It took just over six weeks for the European Supervisory Authorities (ESAs) to add 14 new questions to the 72 they answered in early July and they’ve supplemented this version with detailed flow charts of the decision process for the risk and reward calculations. With around four months to go, we expect the pace of updates either to speed up because answers are needed urgently or to dry up completely if everyone is confident they have everything they need. Does anyone believe there are no outstanding questions?
The new questions range from pretty fundamental – “Does the categorisation of a retail investor depend on the definition in Directive 2014/65/EU [MiFID II]?” – to specific parts of the PRIIPs universe – “For derivatives that do not require an investment, does the format of [the] Composition of costs [table] allow to use the word ‘Notional amount’ instead of ‘Investment’?”. Just to be clear, the answer to both of these questions is yes.
Five of the new questions are about the presentation of Costs and there are three each for the Summary Risk Indicator (SRI), the Market Risk Measure (MRM) and the Credit Risk Measure (CRM), with the above question about categorising retail investors making up the full list.
In the fund space (ie mostly Category 2 PRIIPs), our main takeaways are:
- The 10% threshold to determine whether a CRM needs to be calculated is based on the reference entity. So, a fund investing in multiple bonds from the same issuer, where the total exposure to that issuer exceeds 10%, needs to assess the Credit Risk.
- The frequency to recalculate the MRM isn’t prescribed and doesn’t have to be daily for a daily priced fund, as long as changes in the SRI are identified “without undue delay”.
- The wording of the narrative explanations below the SRI table is prescribed and may not be amended, except where explicitly permitted, such as “other risks materially relevant to the PRIIP”.
- The text about the adviser providing details of their costs needs to be shown, when relevant, in both the return scenarios and costs sections.
As we rapidly approach the final quarter of the year, there are likely to be more questions focusing on the minutiae of KIDs, so we have to hope they are turned around quickly enough to meet the deadline at the end of the year.
To know how we can help you with your PRIIPs regulatory requirements, please contact us.