On December 5, 2023, the European Supervisory Authorities (ESA) provided updates to their PRIIPs Q&As, introducing new questions and answers across several sections, including General topics, Market risk assessment – Product categories, Performance Scenarios, Multi-option products (MOPs), and Investment funds.
The Q&As document encompasses the perspectives of the European Supervisory Authorities (ESA) on the application and implementation of the PRIIPs Regulation and its Level 2 Delegated Acts. It also includes responses from the European Commission, highlighted in blue in the Q&A document, addressing questions related to the interpretation of EU Law.
The newly added Q&As are outlined as follows:
Section I: General topics
Q&A 11 addresses the possibility of representing the riskier version of a financial product linked to a single ISIN, available in both single and recurring premium versions, by mentioning the possibility of purchasing the other version in the ‘other relevant information’ section.
ESA note that the PRIIPs Delegated Regulation does not specify a particular method when a product supports both single and regular premium payments. To provide this information, since the regulation prohibits including separate values for risk, performance, and cost information for single and regular premium payments in the same KID, separate KIDs for each version of the product should be prepared. Including this information in the same KID “would not comply with the KID template”.
Section III – A: Market risk assessment – Product categories
Q&A 19 clarifies whether products with recurring premiums should be modelled as Category 2 PRIIPs or rather, because their performance does not solely depend on the underlying performance at RHP, as Category 3 PRIIPs .
ESA emphasize that the classification depends on the linearity of expected pay-off, regardless of whether the investment is a single premium or recurring premium. If a product is considered Category 2 PRIIP when a single premium is involved, it should be also treated as Category 2 when there is a regular premium or investment.
Section VI: Performance Scenarios
Q&A 20 asks whether in life annuities, when determining the minimum investment return amount for scenarios, only the sum of rents paid up to the period should be considered.
ESA confirm that only guaranteed amounts should be reflected in the minimum investment return scenario. This means that only the assured payments should be included, and any additional sums or rents paid up to the period should not be factored into the scenario reflecting the minimum return according to the PRIIPs Delegated Regulation.
Q&A 21 confirms that only monthly data should be used for calculating performance scenarios for Category 2, even if more frequent Net Asset Value (NAV) intervals, such as daily or weekly, are available, as specified in point 7(a) of Annex IV of the PRIIPs Delegated Regulation.
In Q&A 22 clarifies the calculation requirements for Category 2 PRIIPs in context of Case 3, Annex IV of the RTS.
With regard to the calculation of performance scenarios: Case 3 suggests that for products “with no benchmark,” a benchmark regulated by Regulation (EU) 2016/1011 of the European Parliament and of the Council may be used. While it sounds as a contradiction, the ESA clarify that “with no benchmark” means a PRIIP which does not need to refer to a benchmark in the “What is this product?” section of the KID (in accordance with Article 2(2a)(d) of the PRIIPs Delegated Regulation) and does not need to show past performance against a benchmark (in accordance with point 11 of Annex VIII)”. In such a case, a benchmark regulated by Regulation (EU) 2016/1011 (the Benchmarks Regulation) may still be appropriate.
With regard to the SRI calculation: ESA note that the lack of sufficient data for performance scenarios (Annex IV, point 15) does not change the categorization of the PRIIP under Annex II, Part 1, points 3 to 7. If there are enough historical prices for a Category 2 PRIIP MRM (Market Risk Management), resp. SRI, calculation, as referenced in Annex II, Part 1, Point 5, it should be performed using those historical prices, and Annex II, Part 1, Point 8 does not apply in this case.
Section X: Multi-option products (MOPs)
Q&A 5 examines whether manufacturers of insurance-based investment products can refer to KIDs produced by fund managers instead of providing proper Separate Investment Documents (SIDs) for their IBIP MOPs.
ESA note that manufacturers of insurance-based investment products (IBIPs) are responsible for designing IBIPs, which includes choosing investment options. It’s not required for the Respective Holding Period (RHP) of the overall insurance product to perfectly match the RHP of each individual investment option.
However, any differences in RHPs must be appropriately addressed by the manufacturer. This may involve explaining these differences in the KID provided to retail investors. Additionally, the manufacturer should ensure that the product and its investment options align with the needs and objectives of the target market customers.
Section XI: Investment funds
Q&A 5 in this section explores whether, in the case of a UCITS or AIF, the PRIIP manufacturer can be an entity to which collective portfolio management functions have been delegated.
ESA clarify that in the case of an investment fund (UCITS or AIF), the entity that manufactures the PRIIP cannot be a third party to whom functions like portfolio management have been delegated by the fund or its management company. The PRIIP manufacturer must be either the management company, the alternative investment fund manager, or, in the case of a self-managed UCITS or internally managed AIF, the fund itself. Third-party entities, even if delegated certain functions, cannot be the PRIIP manufacturer.
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