# EUR-Lex - 52012PC0352 - EN

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# 52012PC0352

**Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on key information documents for investment products /* COM/2012/0352 final - 2012/0169 (COD) */**

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EXPLANATORY MEMORANDUM

1.           CONTEXT OF THE PROPOSAL

This proposal is
about improving transparency in the investment market for retail investors.

Retail
investment products – which include investment funds, retail structured
products and certain types of insurance contracts used for investment purposes
– are essential for meeting the needs of EU citizens for products with which to
build up savings and investments, whilst also contributing to efficient capital
markets that help fund EU economic growth.

However,
asymmetries of information about investment products exist between retail
investors and those designing such products and seeking to sell them to these
investors. Retail investors are not thereby well equipped in protecting their
own best interests. Such investors often face confusing and overly-complex
information about possible investments, where risks and costs of products are
difficult to assess or compare. This undermines the efficiency of the
investment markets, leading to higher prices for investors. It also contributes
directly to the purchase of unsuitable products by retail investors, leading to
detriment to these investors either through unexpected costs or losses, missed
opportunities, or, in the worst case, through the loss of life savings with a
dramatic impact on individual and family wellbeing.

Existing
disclosures vary according to the legal form a product takes, rather than its
economic nature or the risks it raises for retail investors. The comparability,
comprehensibility and presentation of information vary, so the average investor
can struggle to make necessary comparisons between products. Indeed, product
disclosures are often focused more on reducing legal risks for the manufacturer
rather than providing effective, open and balanced communication to potential customers
about the product in a form that the customer is likely to understand and use.
Information – other than marketing – is typically overly lengthy and does not
sufficiently highlight key points or information.

The importance
of addressing these issues has been underlined by the financial crisis. Retail
investors have lost money with investments that carried risks that were not
transparent or understood by those investors. In addition, retail investment
products including retail structured products or insurance contracts for
investment purposes often have been and continue to be marketed to retail investors
as substitutes for simple products such as savings accounts although retail
investors do not necessarily understand the differences. This is in a context
where investor confidence has collapsed: a recent survey of consumers across
the EU showed they trust the financial services less than all other industry
sectors.

Rebuilding
confidence on a sound basis is vital. Improving provisions on transparency so
that they work in favour or retail investors, taking into account their needs is
a vital component of this.

The EU has
already taken innovative steps through the development of the UCITS 'key
investor information' document (UCITS KIID). It was developed in a new way, on
the basis of robust testing of disclosure approaches with retail investors
themselves, to shorten, streamline and focus information provided to the
greatest extent possible and ensure the information is comprehensible for the
average retail investor.

While disclosures
for UCITS have therefore already been improved, those for the wider range of retail
investment products have not. The task now is to address all such products: European
retail investors should always receive short, comparable and standardised
disclosures, termed 'key information documents' or KIDs in this explanatory
memorandum, whatever the investment product they are considering.

The genesis of this
proposal for an EU-wide KID is a request from the ECOFIN Council in May 2007
for the European Commission to examine the coherence of EU law applying to
different types of retail investment products.

A first stage
of work culminated in the adoption by the Commission in April 2009 of a
Communication on Packaged Retail Investment Products (PRIPs). The Commission
concluded in the Communication that a sustainable and satisfactory regulatory
environment for the sale and disclosures of retail investment products can only
be established through legislative change at the European level, since a lack
of effective rules at the European level underpinned inconsistencies in
practices across sectors. The Communication noted two areas of further work:
rules applying to sales, and rules on product disclosures. This proposal stems
from the latter work stream on product disclosures.

The proposal takes the form of a Regulation,
which will be supported by detailed delegated/implementing acts. This Regulation
sets the overall principles on the approach and content. The propsed
delegated/implementing acts  would standardise the presentation of the
information required by this Regulation as far as possible, however they would adapt
measures as necessary for the specific features of other retail investment
products and their differing risk profiles, to ensure that retail customers
always receive the key information they need to take informed decisions. These
detailed measures will ultimately form a package with the proposed Regulation.
They will have an impact on the overall costs which are related to the
introduction of the KID and so options for these detailed measures will
themselves be subject to a thorough impact assessment.

This proposal forms part of a wider legislative
package dedicated to rebuilding consumer trust in financial markets. The
package has two other parts. The first is an extensive overhaul of the
Insurance Mediation Directive 2002/92/EC (IMD) to ensure that customers benefit
from a high level of protection when buying insurance products. The final part
of the package aims at strengthening the function of the depositary for UCITS –
a key building block for investor protection provided for by the UCITS
Directive. To ensure the continued effectiveness of this building block, targeted
amendments are proposed to Directive 2009/65/EC.

The measures on product disclosure proposed
in this Regulation in particular complement investor protection measures on investment
advice and sales services. As
far as the sales of structured deposits are concerned these have been addressed
by the proposal for a Directive of the European Parliament and of the Council
on markets in financial instruments repealing Directive 2004/39/EC.[1] The revision of the IMD will
specifically deal with the improvement of the sales rules for investment
insurance products.

2.           Results of consultations with the
interested parties and impact assessments

The initiative
is the result of an extensive dialogue and consultation with all interested
stakeholders.

There have been
two phases of such consultations: the first followed the Council request and
preceded the publication of the Commission Communication in 2009. It included a
written call for evidence in October 2007, a Feedback Statement in March 2008,
a technical workshop was held with industry representatives in May 2008, and a
high-level Open Hearing in July 2008. The second phase of consultation was more
focussed on concrete elements of the work stream on disclosure, and followed
the Communication: a further technical workshop was held in October 2009, and
an Update on the work was published in December 2009.

In parallel to
these efforts the three Level 3 Committees of national supervisors (CEBS,
CEIOPS and CESR) worked together to develop their thinking on this subject. The
first output was the joint submission to the Commission of three sectoral
reports on 18 November 2009. Recognising the cross-sectoral nature of this
workstream, a joint Level 3 Task Force on PRIPs was established in 2009 and one
year later it submitted to the Commission its Final Report.

The Commission
launched a public consultation on concrete options in November 2010. The
Commission received around 140 contributions which have been published on the
Commission website. Responses to this consultation showed support across industry,
consumer and Member State stakeholders for the initiative and the broad
approach proposed. Differences of view focused mostly on the calibration of the
scope of the regime, and the extent to which the UCITS key investor information
approach might be copied for other retail investments.

These
consultations have been supplemented by a series of discussions with consumer
representatives (FIN-USE, Financial Services Consumer Group, and Financial
Services User Group), regulators (Financial Services Committee, European
Securities Committee, European Insurance and Occupational Pensions Committee)
and industry representatives.

This proposal
builds on the work undertaken by the three Level 3 Committees (CEBS, CEIOPS and
CESR[2]); opinions expressed during
consultations, including workshops, meetings with stakeholders, as well as on
the experience with the key investor information regime which has been
developed for UCITS.

In line with
its "Better Regulation" policy, the Commission prepared an impact
assessment of policy alternatives. Policy options related to the scope of the
new regime, level of standardisation, who should be held responsible for
producing of the disclosure, and how to ensure its effective provision to
retail investors. A number of studies, including an innovative study focused on
behavioural insights related to retail investors, supported this impact
assessment work.

The draft
impact assessment report was examined by the Impact Assessment Board, and
revised in line with its positive opinion of 15 April 2011. Amongst other
improvements, the interaction between the proposal and other measures on
investor protection, including those on selling practices was further
clarified, the concrete scope of products and entities impacted by the proposal
made clearer, the possible interaction of the proposals with other areas of
Union law clarified further, the analysis of options deepened and extended, and
the cost and benefit estimates were more clearly adjusted to reflect steps
already taken for UCITS. In addition, the analysis of the other factors
relevant for investor decision making was deepened to reflect more explicitly
that investor disclosures are only one such factor, and that the role of
advisors or sellers can be predominant in determining or influencing investor
choices in many practical sales environments.

3.           LEGAL ELEMENTS OF THE PROPOSAL

3.1.        Legal basis

This proposal
is based on Article 114 of the TFEU. It lays down uniform rules on investment
product disclosures for retail investors. It aims to ensure that retail
investors are able to understand the key features and risks of retail
investment products and to compare the features of different products. At the
same time it also aims to ensure a level playing field between different
investment product manufacturers and those selling those products. It aims
therefore to establish uniform conditions for the way investors in the Union
are informed about investment products by the means of a short document and how
the information is provided to them. This proposal therefore harmonises the
operating conditions in relation to the information on investment products for
all relevant players in the retail investment market, product manufacturers,
persons selling and investors.

Different rules
that vary according to the industry that offers the investment products and
national regulation in this area create an un-level playing field between
different products and distribution channels, erecting additional barriers to a
Single Market in financial services and products. Member States have already
taken divergent and uncoordinated action to address shortcomings in investor
protection measures and it is likely that this development would continue.
There is increasingly cross border trade in retail investment products, but divergent
national approaches will lead to different levels of investor protection,
increased costs and uncertainties for product providers and distributors which
represent an impediment to the further cross-border development of the retail
investment market. Such further development would also require easy comparisons
between products of different types across the Union. Divergent standards to
investor disclosure make such comparisons very difficult. Such different rules could
obstruct the fundamental freedoms and thus have a direct effect on the
functioning of the internal market. Experience in the field of UCITS also
suggests that different national approaches to disclosures can cause
significant distortions of competition. Consequently, the appropriate legal
basis is Article 114 TFEU.

It is considered
appropriate and necessary for this proposal to take the form of a regulation,
so that this initiative can serve its purpose. This measure is only dedicated
to retail investor disclosures. It does not address other rights or obligations
of product manufacturers, persons selling investment products or investors
where a Directive might be the appropriate legal form. Experience has shown
that if a product disclosure is to contain standardized information enabling
investors to compare between different investment products, this can only be achieved
by directly applicable provisions which do not require Member States to take any
additional implementing measures. If requirements on the content and the form
of disclosure diverged from one Member State to another as a result of the
transposition of a Directive, it would create an unlevel playing field for
market participants and an uneven level of investor protection. It is important
that this regulation impose direct obligations on private parties as regards
the preparation or the provision of the disclosure and the scope of these
obligations should not depend on national implementing measures.

3.2.        Subsidiarity and
proportionality

According to
the principle of subsidiarity laid down in Article 5(3) of the TEU, action on
the EU level should be taken only when the aims envisaged cannot be achieved
sufficiently by Member States alone and can therefore, by reason of the scale
or effects of the proposed action, be better achieved by the EU.

The aims of
this proposal, to ensure a level playing field across the EU among different
product manufacturers and persons selling investment products and to establish
a uniform level of investor protection by laying down harmonised rules on
transparency cannot be achieved by action taken at Member State level. National
approaches may have a beneficial impact with respect to investor protection
within the Member States in question. But national approaches are by definition
restricted to the relevant national territory. Furthermore, there is the risk
of divergent approaches to investor disclosures. They cannot create a Union
wide level playing field for investment product manufacturers and persons
selling and an even level of investor protection in relation to investor
disclosures across the EU. Therefore, action on the European level is needed.

In accordance
with the principle of proportionality (Article 5(4) TEU), it is necessary and
appropriate for the achievement of the objectives of this initiative to lay
down principles relating to the content and form of the disclosure for retail
investment products, as well as rules on drawing up and provision of these
disclosures to retail investors. Such requirements should be further developed at
level 2, so that a requisite level of consistency in measures can be achieved to
facilitate comparisons between investment products that originated in different
industry sectors.

3.3.        Compliance
with Articles 290 and 291 TFEU

Since 1st January 2011 the Regulations
establishing the three European supervisory authorities EBA, EIOPA, and ESMA
are applicable.[3]
In this respect the Commission wishes to recall the Statements in relation to
Articles 290 and 291 TFEU it made at the adoption of the Regulations which took
place on the 23rd September 2009 according to which: "As
regards the process for the adoption of regulatory standards, the Commission
emphasises the unique character of the financial services sector, following
from the Lamfalussy structure and explicitly recognised in Declaration 39 to
the TFEU. However, the Commission has serious doubts whether the restrictions
on its role when adopting delegated acts and implementing measures are in line
with Articles 290 and 291 TFEU."

3.4.        Detailed explanation of the
proposal

3.4.1.     Investment products which
should be accompanied by a KID when sold to retail investors

Investment
products can be manufactured to take different legal forms, so that the same
investment proposition is offered across different industry sectors. This manufacturing
can give the impression that the products are quite different, even where
underlying economic purposes are similar (e.g. a fund, a deposit and a
unit-linked insurance contract might look very different, but might be equally
used to deliver the same investment proposition). All of these products seek to
address a relatively simple need: capital accumulation that beats the risk-free
rate. While these products vary in what they offer – some combine the prospect
of capital accumulation with a capital guarantee, while others do not; some
combine an investment element with another element (such as offering life
insurance benefits) – they are all sold to retail investors when they approach
financial intermediaries or product manufacturers directly for products that
address capital accumulation needs.

Such investment
products expose the investor to fluctuations in the market value of assets or in
the payouts to be achieved from assets. But this exposure is not of the direct
kind, as for instance when an investor buys specific assets themselves. Instead
these products and those that manufacture them intercede between the investor
and the markets, through a combination of wrapping of those assets, or other
mechanisms that differ from a direct holding ("packaging"). Such
mechanisms can include techniques such as pooling capital from multiple
investors to enable collective investments, or engineering exposures through
the use of derivative instruments. These techniques can create additional complexity,
costs and opacity in relation to the product. They can also, however, allow for
risk spreading and other benefits that would not be available to the investor
on their own; they allow ordinary investors to participate in investment
markets more efficiently, leading to deeper capital markets and better options
for investors seeking to diversify their investment exposures. To capture all such
products, the definition of investment products in this Regulation refers
directly to this 'packaged' form. The Commission Communication of April 2009
referred specifically to packaged retail investment products, or PRIPs; following
consultations, this Regulation operationalizes this focus on packaged
investments through a reference to the indirectness of holdings of assets.

Such a
definition would include products with capital guarantees, and those where, in
addition to capital, a proportion of the return is also guaranteed; investment
funds, whether closed-ended or open-ended including UCITS; all structured
products, whatever their form (e.g. packaged as insurance policies, funds,
securities or banking products), insurance products whose surrender values are
determined indirectly by returns on the insurance companies own investments or
even the profitability of the insurance company itself as well as derivative
instruments. Some of these products may be used as individual retail pension
products, i.e. accumulation vehicles for the purposes of retirement planning.

As a result of
such a definition, the following products are not covered by this Regulation:

- products
where the precise rate of return is set in advance for the entire life of the
product, since here the amount payable is not subject to fluctuations in the
values of other assets (there is no investment risk);

- plain shares
and bonds, insofar as these do not contain a mechanism other than a direct
holding of the relevant assets;

- deposits
which are not 'structured', i.e. deposits which are determined by an interest
rate such as e.g. EURIBOR or LIBOR;

- insurance
products that only offer insurance benefits, such as pure protection insurance
products or non-life insurance products, which provide no surrender value that is
exposed to fluctuations in the performance of one or more underlying assets or
reference values.

- occupational
pension schemes covered by Directive 2003/41/EC or Directive 2009/138/EC.

- pension
products for which a financial contribution from the employer is required by
national law and where the employee has no choice as to the pension product
provider.

The mechanisms
by which payouts are made would not be relevant for determining scope: products
that yield an income, or provide a single pay out at maturity, or that adopt
some other arrangement, would all be in scope in so far as they satisfy the
general definition.

The definition
does not include any reference to a product being intended for retail use, even
though many investment products are designed with retail customers already in
mind. This is due to the fact that the retail element may only be determined at
the point of sale, when the distributor sells a certain investment product to a
retail customer, or provides advice on it. However, the disclosure would need
to be produced whenever a product that falls within scope is to be sold to
retail investors.

3.4.2.     Responsibility to produce
the KID - Article 5

The proposal
expressly allocates the responsibility for preparing the KID to the investment product
manufacturer, within the meaning of the Regulation: which means a person who
produces an investment product but also a person who has substantively changed the
risk or cost structure of an existing investment product. (An entity combining
other products would be a product manufacturer). This definition captures a
situation where the original manufacturer of a particular financial product
does not exercise control over the final product. Not every change to the
original product triggers such a shift of responsibility. However, changes
which significantly alter key features of the investment product such as its
risk reward profile or its costs shall be considered as remanufacturing the
product as clarified in Article 4. Delegation of the preparation of a part or
the whole disclosure to third parties, such as may occur under collaboration with
distributors, has no impact on the overall responsibility of the product
manufacturer with regard to the KID.

3.4.3.     Form and content of KID -
Articles 6 to 11

This proposal
introduces the principles of the UCITS KIID regime across all other retail investment
products – all KIDs should have a standardized 'look and feel' and contents
designed to keep them focused on key information presented in a common way, so
as to promote comparability of information and its comprehension by retail
investors.

The KID should
be seen as an opportunity to communicate effectively with potential investors
in a plain manner. Therefore the proposal provides clear indications in
relation to its form and language: it must be a short document, written in a
concise manner, in non-technical language that avoids jargon, so as to be
understandable by the average or typical retail investor, drawn up in a common
format so that investors are able to easily compare between different
investment products. The KID should be a stand-alone document in the sense that
retail investors should not be required to read other documents to be able to
understand the key features of the investment product and take an informed
investment decision, and it should be clearly distinct from marketing materials.

The proposal
specifies the essential elements of the investment product which should be
described in the KID: the identity of the product and its manufacturer, the
nature and the main features of the product, including whether the investor's
might lose capital, its risk and reward profile, costs, and past performance as
appropriate. Other information may be included for specific products, and information
about possible future outcomes should be provided for private pension products.
The proposal sets out a common format and sequence of sections to promote
comparability. It is of central importance that the information included in the
document is kept to a minimum, as otherwise the document will become too
complicated for the retail investor. In order to maintain its short form, no
other information should be included in the KID.

These
requirements should be supported by delegated acts and supporting methodologies
for calculating summary disclosures of risks and costs specified in technical
standards. Such an approach would allow for a maximal level of consistency and
comparability of disclosures consistent with the variety of products that fall
under the scope of the regime. It is envisaged that additional supporting
initiatives could substantially contribute to the success of this initiative,
for instance, development of common glossaries of terms or sharing of best
practices in use of plain language.

The proposal
outlines in addition measures on keeping the KID up to date and on ensuring
appropriate references in accompanying marketing information.

The proposal
clarifies the liability of the investment product manufacturer on the basis of the
KID and the burden of proof in this regard: it is for the product manufacturer to
show that they have complied with the Regulation when a retail investor makes a
claim.

3.4.4.     Obligation to provide the
KID – Articles 12 to 13

The proposal
requires the KID to be provided to retail investors (rather than simply
offered). Whoever is selling the product to retail investors (whether a
distributor or the product manufacturer in case of direct sales) must provide
the disclosure to the potential investor in good time before a sale is
transacted. The timing of provision is vital; to be effective the document must
be provided before an investment decision is taken. However, the proposed
Regulation provides for some flexibility as regards the timing of provision for
certain forms of distribution that are not face-to-face. Also, the proposal
includes requirements on the media used for providing the KID to retail
investors, including conditions designed to allow for media other than paper. These
requirements aim to ensure the appropriateness of these media to the sale and
the continued access of the retail investor to the information in the future.
To achieve consistent outcomes, details of the method, timing and conditions
for the provision of the disclosure to a retail investor will be clarified by
delegated acts.

3.4.5.     Complaints, redress and
cooperation – Articles 14 to 17

This proposal
includes measures to ensure effective complaints procedures both on the part of
the investment product manufacturer and at the level of Member States. In
addition, it includes measures to ensure effective access to dispute resolution
procedures and redress.

The
cross-sectoral character of this proposal, which includes banking, insurance, securities
and fund products, requires enhanced and efficient co-operation between competent
authorities in all sectors.

3.4.6.     Administrative sanctions
and measures – Articles 18 to 22

The Commission Communication on sanctions[4] confirmed that 'ensuring proper
application of EU rules is first and foremost the task of national authorities,
who have the responsibility to prevent financial institutions from violating EU
rules, and to sanction violations within their jurisdiction', but stressed at
the same time the co-ordinated and integrated way in which national authorities
should act.

In line with the Communication and
following other initiatives at EU level in the financial sector, this proposal
contains provisions on sanctions and measures aimed at introducing a harmonised
approach to sanctions in order to ensure consistency. It is important that
administrative sanctions and measures are applied where key provisions of this
proposal are not complied with and that those sanctions and measures are
effective, proportionate and dissuasive.

3.4.7.     Transitional provision for
UCITS and review clause – Articles 23 to 25

Given the recent introduction of the KIID
for UCITS, it would not be proportionate to apply the KID requirements of this
Regulation to UCITS at this stage. For this reason, a transitional provision is
included to allow UCITS to continue to use the KIID in accordance with
Directive 2009/65/EC for five years from the entry into force of this
Regulation.

At that point, the Commission would be able
to assess how UCITS should be treated and whether and if so how the existing
UCITS KIID should be amended so as to achieve the greatest possible degree of
comparability of information between UCITS and other investment products
subject to the KID under this regulation. Other than identifying possible
adjustments to the content of the UCITS KIID, several options are conceivable
for delivering these adjustments in a proportionate way. One option would be to
prolong the transitional arrangement of this Regulation, so that UCITS would continue
to be only subject to the requirements in Directive 2009/65/EC – though these
requirements could be adjusted to ensure comparability of information. Another
option would be to amend Directive 2009/65/EC by repealing the provisions on
the UCITS KIID, moving the substantive rules on the disclosure for UCITS to
this Regulation. A final option would be to leave the substantive rules on the
UCITS KIID in the UCITS framework, but to establish that this document is
equivalent to the PRIPs KID under this Regulation. The assessment of options
could include, where necessary, the identification of any changes to the KID in
this Regulation that may be necessary.

This Regulation foresees a review of the
effectiveness of its measures after four years. This is timed prior to the end
of the transitional period just mentioned so that conclusions can already be
drawn on the appropriate treatment of UCITS. The review should also consider
whether or not the scope of the Regulation should be broadened further to cover
new or innovative investment products being offered in the Union.

3.4.8.     Interaction with other
Union law targeting the provision of information to consumers

In relation to other disclosure
requirements in Union law, it should be noted that the KID required under this
Regulation is a new disclosure document which will be designed in a way which
is exclusively tailored, in terms of its contents and design, to the needs of
ordinary retail investors when considering and comparing different investment products
prior to an investment. Its design and its purpose are therefore not fully
identical with other disclosure requirements such as the summary under the Prospectus
Directive or disclosure requirements under Solvency II. These disclosures seek
to fulfil purposes in addition to the delivery of key information to retail
investors, such as ensuring transparency towards financial markets or a full
picture of all details in relation to a proposed contract. Therefore, the KID
cannot easily replace these other requirements and will exist in parallel to
these requirements. However, the experience with the requirements of this
Regulation will show whether in practice the KID requirements should be further
developed, for instance so as to replace certain disclosures required under
other Union law.

In addition, the KID requirements exist in
parallel to the requirements of the Directive on distance marketing of consumer
financial services (DMFSD) and the e-commerce Directive. The requirements of
the DMFSD are service related and the requirements of the e-commerce Directive
are supplementary to other information requirements under Union law. Therefore,
this Regulation will not impact those Directives.

4.           BUDGETARY IMPLICATION

There are no implications for the EU budget
in that no additional funding and no additional posts will be required to
perform these tasks. The tasks envisaged for the European Supervisory Authorities
fall within the scope of existing responsibilities for these Authorities,
therefore the allocation of resources and staff foreseen in the approved
Legislative Financial Statements for these Authorities will be sufficient to
facilitate the execution of these tasks.

2012/0169 (COD)

Proposal for a

REGULATION OF THE EUROPEAN PARLIAMENT
AND OF THE COUNCIL

on key information documents for
investment products

(Text with EEA relevance)

THE EUROPEAN PARLIAMENT AND THE
COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the
Functioning of the European Union, and in particular Article 114 thereof,

Having regard to the proposal from the
European Commission,[5]

After transmission of the draft legislative
act to the national Parliaments,

Having regard to the opinion of the
European Central Bank,[6]

Having regard to the opinion of the
European Economic and Social Committee,[7]

After consulting the European Data
Protection Supervisor,

Acting in accordance with the ordinary
legislative procedure,

Whereas:

(1)       Retail investors are
increasingly offered a wide variety of different types of investment products
when they consider making an investment. These products often provide specific
investment solutions tailored to the needs of retail investors, but are
frequently complex and difficult to understand. Existing disclosures to
investors for such investment products are uncoordinated and often fail to aid
retail investors compare between the different products, and in comprehending
their features. As a consequence, retail investors have often made investments with
risks and costs that were not fully understood by those investors, and have
thereby on occasion suffered unforeseen losses.

(2)       Improving provisions on
transparency of investment products offered to retail investors is an important
investor protection measure and a precondition for rebuilding confidence of retail
investors in the financial market. First steps in this direction have been
already been taken at Union level through the development of the key investor
information regime established in Directive 2009/65/EC of the European
Parliament and of the Council of 13 July 2009 on the coordination of laws,
regulations and administrative provisions relating to undertakings for
collective investment in transferable securities (UCITS).[8]

(3)       Different rules that vary
according to the industry that offers the investment products and national
regulation in this area create an un-level playing field between different
products and distribution channels, erecting additional barriers to a Single
Market in financial services and products. Member States have already taken
divergent and uncoordinated action to address shortcomings in investor
protection measures and it is likely that this development would continue.
Divergent approaches to investment product disclosures impede the development
of a level playing field between different investment product manufacturers and
those selling these products and thus distort competition. It would also create
an uneven level of investor protection with the Union. Such divergences represent
an obstacle to the establishment and smooth functioning of the Single Market. Consequently,
the appropriate legal basis is Article 114 TFEU, as interpreted in accordance
with the consistent case law of the Court of Justice of the European Union.

(4)       It is necessary to
establish uniform rules at the level of the Union applying across all
participants of the investment product market on transparency so as to prevent divergences.
A Regulation is necessary to ensure that a common standard for key information
documents is established in such a uniform fashion so as to be able to harmonise
the format and the content of these documents. The directly applicable rules of
a Regulation should ensure that all participants in the investment product
market are subject to the same requirements. This should also ensure uniform
disclosures by preventing divergent national requirements as a result of the
transposition of a Directive. The use of a Regulation is also appropriate to
ensure that all those selling investment products are subject to uniform
requirements in relation to the provision of the key information document to
retail investors.

(5)       Whilst improving investment
product disclosures is essential in rebuilding the trust of retail investors in
the financial markets, effectively regulated sales processes for these products
are equally important. This Regulation is complementary to measures on
distribution in the Directive 2004/39/EC of the
European Parliament and the Council.[9]
It is also complementary to measures taken on the distribution of insurance
product in Directive 2002/92/EC of the European
Parliament and of the Council.[10]

(6)       This Regulation should
apply to all products regardless of their form or construction that are
manufactured by the financial services industry to provide investment
opportunities to retail investors, where the return offered to the investor is
exposed to the performance of one or more assets or reference values other than
an interest rate. This should include such investment products as investment
funds, life insurance policies with an investment element, and retail
structured products. For these products, investments are not of a direct kind achieved
when buying or holding assets themselves. Instead these products intercede
between the investor and the markets through a process of
"packaging", wrapping or bundling together assets so as to create different
exposures, provide different product features, or achieve different cost
structures as compared with a direct holding. Such "packaging" can
allow retail investors to engage in investment strategies that would otherwise
be inaccessible or impractical, but can also require additional information to
be made available, in particular to enable comparisons between different ways
of packaging investments.

(7)       In order to ensure this
Regulation applies solely to such packaged investment products, insurance
products that do not offer investment opportunities and products solely exposed
to interest rates should thereby be excluded from the scope of the Regulation.
Assets that would be held directly, such as corporate shares or sovereign
bonds, are not packaged investment products, and should therefore be excluded.
Since the focus of this Regulation is on improving the comparability and
comprehensibility of information about investment products being marketed to
retail investors, occupational pension schemes which fall under the scope of
Directive 2003/41/EC of the European Parliament and of the Council of 3 June
2003 on the activities and supervision of institutions for occupational
retirement provision[11]
or Directive 2009/138/EC of the European Parliament and the Council of 25
November 2009 on the taking up and pursuit of the business of Insurance and
Reinsurance (Solvency II),[12]
should not be subject to this Regulation. Similarly, certain occupational
pension products which fall outside the scope of Directive 2003/41/EC should be
excluded from the scope of this Regulation, provided that a financial
contribution from the employer is required by national law and provided that
the employee has no choice as to the pension product provider. Investment funds
dedicated to institutional investors are not within the scope of this
Regulation either since they are not for sale to retail investors. However,
investment products with the purpose of accumulating savings for individual
pensions should remain in scope because they often compete with the other
products under this Regulation and are distributed in a similar way to the
retail investor.

(8)       In order to provide
clarity on the relationship between the obligations established by this
Regulation and obligations established by Directive 2003/71/EC of the European
Parliament and the Council of 4 November 2003 on the prospectus to be published
when securities are offered to the public or admitted to trading and amending
Directive 2001/34[13]
and Directive 2009/138/EC, it is necessary to establish that these Directives continue
to apply in addition to this Regulation.

(9)       Investment product
manufacturers – such as fund managers, insurance undertakings, issuers of
securities, credit institutions or investment firms – should draw up the key
information document for the investment products they manufacture, as they are
in the best position to know the product and are responsible for it. The
document should be drawn up by the investment product manufacturer before the
products can be sold to retail investors. However, where a product is not sold
to retail investors, there is no necessity to draw up a key information
document, and where it is impractical for the investment product manufacturer
to draw up the key information document, this may be delegated to others. In
order to ensure widespread dissemination and availability of key information
documents, this Regulation should allow for publication by the investment
product manufacturer by means of a website of their choice.

(10)     To meet the needs of retail
investors, it is necessary to ensure that information on investment products is
accurate, fair, clear and not misleading for those investors. This Regulation
should therefore lay down common standards for the drafting of the key
information document, in order to ensure that it is comprehensible for retail
investors. Given the difficulties many retail investors have in understanding specialist
financial terminology, particular attention should be paid to the vocabulary
and style of writing used in the document. Rules should also be laid down on
the language in which it should be drawn up. Furthermore, retail investors
should be able to understand the key information document on its own without
referring to other information.

(11)     Retail investors should be
provided with the information necessary for them to take an informed investment
decision and compare different investment products, but unless the information
is short and concise there is a risk they will not use it. The key information
document should therefore only contain key information, notably as regards the
nature and features of the product, including whether it is possible to lose
capital, the costs and risk profile of the product, as well as relevant performance
information, and certain other specific information which may be necessary for understanding
the features of individual types of products, including those intended to be
used for retirement planning.

(12)     The key information
document should be drawn up in a format which allows retail investors to compare
different investment products, since consumer behaviours and capabilities are
such that the format, presentation and content of information must be carefully
calibrated to maximise understanding and use of information. The same order of
items and headings for these items should be followed for each document. In
addition, the details of the information to be included in the key information
document for different products and the presentation of this information should
be further harmonised through delegated acts that take into account existing
and on-going research on consumer behaviour, including results from testing the
effectiveness of different ways of presenting information with consumers. In
addition, some investment products give the retail investor a choice between multiple
underlying investments. Those products should be taken into account when
drawing up the format.

(13)     Increasingly retail
investors are not only seeking financial returns with their investment
decisions. Often they also pursue other purposes such as social or
environmental goals. In addition, information about non-financial aspects of
investments can be important for those seeking to make sustainable, long-term
investments. However, information on social, environmental or governance
outcomes being sought by the investment product manufacturer can be difficult
to compare or may be absent. Therefore, it is desirable to further harmonise
the details of the information on whether environmental, social or governance
issues have been taken into account, and if so in what ways.

(14)     The key information
document should be clearly distinguishable from any marketing communications.
Its significance should not be diminished by those other documents.

(15)     In order to ensure that the
key information document contains reliable information, this Regulation should
require investment product manufacturers to keep the key information document
up to date. To this end, it is necessary that detailed rules relating to the
conditions and frequency of the review of the information and the revision of
the key information document are laid down in a delegated act to be adopted by
the Commission.

(16)     Key information documents
are the foundation for investment decisions by retail investors. For this
reason, investment product manufacturers have an important responsibility
towards retail investors in ensuring that they comply with the rules of this
Regulation. It is therefore important to ensure that retail investors who
relied on a key investor document for their investment decision have an
effective right of redress. It should also be ensured that all retail investors
across the Union have the same right to seek compensation for damages they may
suffer due to failures on the part of investment product manufacturers in
complying with the requirements set out in this Regulation. Therefore, rules
regarding the liability of the investment product manufacturers should be
harmonised. This Regulation should establish that the retail investor should be
able to hold the product manufacturer liable for an infringement of this
Regulation in case a loss is caused through the use of the key information
document.

(17)     As retail investors in
general do not have close insight as to the internal procedures of investment
product manufacturers, a reversal of the burden of proof should be established.
The product manufacturer would have to prove that the key information document
was drawn up in compliance with this Regulation. However, it would be for the
retail investor to demonstrate that his loss has occurred due to the use of the
information in the key information document because this matter falls within
the direct personal sphere of the retail investor.

(18)     Regarding matters
concerning the civil liability of a investment product manufacturer and which
are not covered by this regulation, such matters should be governed by the
applicable national law determined by the relevant rules of International
Private Law. The competent court to decide on a claim for civil liability
brought by a retail investor should be determined by the relevant rules on
International Jurisdiction.

(19)     So that the retail investor
is able to take an informed investment decision, persons selling investment
products should be required to provide the key information document in good
time before any transaction is concluded. This requirement should generally
apply irrespective of where or how the transaction takes place. Persons selling
include both distributors and the investment product manufacturer themselves
where they choose to sell the product directly to retail investors. To ensure
necessary flexibility and proportionality, retail investors who wish to
conclude a transaction using a means of distance communication should be able
to receive the key information document after the conclusion of the transaction.
Even in this case the key information document would be useful for the
investor, for instance to allow the investor to compare the product purchased
with that described in the key information document. This Regulation is without
prejudice to the Directive 2002/65/EC of the European Parliament and the
Council.[14]

(20)     Uniform rules should be
laid down in order to give the person selling the investment product a certain
choice with regard to the medium in which the key information document is provided
to retail investors allowing for use of electronic communications where it is
appropriate having regard to the circumstances of the transaction. However, the
retail investor should be given the option to receive it on paper. In the
interest of consumer access to information, the key information document should
always be provided free of charge.

(21)     To ensure the trust of
retail investors in investment products, requirements should be established for
appropriate internal procedures which ensure that retail investors receive a
substantive response from the investment product manufacturer to complaints.

(22)     Procedures for alternative
dispute resolution allow for a quicker and less expensive settlement of
disputes than the courts and lighten the burden on the court system. For that
purpose investment product manufacturers and the persons selling investment
products should be under an obligation to participate in those procedures
initiated by retailed investors concerning the rights and obligations
established by this Regulation, subject to certain safeguards in conformity
with the principle of effective judicial protection. In particular, the
procedures for alternative dispute resolution should not infringe the rights
which the parties to such procedures have to bring legal proceedings before the
courts.

(23)     As the key information
document should be produced for investment products by entities operating in
the banking, insurance, securities and fund sectors of the financial markets,
it is of utmost importance to ensure a smooth co-operation between the various authorities
supervising investment product manufacturers so that they have a common
approach to the application of this Regulation.

(24)     In line with the Commission
Communication of December 2010 on reinforcing sanctioning regimes in the
financial sector[15]
and in order to ensure that the requirements set out in this Regulation are
fulfilled, it is important that Member States take necessary steps to ensure
that breaches of this Regulation are subject to appropriate administrative
sanctions and measures. In order to ensure that sanctions have a dissuasive
effect and to strengthen investors' protection by warning them about investment
products marketed in breach of this Regulation, sanctions and measures should
normally be published, except in certain well defined circumstances.

(25)     In order to fulfil the
objectives of this Regulation, the power to adopt acts in accordance with
Article 290 of the Treaty on the Functioning of the European Union should be
delegated to the Commission in respect of specifying details with regard to the
presentation and the format of the key information document, on the content of the
information to be included in the key information document, detailed
requirements with regard to the timing for provision of the key information
document as well as in relation to its revision and review. It is of particular
importance that the Commission carry out appropriate consultations during its
preparatory work. The Commission, when preparing and drawing up delegated acts,
should ensure a simultaneous, timely and appropriate transmission of relevant
documents to the European Parliament and Council.

(26)     The
Commission should adopt draft regulatory technical standards developed by ESMA,
EBA and EIOPA according to Article 8 regarding the methodology underpinning the
presentation of risk and reward and the calculation of costs by the means of
delegated acts pursuant to Article 290 of the Treaty on the Functioning of the
European Union and in accordance with the respective Articles 10 to 14 of the
Regulations (EU) No. 1093/2010, 1094/2010 and 1095/2010.

(27)     Directive 95/46/EC of the
European Parliament and of the Council of 24 October 1995 on the protection of
individuals with regard to the processing of personal data and on the free
movement of such data[16]
governs the processing of personal data carried out in the Member States in the
context of this Regulation and under the supervision of the competent
authorities. Regulation (EC) No 45/2001 of the European Parliament and of the
Council of 18 December 2000 on the protection of individuals with regard to the
processing of personal data by the EU institutions and bodies and on the free
movement of such data,[17]
governs the processing of personal data carried out by the European Supervisory
Authorities pursuant to this Regulation and under the supervision of the
European Data Protection Supervisor. Any processing of personal data carried
out within the framework of this Regulation, such as the exchange or transmission
of personal data by the competent authorities should be in accordance with
Directive 95/46/EC and any exchange or transmission of information by the
European Supervisory Authorities should be in accordance with Regulation (EC)
No 45/2001.

(28)     While UCITS are investment
products within the meaning of this Regulation, the recent establishment of the
key investor information requirements under Directive 2009/65/EC means that it
would be proportionate to provide to such UCITS a transitional period of 5 years
after the entry into force of this Regulation during which time they would not
be subject to this Regulation. Following this period they would become subject
to this Regulation in the absence of any extension of this transitional period.

(29)     A review of this Regulation
should be carried out four years after the entry into force of this Regulation in
order to take account of market developments, such as the emergence of new
types of investment products, as well as developments in other areas of Union
law and the experiences of Member States. The review should assess whether the
measures introduced have improved the average retail investors' understanding
of investment products and the comparability of the products. It should also
consider whether the transitional period applying to UCITS should be extended,
or whether other options for the treatment of UCITS might be considered. On the
basis of the review, the Commission should submit a report to the European
Parliament and the Council accompanied, if appropriate, by legislative proposals.

(30)     In order to give investment
product manufacturers and persons selling investment products sufficient time
to prepare for the practical application of the requirements of this
Regulation, the requirements of this Regulation should not become applicable until
two years after the entry into force of this Regulation.

(31)     This Regulation respects
fundamental rights and observes the principles recognised in particular by the
Charter of the Fundamental Rights of the European Union.

(32)     Since the objective of the
action to be taken, namely to enhance retail investors' protection and improve
their confidence in investment products, including where these products are
sold cross-border, cannot be sufficiently achieved by the Member States acting
independently of one another, and only action at the European level could
address the identified weaknesses, and can therefore by reason of its effects
be better achieved at Union level, the Union may adopt measures, in accordance
with principle of subsidiarity as set out in Article 5 of the Treaty of the
European Union. In accordance with the principle of proportionality, as set out
in that Article, this Regulation does not go beyond what is necessary in order
to achieve those objectives,

HAVE ADOPTED THIS REGULATION:

CHAPTER I
SUBJECT MATTER, SCOPE AND DEFINITIONS

Article 1

This Regulation lays down uniform rules on
the format and content of the key information document to be drawn up by investment
product manufacturers and uniform rules on the provision of this document to
retail investors.

Article 2

This Regulation shall apply to the
manufacturing and selling of investment products.

However, it shall not apply to the
following products:

(a)
insurance products which do not offer a
surrender value or where that surrender value is not wholly or partially
exposed, directly or indirectly, to market fluctuations;

(b)
deposits with a rate of return that is
determined in relation to an interest rate;

(c)
securities referred to in points (b) to (g), (i)
and (j) of Article 1(2) of Directive 2003/71/EC;

(d)
other securities which do not embed a derivative;

(e)
occupational pension schemes falling under the
scope of Directive 2003/41/EC or Directive 2009/138/EC; and

(f)
pension products for which a financial
contribution from the employer is required by national law and where the
employee has no choice as to the pension product provider.

Article 3

1.           Where investment product
manufacturers subject to this Regulation are also subject to Directive
2003/71/EC, this Regulation and Directive 2003/71/EC shall both apply.

2.           Where investment product
manufacturers subject to this Regulation are also subject to Directive 2009/138/EC,
this Regulation and Directive 2009/138/EC shall both apply.

Article 4

For the purposes of this Regulation, the
following definitions shall apply:

(a)
'investment product' means an investment where regardless
of the legal form of the investment the amount repayable to the investor is exposed
to fluctuations in reference values or in the performance of one or more assets
which are not directly purchased by the investor;

(b)
'investment product manufacturer' means:

i)        any natural or legal person who manufactures
an investment product;

ii)       any natural or legal person who makes
changes to an existing investment product by altering its risk and reward
profile or the costs associated with an investment in the investment product;

(c)
'retail investors' means:

i)        retail clients as defined in point
(12) of Article 4(1) of Directive 2004/39/EC;

ii)       customers within the meaning of Directive
2002/92/EC;

(d)
'pension products' means products which under national
law are recognised as having the primary purpose of providing the investor an
income in retirement, and which entitles the investor to certain benefits;

(e)
'durable medium' means a durable medium as
defined in Article 2(m) of Directive 2009/65/EC;

(f)
'competent authorities' means the national
authorities of Member States, legally empowered to supervise the investment
product manufacturer or a person selling an investment product to a retail
investor.

CHAPTER II
KEY INFORMATION DOCUMENT

Section 1
Drawing up The key information document

Article 5

The investment product manufacturer shall
draw up a key information document in accordance with the requirements laid
down in this Regulation for each investment product it produces and shall
publish the document on a website of its choice before the investment product
can be sold to retail investors.

Section II
Form and content of the key information document

Article 6

1.           The key information
document shall be accurate, fair, clear and not misleading.

2.           The key information
document shall be a stand-alone document, clearly separate from marketing
materials.

3.           The key information
document shall be drawn up as a short document which is:

(a)
presented and laid out in a way that is easy to
read, using characters of readable size;

(b)
clearly expressed and written in language that
communicates in a way that facilitates the retail investor’s understanding of
the information being communicated, in particular where:

(i) the language used is clear, succinct and
comprehensible;

(ii) the use of jargon is avoided;

(iii) technical terms are avoided when
everyday words can be used instead.

4.           Where colours are used in
the key information document, they shall not diminish the comprehensibility of
the information in the event that the key information document is printed or photocopied
in black and white.

5.           Where the corporate
branding or logo of the investment product manufacturer or the group to which
it belongs is used in the key information document, it shall not distract the retail
investor from the information contained in the document or obscure the text.

Article 7

The key information
document shall be written in the official language, or one of the official languages
of the Member State where the investment product is sold, or in a language accepted
by the competent authorities of that Member State, or where it has been written
in a different language, it shall be translated into one of these languages.

Article 8

1.           The title ‘Key Information
Document’ shall appear prominently at the top of the first page of the key
information document. An explanatory statement shall appear directly underneath
the title. It shall read:

‘This document provides you with key information
about this investment product. It is not marketing material. The information is
required by law to help you understand the nature of this investment product
and the risks of investing in it. You are advised to read it so that you can take
an informed decision about whether to invest.’

2.           The key information
document shall contain the following information:

(a)
under a section at the beginning of the
document, the name of the investment product and identity of the investment
product manufacturer;

(b)
under a section titled "What is this investment?",
the nature and main features of the investment product, including

i) the type of the investment product;

ii) its objectives and the means for achieving
them;

iii) an indication of whether the investment
product manufacturer targets specific environmental, social or governance
outcomes, either in respect of his conduct of business or in respect of the
investment product, and if so, an indication of the outcomes being sought and
how these are to be achieved;

iv) where the investment product offers
insurance benefits, details of these insurance benefits;

v) the term of the investment product, if
known;

vi) performance scenarios, if this is relevant
having regard to the nature of the product;

(c)
under a section titled "Could I lose
money?", a brief indication of whether loss of capital is possible,
including

i) any guarantees or capital protection
provided, as well as any limitations to these;

ii) whether the investment product is covered
by a compensation or guarantee scheme;

(d)
under a section titled "What is it
for?" an indication of the recommended minimum holding period and the
expected liquidity profile of the product including the possibility and
conditions for any disinvestments before maturity, having regard to the risk
and reward profile of the investment product and the market evolution it
targets;

(e)
under a section titled "What are the risks
and what might I get back?", the risk and reward profile of the investment
product, including a summary indicator of this profile and warnings in relation
to any specific risks that may not be fully reflected in the summary indicator;

(f)
under a section titled "What are the
costs?", the costs associated with an investment in the investment
product, comprising both direct and indirect costs to be borne by the investor,
including summary indicators of these costs;

(g)
under a section titled "How has it done in
the past?", the past performance of the investment product, if this is
relevant having regard to the nature of the product and the length of its track
record;

(h)
for pension products, under a section titled
"What might I get when I retire?", projections of possible future
outcomes.

3.           The
investment product manufacturer may only include other information where it is
necessary for the retail investor to take an informed investment decision about
a specific investment product.

4.           The
information referred to in paragraph 2 shall be presented in a common format
including the common headings and following the standardised order set out in
paragraph 2, so as to allow for comparison with the key information document
for any other investment product. The key information document shall prominently
display a common symbol to distinguish the document
from other documents.

5.           The
Commission shall be empowered to adopt delegated acts in accordance with
Article 23 specifying the details of the presentation and the content of each
of the elements of information referred to in paragraph 2, the presentation and
details of the other information the product manufacturer may include within
the key information document as referred to in paragraph 3, and the details of
the common format and the common symbol referred to in paragraph 4. The
Commission shall take into account the differences between investment products and
the capabilities of retail investors as well as the features of investment
products that allow the retail investor to select between different underlying
investments or other options provided for by the product, including where this
selection can be undertaken at different points in time, or changed in the
future.

6.           The
European Banking Authority (EBA), the European Insurance and Occupational
Pensions Authority (EIOPA) and the European Securities and Markets Authority
(ESMA) shall develop draft regulatory standards to determine:

(a)
the methodology underpinning the presentation of
risk and reward as referred to in point (e) of paragraph 2 of this Article and

(b)
the calculation of costs as referred to in point
(f) of paragraph 2 of this Article.

The draft regulatory technical standards shall
take into account the different types of investment products. The European
Supervisory Authorities shall submit those draft regulatory technical standards
to the Commission by [...].

Power is conferred on the Commission to adopt
the regulatory technical standards in accordance with the procedure set out in
Articles 10 to 14 of Regulation (EU) No 1093/2010, Articles 10 to 14 of
Regulation 1094/2010 and Articles 10 to 14 of Regulation (EU) No 1095/2010.

Article 9

Marketing communications that contain
specific information relating to the investment product shall not include any
statement that contradicts the information contained in the key information
document or diminishes the significance of the key information document.
Marketing communications shall indicate that a key information document is
available and supply information on how to obtain it.

Article 10

1.           The investment product
manufacturer shall review the information contained in the key information
document regularly and revise the document where the review indicates that
changes need to be made.

2.           The
Commission shall be empowered to adopt delegated acts in accordance with Article
23 laying down detailed rules for the review of the
information contained in the key information document and the revision of the key
information document, as regards:

(a)
the conditions and the frequency for reviewing
the information contained in the key information document;

(b)
the conditions under which information contained
in the key information document must be revised, and under which it is
obligatory or optional to republish the revised key information document;

(c)
the specific conditions under which information
contained in the key information document must be reviewed or the key
information document revised where an investment product is made available to retail
investors in a non-continuous manner;

(d)
the circumstances in which retail investors are
to be informed about a revised key information document for an investment
product purchased by them.

Article 11

1.           Where
an investment product manufacturer has produced a key information document
which does not comply with the requirements of Articles 6, 7 and 8 on which a
retail investor has relied when making an investment decision, such a retail
investor may claim from the investment product manufacturer damages for any loss
caused to that retail investor through the use of the key information document.

2.           When
a retail investor demonstrates a loss resulting from the use of the information
contained in the key information document, the investment product manufacturer has
to prove that the key information document has been drawn up in compliance with
Articles 6, 7 and 8 of this Regulation.

3.           The
distribution of the burden of proof referred to in paragraph 2 shall not be altered
in advance through an agreement. Any clause in such agreements in advance shall
not be binding on the retail investor.

Section III
Provision of the key information document

Article 12

1.           A person selling an investment
product to retail investors shall provide them with the key information
document in good time before the conclusion of a transaction relating to the
investment product.

2.           By way of derogation from paragraph
1, a person selling an investment product may provide the retail investor with
the key information document immediately after the conclusion of the transaction
where:

(a)
the retail investor chooses to conclude the
transaction using a means of distance communication where:

(b)
the provision of the key information document in
accordance with paragraph 1 is not possible, and

(c)
where the person selling the investment product
has informed the retail investor of this fact.

3.           Where successive
transactions regarding the same investment product are carried out on behalf of
a retail investor in accordance with instructions given by that investor to the
person selling the investment product prior to the first transaction, the
obligation to provide a key information document under paragraph 1 shall only apply
to the first transaction.

4.           The
Commission shall be empowered to adopt delegated acts in accordance with Article
23 specifying:

(a)
the conditions for fulfilling the requirement to
provide the key information document in good time as laid down in paragraph 1;

(b)
the method and the time limit for the provision
of the key information document in accordance with paragraph 2.

Article 13

1.           The person selling an investment
product shall provide the key information document to retail investors free of
charge.

2.           The person selling an
investment product shall provide the key information document to the retail
investor in one of the following media:

(a)
on paper;

(b)
using a durable medium other than paper, where
the conditions laid down in paragraph 4 are met; or

(c)
by means of a website where the conditions laid
down in paragraph 5 are met.

3.           However, where the key
information document is provided using a durable medium other than paper or by
means of a website, a paper copy shall be provided to retail investors upon
request and free of charge.

4.           The key information
document may be provided using a durable medium other than paper if the following
conditions are met:

(a)
the use of the durable medium is appropriate in the
context of the business conducted between the person selling an investment
product and the retail investor; and

(b)
the retail investor has been given the choice
between information on paper and in the durable medium, and has chosen that
other medium.

5.           The key information
document may be provided by the means of a website if the key information
document is addressed personally to the retail investor or if the following
conditions are met:

(a)
the provision of the key information document by
means of a website is appropriate in the context of the business conducted between
the person selling an investment product and the retail investor;

(b)
the retail investor has consented to the
provision of the key information document by means of a website;

(c)
the retail investor has been notified
electronically of the address of the website, and the place on the website
where the key information document can be accessed;

(d)
where the key information document has been
revised in accordance with Article 10 all revised versions shall also be made
available to the retail investor;

(e)
it is ensured that the key information document remains
accessible on the website for such period of time as the retail investor may
reasonably need to consult it.

6.           For the purposes of
paragraph 4 and 5, the provision of information using a durable medium other
than paper or by means of a website shall be regarded as appropriate in the
context of the business conducted between the person selling an investment product
and the retail investor, if there is evidence that the retail investor has
regular access to the Internet. The provision by the retail investor of an
e-mail address for the purposes of that business shall be regarded as such
evidence.

CHAPTER III
COMPLAINTS, REDRESS, COOPERATION

Article 14

The investment product manufacturer shall
establish appropriate procedures and arrangements which ensure that retail
investors who have submitted a complaint in relation to the key information
document receive a substantive reply in a timely and proper manner.

Article 15

1.           Where a retail investor
initiates a procedure for alternative dispute resolution laid down in national
law against an investment product manufacturer or a person selling investment
products with regard to a dispute concerning rights and obligations established
under this Regulation, the investment product manufacturer or the person
selling investment products shall participate in that procedure, provided that
it fulfils the following requirements:

(a)
the procedure results in decisions which are not
binding;

(b)
the limitation period for bringing the dispute
before a court is suspended for the duration of the procedure for alternative
dispute resolution;

(c)
the period of prescription of the claim is
suspended for the duration of the procedure;

(d)
the procedure is free of charge or at moderate
cost, as specified in national legislation;

(e)
electronic means are not the only means by which
the parties can gain access to the procedure;

(f)
interim measures are possible in exceptional
cases where the urgency of the situation so requires.

2.           Member States shall notify
the Commission of the entities with competence to deal with the procedures
referred to in paragraph 1 by [insert concrete date 6 months after entry into
force/application of this Regulation]. They shall notify the Commission without
delay of any subsequent change concerning those entities.

3.           Entities with competence
to deal with the procedures referred to in paragraph 1 shall cooperate with
each other on the resolution of cross-border disputes arising under this
Regulation.

Article 16

For the purposes of the application of this
Regulation the competent authorities shall cooperate with each other and with
the entities responsible for out-of-court complaint and redress procedures referred
to in Article 15.

In particular, the competent authorities
shall, without undue delay, provide each other with such information as is
relevant for the purposes of carrying out their duties under this Regulation.

Article 17

1.           Member States shall apply
Directive 94/46/EC to the processing of personal data carried out in that Member
State pursuant to this Regulation.

2.           Regulation EC No 45/2001
of the European Parliament and of the Council shall apply to the processing of
personal data carried out by EBA, EIOPA and ESMA.

CHAPTER IV
ADMINSTRATIVE SANCTIONS AND MEASURES

Article 18

1.           Member States shall lay
down rules establishing appropriate administrative sanctions and measures to be
applied to situations which constitute a breach of the provisions of this
Regulation and shall take all necessary measures to ensure that they are
implemented. Those sanctions and measures shall be effective, proportionate and
dissuasive.

By [24 months after
entry into force of this Regulation] the Member
States shall notify the rules referred to in the first subparagraph to the
Commission and to the Joint Committee of the European Supervisory Authorities.
They shall notify the Commission and the Joint Committee of the European
Supervisory Authorities without delay of any subsequent amendment thereto.

2.           In
the exercise of their powers in Article 19, competent authorities shall
cooperate closely to ensure that the administrative measures and sanctions
produce the desired results of this Regulation and coordinate their action in
order to avoid possible duplication and overlap when applying administrative
measures and sanctions to cross border cases.

Article 19

1.           This Article applies to
the following breaches:

(a)
the key information document does not comply with
Article 6 (1) to (3) and Article 7;

(b)
the key information document does not contain the
information set out in Article 8 (1) and (2) or is not presented in in
accordance with Article 8 (4);

(c)
a marketing communication contains information
relating to the investment product that contradicts the information in the key
information document, in breach of Article 9;

(d)
the key information document is not reviewed and
revised in accordance with Article 10;

(e)
the key information document has not been
provided in good time in accordance with Article 12 (1);

(f)
the key information document has not been
provided free of charge in accordance with Article 13 (1).

2.           Member States shall ensure
that the competent authorities have the power to impose at least the following
administrative measures and sanctions:

(a)
an order prohibiting the marketing of an investment
product;

(b)
an order suspending the marketing of an investment
product;

(c)
a warning, which is made public and which
identifies the person responsible and the nature of the breach;

(d)
an order for the publication of a new version of
a key information document.

3.           Member States shall ensure
that, where the competent authorities have imposed one or more administrative
measures and sanctions in accordance with paragraph 2, the competent
authorities have the power to issue or require the investment product
manufacturer or person selling the investment product to issue a direct communication
to the retail investor concerned, giving them information about the
administrative measure or sanction, and informing them where to lodge complaints
or submit claims for redress.

Article 20

The competent authorities shall apply the
administrative measures and sanctions referred to in Article 19(2) taking into
account all relevant circumstances including:

(a)
the gravity and the duration of the breach;

(b)
the degree of responsibility of the responsible
person;

(c)
the impact of the breach on retail investors'
interests;

(d)
the cooperative behaviour of the person
responsible for the breach;

(e)
any previous breaches by the responsible person.

Article 21

1.           Where the competent
authority has disclosed administrative measures and sanctions to the public, it
shall simultaneously report those administrative measures and sanctions to EBA,
EIOPA and ESMA.

2.           The Member States shall once
a year provide EBA, EIOPA and ESMA with aggregate information regarding all
administrative measures and sanctions imposed in accordance with Articles 18
and 19(2).

3.           EBA, ESMA and EIOPA shall
publish this information in an annual report.

Article 22

Sanctions and measures imposed for the breaches referred to in Article
19(1) shall be disclosed to the public without undue delay including at least
information on the type of breach of this Regulation and the identity of those
responsible for it, unless such disclosure would seriously jeopardise the
financial markets.

Where a publication would cause a disproportionate
damage to the parties involved, the competent authorities shall publish the
sanctions or measures on an anonymous basis.

CHAPTER IV
FINAL PROVISIONS

Article 23

1.           The power to adopt
delegated acts is conferred on the Commission subject to the conditions laid
down in this Article.

2.           The power to adopt
delegated acts referred to in Articles 8(5), 10(2) and 12(4) shall be conferred
on the Commission for a period of [4 years] from the entry into force of this
Regulation. The delegation of power shall be tacitly extended for periods of an
identical duration, unless the European Parliament or the Council opposes such
extension not later than three months before the end of each period.

3.           The delegation of powers
referred to in Articles 8(5), 10(2) and 12(4) may be revoked at any time by the
European Parliament or by the Council. A decision of revocation shall put an
end to the delegation of the power specified in that decision. It shall take
effect the day following the publication of the decision in the Official
Journal of the European Union or at a later date specified therein.
It shall not affect the validity of any delegated acts already in force.

4.           As soon as it adopts a
delegated act, the Commission shall notify it simultaneously to the European
Parliament and to the Council.

5.           A delegated act adopted
pursuant to Articles 8(5), 10(2) and 12(4) shall enter into force only if no
objection has been expressed either by the European Parliament or the Council
within a period of 2 months of notification of that act to the European
Parliament and the Council or if, before the expiry of
that period, the European
Parliament and the Council have both informed the Commission that they will not
object. That period shall be extended by [2
months] at the initiative of the European Parliament or the Council.

Article 24

Management companies and investment
companies referred to under Article 2 (1) and Article 27 of Directive
2009/65/EC and persons selling units of UCITS as defined in Article 1 (2) of that
Directive are exempt from the obligations under this Regulation until [OJ:
please insert the date 5 years after the entry into force].

Article 25

1.           Four years after the date
of entry into force of this Regulation, the Commission shall review this
Regulation. The review shall include a general survey of the practical
application of the rules laid down in this Regulation, taking due account of
developments in the market for retail investment products. As regards UCITS as
defined in Article 1 (2) of Directive 2009/65/EC, the review shall assess
whether the transitional arrangements under Article 24 of this Regulation shall
be prolonged, or whether, following the identification of any necessary
adjustments, the provisions on key investor information in Directive 2009/65/EC
might be replaced by or considered equivalent to the key investor document
under this Regulation. The review shall also reflect on a possible extension of
the scope of this Regulation to other financial products.

2.           After consulting the Joint
Committee of the European Supervisory Authorities, the Commission shall submit
a report to the European Parliament and the Council, accompanied, if
appropriate, by a legislative proposal.

Article 26

This Regulation shall enter into force on
the twentieth day following that of its publication in the Official Journal
of the European Union.

It shall apply from [two years after its
entry into force].

This
Regulation shall be binding in its entirety and directly applicable in all
Member States.

Done at Strasbourg,

For the European Parliament                       For
the Council

The President                                                 The
President

[1]               COM(2011) 656 final.

[2]               CEBS, CEIOPS and CESR are the committees preceding
EBA, EIOPA and ESMA respectively.

[3]               Regulation (EU) No.1093/2010, Regulation (EU)
1094/2010 and Regulation (EU) 1095/2010; OJ 15.12.2010, L 331, 12.

[4]               Communication from the Commission to the European
Parliament, the Council, the European Economic and Social Committee and the
Committee of the Regions "Reinforcing sanctioning regimes in the financial
services sector', of 8 December 2010 (COM (2010) 716 final).

[5]               OJ , , p. .

[6]               OJ , , p. .

[7]               OJ C , , p. .

[8]               OJ L 302, 17.11.2009, p.32.

[9]               OJ L 145, 30.4.2004, p.1.

[10]             OJ L 9, 15.1.2003, p.3.

[11]             OJ L 235, 23.9.2003, p.10.

[12]             OJ L 335, 17.12.2009, p.1.

[13]             OJ L 345, 21.12.2003, p. 64.

[14]             OJ L 271, 9.10.2002, p.16.

[15]             COM(2010)716.

[16]             OJ L 281, 23.11.1995, p.31.

[17]             OJ L 8, 12.1.2001, p.1.