Pursuant to the UCITS IV (Undertakings for Collective Investment in Transferable Securities) Directive, all collective securities funds and traditional investment funds which are publicly traded in the EU may replace the Simplified Prospectus with a key investor information document (KID).
Better protection for investors
This standardised document should consist of no more than two intelligible A4 pages (three in the case of structured funds). The main purpose of the KID is to improve protection for retail investors. The KID is designed to provide the average collective fund investor clear and easily understandable information in a comparable form. The improved investor protection will now also apply in Switzerland, and the Federal Department of Finance has pointed out that by introducing the KID rapidly into Swiss law, the Swiss financial market could avoid certain competitive disadvantages.
Existing funds will be granted a three-year transitional period. To comply with international standards, further changes in the rules governing collective investments are expected. An amendment of the law on collective investments is currently being prepared.
Industry associations welcome the KID
The Swiss Funds Association (SFA) welcomes the introduction of the KID in Switzerland. The law on collective investment funds requires only minor changes which could be realised by federal ordinances. The KID affords a number of improvements compared with the Simplified Prospectus. A mandatory new risk measure – the synthetic risk and reward indicator – grades the risk and reward profile of each collective investment fund on a scale from 1 (low risk, low reward) to 7 (high risk, high reward).
It is in the interest of all national and international providers of UCITS traded in Switzerland for the KID to be introduced here at the same time as in the EU. Martin Thommen, President of SFA, explained that providers will only be required to prepare a short information document improving the transparency for investors.
The SFA intends to clarify the technical implementation details with FINMA as rapidly as possible; it will prepare and submit to FINMA for approval its own self-regulatory guidelines based on the detailed CESR guidelines issued by the EU regulatory authorities. According to SFA Director Dr. Matthäus Den Otter, Swiss public funds will also be using a KID in the foreseeable future.