use of a short and standardised fact sheet.

The European Commission engaged with the Committee of European Securities Regulators ("CESR") to determine the essential matters that must be included in the KIID. CESR issued technical advice to the European Commission on the level 2 measures relating to the format and content of KIID disclosures for UCITS. Summarised below are CESR's recommendations and an explanation of some of the differences between the KIID and the existing simplified prospectus regime.

The form of the KIID

Language Used

As the KIID is aimed at retail investors, the language must be written in a concise manner, in non-technical language and presented in a way that is likely to be understood by retail investors. It must be fair, clear and not misleading and must be consistent with the relevant parts of the prospectus. It should consist only of the kind of information that potential investors need to make an informed investment decision. CESR recommends that a UCITS should follow general good practice guidelines about clear language and layout and suggests, for example, that the Oxford Guide to Plain English, or the Plain English Handout prepared by the US Securities & Exchange Commission should be considered when preparing the KIID.

Size

In order to address the fact that the simplified prospectus has become a lengthy document the size and content of the KIID is now prescribed. It cannot exceed a double-sided A4 sheet (although for structured UCITS funds which are more complex three sides of A4 sized paper are...

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