UCITS IV requires UCITS to make an updated KIID available to investors for each sub-fund/standalone fund within 35 business days of 31 December each year. With the deadline fast approaching (19th February 2021) we thought we would take a brief look at some of the key requirements of the UCITS KIID.
What is the KIID?
The UCITS KIID is a stand-alone, pre-contractual, 2-page document containing the essential features of the fund. It is to be systematically provided to investors before they decide to invest. The document aims to help investors understand the nature and key risks of the fund in order to make a more informed investment decision.
What is the structure of the KIID?
The KIID follows a prescribed format. It comprises the following six sections:
- Title and Identification of the UCITS
- Objectives and Investment Policy
- Risk and Reward Profile
- Charges for the fund
- Past Performance
- Practical Information
For detailed analysis of these sections, see our ATLAS Funds Training portal.
How often is the KIID updated?
Each KIID must be updated at least annually, within 35 business days of 31 December. The purpose of this is to refresh performance data to the end of the previous calendar year. It must also be updated following any material change, for example, changes to the fund name, investment objective or for an SRRI update.
Is there a maximum length for the KIID?
The KIID must not exceed two pages. There is an exception for structured UCITS which are more complex, and permitted to be three pages of A4-sized paper when printed.
Does the KIID have to be translated?
The KIID needs to be translated into a “working” language in each jurisdiction in which it is made available for sale. In terms of the working language, caution should be had as a new translation may not be required for every country.
What are the plain language requirements?
A KIID must be drafted using plain language in a clear and succinct manner which makes it easily understood by the average retail investor. It must avoid the use of technical and legal jargon.
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 should be considered when preparing the KIID.
Any recent developments?
Benchmark and Past Performance
In 2019, ESMA published an updated UCITS Q&A. The revisions provide guidance on:
- The disclosure of the benchmark index in the Objectives and Investment Policy section of the KIID; and
- The disclosure of information regarding the past performance of the benchmark index.
Changes to the KIID were required to made as soon as practicable, or by the next KIID update, which for many was the annual update on 19 February 2020.
PRIIPs KIDs for UCITS
Whilst changes to the PRIIPs KIID remain in limbo, there has been no changes to the UCITS KIID grandfathering exemption, that granted an extended exemption period until 2022 for UCITS. This means that, as it stands now, a PRIIPs KID will need to be produced for all UCITS being sold to retail investors from 1 January 2022. Additionally, as things stand, no proposals have been tabled to ‘switch off’ the UCITS KIID requirements.
The Challenges
The KIID production process is time and resource consuming. The key challenges of maintaining KIIDs include:
- Managing the volume of documents;
- Compliance with complex requirements for determination of the Synthetic Risk and Reward Indicator (SRRI);
- The risk/reward profile
- Ensuring the KIID is clear, fair and not misleading – it can be difficult to explain to the average investor terms such as: counterparty risk, currency risk, credit risk, interest rate risk, market rate risk, volatility risk.
- Continual monitoring of variable KIID components, as well as non-scheduled production and distribution of new KIIDs as necessary
- Ensuring it is given to investors before they invest
- Record keeping and traceability of the information used to produce the various KIIDs.
Automation
A huge amount of time and resources are spent to ensure ongoing compliance with the KIID requirements. With the volatility seen last year, a huge proportion of UCITS funds had to reissue their KIID during the year before the annual update. This was due to the Synthetic Risk and Reward Indicator (SRRI) being different for the published one for 16 consecutive weeks.
To alleviate this regulatory burden, the Funds-Axis Fund Document Production Module can create factsheets, KIIDs and PRIIPs in seconds.
The Funds-Axis Factsheet Production Module provides:
- Custom Layout and Branding.
- Comprehensive Statistics – automated calculation of a wide range of fund performance and risk calculations (e.g SRRI).
- Interactive Charts – With our dynamic charts, you can easily create powerful visuals to assist in telling your data’s story.
- Web Widgets – The widgets provide you with additional functionality for your website.
- Full API – Our API which provides full access to all your data, calculations, statistics and charts.
Contact us today to learn how we can automate fund document production through direct connectivity to your source data, file transfer and batch data uploads.
UCITS KIIDs Training
If you would like a more in-depth understanding of the UCITS KIIDs requirements, check out our training course available on our ATLAS Funds Training platform. The training course provides a comprehensive overview of the UCITS KIID. You will come away with an understanding of the liability and ongoing obligations associated with KIIDs.
