The current requirements for the production by each UCITS of a simplified prospectus are to be replaced under UCITS IV by a “key investor information” document (KIID). The KIID must include “appropriate information” about the essential characteristics of a UCITS to enable investors make an informed decision on the nature and risks involved in investment in a particular UCITS.  It must be written in a concise manner and in non-technical language.  The KIID must include a short description of the investment objectives and policies of the UCITS, past performance (or, where relevant, performance scenarios), costs and associated charges and a risk/reward profile of the investment, including appropriate risk warnings.  CESR has recommended that the KIID include a synthetic risk and reward indicator in the form of a numerical scale.  This must be supported by a narrative explanation of the limitations of the indicator and other material risks relevant to the UCITS which are not fully captured by the methodology for the synthetic indicator.  The KIID must be drawn up in a common format, allowing for comparison and is to be presented in a way that it likely to be understood by retail investors.  It is to be used without alteration (except translation) in all Member States where the UCITS is notified as marketing its units.  The KIID is regarded as pre-contractual information and will not result in civil liability unless it is misleading, inaccurate or inconsistent with the relevant parts of the Prospectus.  Member States must provide for the KIID to be delivered in a durable medium or by means of a website.  Key essential elements of the KIID must be kept up to date.  The KIID must be reviewed at least annually and a revised KIID must be made available no later than 35 business days after each calendar year end.  A revised KIID must also be made available prior to changes taking effect to the prospectus or constitutive documents of the UCITS.  It must also be revised prior to or following any changes regarded as material to the information contained in the KIID. 

A UCITS’ home Member State may permit UCITS authorised in that home Member State a grandfathering period up to July 2012 within which to replace the simplified prospectus with the KIID.  Prior to 1 July 2012, host Member States must continue to accept such simplified prospectuses for UCITS inwardly marketed into those jurisdictions.  It is expected that Ireland will take advantage of the grandfathering provision.  Some jurisdictions (including Germany) have indicated that their implementing legislation will not provide for the one year grandfathering provision for UCITS authorised in those jurisdictions.  In its consultation paper on guidelines for the transition from the simplified prospectus to the KIID, CESR has indicated that in most circumstances the simplified prospectus can continue to be offered until 30 June 2012 when the national law and regulation of the UCITS home Member State allows it.  The exception to this is for new UCITS authorised after 30 June 2011 where a KIID should be prepared from the onset.  For any new sub-fund added to an umbrella existing at 30 June 2011, a simplified prospectus or KIID may be used for that sub-fund.  CESR has indicated however that a UCITS must provide the same type of document (either a simplified prospectus or KIID) to investors in its UCITS home Member State and in every host State in which it has notified.  In other words, a UCITS cannot adopt the KIID in any host Member State earlier or later than the date on which it adopts a KIID in its home State.  Given that some Member States will be moving towards the use of a KIID in their home Member State earlier than July 2012, promoters inwardly marketing their UCITS products into those Member States may consider it to be more competitively advantageous to adopt the use of a KIID by 1 July 2011, even if they are not obliged by the UCITS’ home Member State to do so. 

The KIID will pose challenges to UCITS promoters, not just in terms of preparation and presentation, but also the constant monitoring required of the synthetic risk and reward indictor, costs and charges and other matters which may give rise to the requirement to update this document.