In 2018, an EU regulation, intended to protect “Retail” clients by ensuring that they are provided with adequate disclosure when purchasing certain products took effect. This disclosure document is referred to as a Key Information Document, or KID, and it contains information such as product description, cost, risk-reward profile and possible performance scenarios.
This regulation is known as the Packaged Retail and Insurance-based Investment Product Regulation (MiFID II, Directive 2014/65/EU), or PRIIPs. Common examples of such products include options, futures, CFDs, ETFs, ETNs and other structured products.
The UK Financial Conduct Authority (FCA) has equivalent requirements for UK residents.
It is important to note that a broker cannot allow a Retail client to purchase a product covered by PRIIPs unless the issuer of that product has prepared the required disclosure document for the broker to provide to the client. Clients however are not required to access or acknowledge them prior to trading; you may elect to view the KID for a particular product but are not required to do so.
U.S. clients are not impacted by PRIIPs, so the issuers of U.S. listed ETFs do not as a rule create KIDs. This means that EEA and UK Retail clients may not purchase the product.
Clients nevertheless have several options:
- Many US ETF issuers have equivalent ETFs issued by their European entities. European-issued ETFs have KIDs and are therefore freely tradable.
- Clients can trade most large US ETFs as CFDs. The CFDs are issued by European entities and as such meet all KID requirements. However, be aware that CFDs carry their own risks and may not be suitable for all investors.
- Clients may be eligible for re-classification as a professional client, for whom KIDs are not required.