New research has found that Germany's Commerzbank is the only bank generating transaction-specific key information documents (Kids)
German fintech and software-as-a-service (SaaS) provider Smarttra.de has analysed the Priips Kids for over-the-counter (OTC) transactions used by eight European manufacturers to test whether the Kids in question refer to the client’s specific OTC transaction. The research comes after the European Supervisory Authorities (ESAs) said the use of generic Kids in OTC transactions (multi-option products) would be reviewed by the end of 2019.
After reviewing all the issuing banks, the research found that only Commerzbank generates transaction-specific Kids for its clients; all other banks provide generic Kids. Another outcome of the research is the significant quality difference between the banks' generic Kids. For instance, the Kids provided by Helaba and Hamburg Commercial Bank (formerly HSH Nordbank) offer investors the lowest added value as they are highly generic and have very little relation to investors' specific OTC transaction.
“Most banks have chosen a generic approach meaning that they just publish generic Priips Kids for a sample OTC transaction but not for the specific transaction that the investor intends to trade,” said Simon Ullrich (pictured), managing director at Smarttra.de. “The information on risk and costs displayed in the generic Priips Kids has very little to do with the real risks and costs of the specific OTC transaction.”
According to Ullrich, a generic Kid has little relation to the specific OTC transaction of an investor as it only contains information on sample transactions that may differ from the actual transaction in terms of currency, maturity and other important parameters. Generic Kids therefore do not contain precise information on the costs, opportunities and risks of the specific OTC transaction.
In addition, by listing the actual costs, opportunities and risks of a specific OTC transaction, transaction-specific Kids offer real added value for investors.
“Banks also benefit from transaction-specific Kids since there is a much lower risk of investors receiving unclear or misleading information than with generic Kids,” said Ullrich.
“A transaction-specific Kid refers to the investor's specific OTC transaction, taking into account all individual agreements. Transaction-specific Kids contain transparent and non-misleading information on the costs, opportunities and risks of a specific OTC transaction. The high regulatory requirements on transparency are fully met.”
Ullrich also noted that regulatory authorities have criticised the generic Kid approach as it could be misleading.
“The problem could be fixed if the banks started to produce transactions specific Priips Kids for OTC trades instead of just generic Kids,” he said. “We believe that transaction-specific KIDs allow investors to better compare products from different banks than generic KIDs. The more generic the KID, the lower the added value for investors. It would be highly welcome if the Priips regulation were made more specific on this point.”
The analysis evaluated the Kids provided by Commerzbank; Deutsche Bank; Barclays; HSBC; Hamburg Commercial Bank / HSH Nordbank; Nord LB; Raiffeisenbank; Helaba.
Click in the link to see the criteria used by Smarttrade in its Kid research.