What are 'Packaged Retail Investment and Insurance-Based Products - PRIIPs'

Packaged retail investment and insurance-based products (PRIIPs) is a broad category of financial assets that are regularly provided to consumers in the European Union (EU) through banks or other financial institutions. The category is intentionally broad and is intended to cover all packaged, publicly marketed financial products that have exposure to underlying assets (stocks, bonds, etc.), provide a return over time, and have an element of risk. Essentially, this covers all packaged retail investment products marketed in the European Union, including insurance policies. Direct investments, such as purchasing a specific share of a company or a sovereign bond are not, are not part of the PRIIPs as they are not packaged in with anything. The PRIIPs category was created by the European Commission for the purpose of regulation. The regulations, set to come into effect as of January 1, 2017, will set out new calculation methodologies and transparency requirements for PRIIPs, including what key information documents (KID) need to be prepared by entities offering PRIIPs within EU.

BREAKING DOWN 'Packaged Retail Investment and Insurance-Based Products - PRIIPs'

The European Commission is using the category of packaged retail investment and insurance-based products (PRIIPs) in order to standardize the information provided to the consumer. The stated purpose is to provide clarity on what is actually being purchased, free of jargon and complexity. This will also allow for better direct comparison between different products that meet a retail investor’s stated aims, for example the difference between using a stock fund versus a bond fund to accumulate capital for a down payment on a house.

PRIIP Savings for the EU

The decision to regulate PRIIPs was made as a result of surveys and consultations conducted by the European Commission, which found similar issues across the EU. Consequently, this regulatory push is EU wide rather than being decided on a member state basis. The commission has also stated that the regulation requiring standardized and simplified key information documents may be extended to other financial products beyond PRIIPs. Under the new regulations, the investment product manufacturer - for example, the fund provider - is responsible for creating the KIDs for their product. The size of the market in PRIIPs affected by these regulatory changes is roughly estimated to be $11 trillion dollars, so the commission sees even a 1% reduction in investor mis-purchases - buying the wrong product for their purposes - yielding a $11 billion savings across the EU as a whole.

 
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