The consolidated EU PRIIPs Regulation can be found here.

A PRIIP is a retail investment product where,

“regardless of the legal form of the investment, the amount payable to the retail investor is subject to fluctuations because of exposure to reference values, or to the performance of one or more assets which are not directly purchased by the retail investor.” (Article 4(1))

The Regulation only applies if the PRIIP is made available to retail investors.

“Retail investors” are defined as:

RETAIL PRODUCTS IN SCOPE

The following retail products are defined as a PRIIP:

RETAIL PRODUCTS OUT OF SCOPE

The primary deviations are as follows:

1. The requirement to display performance scenarios is removed. Instead a narrative description on performance is required.
2. VCTs have to have a minimum SRI of 6.
3. The character limit for describing other risks is increased. Disclosure here are now expected to be similar to that of the UCITS KIID.
4. Reductions to the transaction costs achieved by an anti-dilution mechanism should be separately disclosed.
5. The anti-dilution benefit must not be considered to the extent that the reduction in costs would take the total transaction costs below zero.

A MOP (Multi-option product) is a product that offers several investments in a wrapped structure, such as insurance-based investment products linked to an investment fund. The Regulation requires a fund to provide an insurance company with data that the insurance company requires to produce its PRIIPs KID. This data must be collected according to the provisions of PRIIPs- the UCITS KIID data cannot simply be used.

This will mean that PRIIPs manufacturers can either:

“Specific information” must contain key features for each investment fund, including the summary risk indicator, performance scenarios and presentation of costs. This underlying information on the investment options would remain the sole responsibility of the PRIIP manufacturer, i.e. the insurance company.

If the insurance company is not able to produce the respective KIDs, it may have no other choice than to withdraw some products from the market and/or cease offering the products with the underlying investment funds for which it does not hold the respective data.

Although this does not necessarily mean that the funds will be required to produce PRIIPs KIDs by January 2017, it does mean that the UCITS fund must be ready to supply the underlying information and data (in a format that must be compliant with the PRIIPs KID requirements), to the insurance company by January 2017.

Asset managers might not be aware that one or more of their funds may be wrapped into a life insurance product. It is therefore advisable to be ready so as to avoid significant losses of assets coming from insurance companies that will eliminate the respective funds from their offering because of data gaps in reporting PRIIPs data.

THE PRIIPS EPT

To so support this information exchange, there are two PRIIPS Information Exchange templates:

For the PRIIPS KID Template, click here. For more details on the PRIIPS Template Content, click here.

Reduction In Yield

Costs are presented as a “reduction-in-yield” (RIY).

The RIY is based on the “moderate” performance scenario, using the same holding periods as in the performance scenarios thus it is an ex-ante forward looking indicator.

In simple terms the RIY is meant to show the effect the total charges applied to a policy will have on its potential rate of growth and is intended to be an easy way to compare the cost of one policy with another. The RIY is the difference between two percentages:

1. The annual internal rate of return related to gross payments made by the investor and the estimated payments to the investor during the Recommended Holding Period (RHP) and
2. The annual internal rate of return for the respective cost-free scenario.

The difference in the two is the RIY.

Transaction Costs

PRIIPs prescribes the use of the slippage methodology, whereby the cost is estimated as the difference between arrival and execution price.

PRIIPs KID vs. UCITS KIID

Click here for a high-level comparison between the 3-page PRIIPs KID and the 2-page UCITS KIID.

Amongst the most significant differences between the PRIIPS KID compared to the UCITS KIID are:

PRIIP manufacturers should establish periodic processes to review the information contained in the KID at least, every 12 months following the date of the initial publication of the KID.

Additionally, under Article 15 of the Regulation, PRIIP manufacturers will also be required, without undue delay, to revise the KID where there is a change “that significantly affects or is likely to significantly affect” the information contained in it.

A crucial difference between the ongoing maintenance requirements of the PRIIPs KID and the UCITS KIID is that a year-end refresh is not required for PRIIPs KID, as there is no past performance graph. This allows manufacturers the flexibility to set their own dates for annual refreshes, and some may wish to avail of a quieter time away from the busy January, February period when other reporting cycles are also being worked on.