Key differences between UCITS KIID and PRIIPs KID

Key differences between UCITS KIID and PRIIPs KID and the interdependencies with the EPT

image of people with documents and computerThe UCITS Key Investor Information Document (UCITS KIID) was first implemented in 2011 in an effort to bring greater transparency and comparability to investors. After ten years of operation, the UCITS KIID is set to be replaced in Europe by a more data-centric successor, the PRIIPs Key Information Document (PRIIPs KID), from 2022.

How do they compare and what are the main considerations when commencing implementation?

The EPT is critical

Eighty percent of the underlying data for the PRIIPs KID comes directly from the European PRIIPs Template (EPT), which at time of writing contains 101 individual data points.

Whilst both KIID and KID include information on charges, risk and investment profile, they may substantially differ due to differences in the calculation methods and the technical standards of the regulations themselves.

Asset managers without an EPT need to start thinking about this now, with a focus on automating the EPT. The KID document itself can be rendered easily from the EPT. Tolerance checks, data approval, consistent calculations and reporting are a must in automating the EPT.

UCITS KIID vs PRIIPs KID

The PRIIPs KID contains eight sections versus six sections within the UCITS KIID.

Whilst both KIID and KID include information on charges, risk and investment profile, they may substantially differ due to differences in the calculation methods and the technical standards of the regulations themselves.

The below table contains a short overview of the PRIIPs sections and how information can be retrieved, as well as points to note when considering recycling KIID data.

Section PRIIPs KID Disclosure Data/Content Source Recycled Data/Content from UCITS KIID
1. "Product" Product and manufacturer details plus additional information (contact details, website, etc.) Source: 50% from EPT, including Comprehension Alert as per MIFID II Art. 25 (4)(a) No recyclable content or data
2. “What is this product" Type

Objective

Intended retail investor

Terms of the PRIIPs
Source: EPT

Narratives from EPT

Objectives and investment policy from EPT

Note:
PRIIPs KID narratives character limit:

Type of underlying investment option [300 characters]

Objective [2,500 characters]

Target market [750 characters]
Objectives and investment policy wording can be sourced from the UCITS KIID
3a. “What are the risks and what could I get in return?”: SYNTHETIC RISK INDICATOR (SRI)
Synthetic Risk Indicator (SRI): market risk measure based on volatility of the PRIIP / type of PRIIP

Additional statement on liquidity risk and / or currency risk may be included along with other risks
Source: EPT

Note:
PRIIPs SRI is not the same as KIID SRRI as it has a different calculation methodology

SRI is comprised of market risk (MRM) and credit risk (CRM)

Usually the SRRI is one level higher than SRI

Other risk disclosures are limited to 200 characters, whereas UCITS KIID usually reflects the prospectus content
No recyclable content or data
3b. “What are the risks and what could I get in return?”:
PERFORMANCE SCENARIOS
Future performance scenarios extrapolated from past performance

Methodology is based on market risk calculation
Source: EPT
No recyclable content or data
4. “What happens if the manufacturer is unable to pay out?"
New fund-level disclosure New content No recyclable content or data
5. “What are the costs?” Cost over time

Composition of costs
Source: CEPT / EPT

Cost over time: from CEPT

Composition of costs: from EPT
Entry, exit costs and performance fees can be recycled
6. "How long should I hold it and can I take the money out early?"
New fund-level disclosure New content No recyclable content or data
7. "How can I complain?"
New fund-level disclosure New content No recyclable content or data
8. “Other practical information” New fund-level disclosure New content Some information may be recycled from the UCITS KIID “Practical Information” section

Considerations

Performance and transaction costs calculations

  • Based on the current draft RTS, including industry working groups, the historical data for performance scenarios may be extended to ten years, as opposed to five currently. An alternate option may be to use five years and provide a link to a document that displays the ten year past performance.
  • The transaction costs methodology will move to the “slippage cost methodology”. This will involve the collection of market data (arrival price gathering), which will have to be combined with historic fund transactions. This will lead to increased overhead associated with the production of these calculations. Market direction indicates that the “New PRIIPs” methodology will no longer be acceptable from 2022. 

Technology and resources

It is a matter of fact that there is very little overlap from a data / system reuse standpoint between UCITS KIID and PRIIPs KID, which is evidenced in the earlier comparison table. It is therefore important that asset managers thoroughly research the market rather than simply retain the current systems or service providers that may only operate as a document production engine and do not fully encompass the data complexity associated with PRIIPs.

Asset managers should also consider a robust and scalable technology platform as part of their regulatory book of record (“RBOR”) and focus on data. Data has to be sourced, loaded, verified and calculated, which is the single most critical area. A little extra due diligence at this early stage will ensure smooth transition in 2022. 

When should you start preparations?

Preparations should commence immediately, given the complexity associated with the sourcing of underlying data. In order to automate the EPT that drives the PRIIPs KID, asset managers will need to source their data (often this sits with multiple parties), familiarise themselves with the calculations and methodologies applied, determine their distribution and translation requirements and ensure that they are happy with the content and look and feel of the KID output.

DFIN’s ArcRegulatory solution can be used in-house or as an outsourced production service to fulfil all of the above requirements. It sits on DFIN’s industry-leading Arc Suite, which offers synergies across financial reporting, prospectus creation and other fund communications, all forming a unified regulatory book of record.

If you would like to discuss your PRIIPs requirements or arrange a system demonstration, please visit: https://www.dfinsolutions.com/products/arcregulatory or email colm.carey@dfinsolutions.com.


By Colm Carey, Sales Director and Rob Wilson, Senior Vice President

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