Why EU retail investors may not be able to buy US-listed ETFs

The rule in one paragraph

In the European Union an ETF is a “packaged” investment product, and whoever sells one to a retail investor must first give that investor a key information document (KID). The rule comes from the PRIIPs Regulation (EU) No 1286/2014, which, in the European Commission’s words, “obliges those who produce or sell investment products to provide investors with key information documents (KIDs).” The fund’s producer writes the KID and the bank or broker hands it to you. So when the manager of a US-listed ETF has not produced a KID, a broker in the EU cannot sell that fund to you as a retail client.

What the regulators say

• ETFs are covered. France’s market regulator, the AMF, lists ETFs among the packaged products the regulation covers when they are offered to non-professional investors. Spain’s regulator, the CNMV, says investment funds must produce a KID when they are aimed at retail investors, and that the rules apply to products listed on a stock exchange, because retail investors can buy them there.
• Execution-only accounts too. The CNMV says the regulation has no separate category for “mere intermediation”: whenever a firm sells or advises on a packaged product to a retail client, it must give the KID in good time before the transaction. The AMF tells investors who choose without advice that their bank or online broker must give them the KID, free of charge, for every product it gives them access to.
• Funds from outside the EU. The CNMV states that a packaged product cannot be sold or recommended to a client in the EU without a KID, and that this also applies to products from non-EU countries. The AMF Ombudsman wrote in March 2023 that US packaged products within the regulation’s scope that come without a KID can no longer be marketed.
• An extra step in Spain. For units of a fund, ETFs included, run by a management company not based in the EU to be marketed to non-professional investors in Spain, the CNMV must expressly authorise it, and both the manager and the fund must be entered in its registers, among other requirements.

Shares are a different case

The KID rule is about packaged products, not about shares you own directly. The CNMV says assets held directly, such as shares or government bonds, are not subject to it. The AMF says there is no KID for plain shares held in a securities account. The EU’s Your Europe portal lists “direct investments for example by buying shares in a company” among the things these rules “do not cover”. So the KID rule by itself does not stop you from buying shares of US companies through a broker in the EU; what your broker offers is another matter.

If you already hold a US-listed ETF

The AMF Ombudsman described one case. An investor had bought units of a US ETF in 2017; in 2018 her account keeper refused to sell them, because the US manager had never provided a KID. The Ombudsman’s view was that a missing KID should not stop an investor who bought before the regulation applied from selling, and she proposed that the firm compensate the investor. This is one mediation case in France, not a general ruling. If your broker blocks a sale, ask it in writing which rule it relies on.

Funds set up in the EU: UCITS

The EU has its own framework for retail funds. The Central Bank of Ireland, which authorises the investment funds established in Ireland, explains that UCITS are based on EU legislation and, “once authorised in one Member State, may be marketed throughout the EU, without further authorisation” — the EU passport. It adds: “UCITS are retail investment products.” Since 1 January 2023 these funds also provide a PRIIPs KID: the AMF says the KID replaced the older key investor information document for all collective investments from that date, and the CNMV gives the same date for funds aimed at retail investors.

Where a fund is established and what it invests in are separate questions: a fund invests, in the Central Bank’s words, “in assets in accordance with investment objectives and investment policies published in a prospectus”.

Professional clients

The KID requirement protects retail investors: Your Europe lists “investment products for professional investors” among the things these rules do not cover. The AMF notes that, to get easier access to some markets, an investor may be tempted to ask to be treated as a professional client. It gives as an example someone with savings of more than 500,000 euros who frequently makes large investments (at least 10 transactions a quarter for four quarters).

Its warning: an investor who gives up non-professional status declares a professional’s experience and knowledge, gives up part of the protections the rules provide and, in a dispute with their intermediary, risks lowering their chances of compensation. The AMF calls it a decision with heavy consequences.

What to check before you buy a fund

1. Ask for the KID. Your Europe says you must receive it “early enough for you to have enough time to consider your options” before you are bound by a contract. The AMF adds that you can also find it on the website of the company that manages the fund. If no KID is offered, ask why.
2. Read the key parts. According to the European Commission, a KID runs to at most 3 pages and gives the product’s name and producer, the investors it is meant for, a summary risk indicator, the possible maximum loss, performance scenarios, the costs and how to complain. The AMF adds that the risk indicator runs from 1 (lowest) to 7 (highest) and that the costs include one-off and recurring costs and their effect on your return.
3. Check where the fund is established and under which rules. Look in the KID and prospectus for the fund’s producer, the country where the fund is established and whether it is a UCITS.
4. Check your client category. If a broker offers you a fund without a KID, ask whether it has classed you as a professional client, and what protections you would lose.
5. Remember what a KID is not. The AMF stresses that it is not an advertisement, and Your Europe reminds you that “the value of investments and the income from investment products can decrease as well as increase.”

This guide describes the rules as the regulators listed under “Sources and references” publish them, on the dates shown there. It is not investment advice, and the rules can change; check them with your broker or your country’s regulator.