Key information document
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UCITS Anatomy™
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A key information document, or “KID” is a document intended to help an investor to understand the basic risks of the financial product she may be considering and make an informed investment decision.
This is radical and, for an attorney, rather intimidating for, in the sainted history of financial law, neither of these things has ever been part of the enterprise of anyone drawing up offering materials. The basic purpose of offering documents has always been threefold:
- To bury the intellectual technology — for which read, conceal the abject lack of it — underpinning any financial product so that no normal two-bit attorney (or, heaven forfend, some ghastly LPO muggle) can therefore milk the overflowing trough, and only a securities lawyer can;
- To cover the issuer’s, arranger’s and, more importantly, their counsel’s posteriors against the risk of having neglected to advise of the inherent flaws, inefficiencies and perfidies of said financial product; and
- Generally to baffle and/or bore any investor and/or regulator sufficiently close to exasperation to stop it asking questions.
The KID is a standardised two-page document prescribed by European regulation with a format so investors can compare products easily. As such it is a kind of kryptonite to a securities lawyer, who will quail before one, and may crumble into desiccated powder, wailing “IT CANNOT BE DONE I TELL YOU IT IS AN ABOMINATION”.
Also, a form of Heat Ray in the under-appreciated 1950s sci fi shocker The Day of the MiFID.
KIID history, and how lawyers work
Some 25 years ago the European Commission hit upon the idea of having retail structured products manufacturers to produce a one-page summary of the key risks of financial products being offered to the public. The document, a “key investor information document” — now, pleasingly, to be simplified to just “key information document” — became a part of financial products regulation for packaged retail structured products and retail collective investment arrangements over the immense and highly principled objections of the legal community, on the grounds that it is impossible to adequately explain the risks of a complicated legal product in fewer than the 80-100 pages it was presently taking.
The regulators replied, “well, if you can’t explain the big picture risks in a single page, the product can’t be suitable for the general public, can it?”
“Can we cross-reference to a full prospectus so —”
“No.”
“But —”
“No.”
The legal community reluctantly demurred, but for a time insisted on generating a hundred-page prospectus as well, despite the transparently obvious fact that no-one, frequently not even the lawyers preparing it, would ever read it.
There is now a curious dissonance: retail investors — who, remember, are congenitally clueless ingenues, unable to tie their shoelaces for all the grandchildren dandling on their knees — are given only a few hundred words to digest the catastrophic potential of packaged retail investment products. Institutional eurobond investors, on the other hand, who are bona fide accredited financial wizards, are presumed to not be capable of grasping the idea of a floating rate note without the help of three hundred pages of contorted, 9pt mush.