PRIIPs KID Implementation – what asset managers need to know

PRIIPs KID Implementation – what asset managers need to know

PRIIPs KID Implementation – what asset managers need to know, Donnelley Financial Solutions (DFIN) explore some of the key areas asset managers will need to consider.

General Data Gathering

Compared with the UCITS KIID, the PRIIPs KID implementation comes with significant data-gathering overhead. PRIIPs manufacturers need to gather:

  • More than 10 years of historical NAV price data and distributions, where applicable, which will also likely require benchmarks to be defined and associated data collected. Multiple third-party administrators may need to be leveraged for this data.
  • Three years of transaction history data. This dataset needs to be enriched with arrival prices or with data points to allow for arrival price gathering.
  • A range of product level static and reference data. Some will be completely new, some is yet to be defined (by mid 2022 by FinDatEx) and some currently exists and may reside across multiple repositories and/or systems.

In addition to gathering this data, the manufacturer will then have to define a process to normalise these datasets, and from there, validate them for accuracy. The latter point is a significant challenge across the industry. In order to address this challenge, DFIN recommends that PRIIPs manufacturers partner with entities (internal or external) that have significant expertise with high-volume data management.

It’s important to note here that PRIIPs KID implementation is not simply a case of data gathering. PRIIPs manufacturers also need to consider how they will comply with the requirement to host and maintain previous and past performance. Each KID needs to contain a reference to the location of this dataset.

An online platform is the easiest way to facilitate this requirement, this will also require manufacturers to set up a cross-functional project to ensure the data is accurate and consistent with all other publicly available documentation.

Data and Narrative Requirements

The PRIIPs KID will be populated primarily by the second version of the European PRIIPs Template (EPT V2.0). In order to process the calculations in the EPT V2.0, asset managers/PRIIPs manufacturers need to gather additional data for key elements of the EPT V2.0.

Risk and performance

Whilst the computation of risk figures remains unchanged, the new performance calculations require a minimum of a 10-year history or RHP of more than 5 years. Data gathering should follow this detailed process:

  • Determine benchmark/proxy for all share classes launched less than 10 years ago
  • Gather price and distribution (where applicable) history for all in-scope share classes
  • Gather additional static data (RHP, PRIIPs category, CRM, Flexible Fund flags) to populate the other elements of the EPT

With different NAV requirements for risk and performance calculations, the PRIIPs manufacturer needs to ensure that both calculations are consistent with each other.

Further, when the calculated SRI does not properly reflect the risk of the investment, it can be overwritten upwards. As part of implementation, the PRIIPs manufacturer needs to create and define a documented process justifying this.

Transaction costs

Transaction costs implementation remains the same as the original EPT, however, there are several key differences in terms of calculations. PRIIPs manufacturers need:

  • Three years of transaction history
  • Arrival prices
  • Additional cost narratives

The EU requirement is to floor the transaction costs by the explicit costs, so they cannot be negative. This differs from the proposed UK approach.

With the EPT V2.0 going live in Q3 2022, the data-gathering process needs to be treated with urgency. In fact, its timing presents a significant challenge for the industry.

Narratives and additional fields

There are additional narratives required across the EPT and PRIIPs KID:

  • Additional narratives for risk, German distribution and Italian distribution
  • Additional information for structured PRIIPs
  • Corporate branding information

Monitoring Requirements

Once implemented, each KID needs to be monitored as follows:

SectionPRIIPs KID Disclosure
Annual Refresh All documents need to be checked for accuracy annually
MRM/SRI
Four-month sliding window monitoring
Moderate Scenario 
5% threshold monitoring on the moderate scenario
Static DataAny material change

One of the major changes with performance calculation is the monthly calculation frequency and the publishing of previous performance scenarios. Note that this does not necessarily imply a new KID creation.

KIID or KID?

The United Kingdom has made the decision to retain the UCITS KIID for the next five years, which adds some complexity to document management and distribution. This will require manufacturers to produce and distribute PRIIPs KIDs together with UCITS KIIDs, depending on the target market and target audience. A UK PRIIPs manufacturer that wants to distribute to EU will need to produce EU PRIIPs KIDs, and an EU PRIIPs manufacturer that wants to distribute to the UK will need to produce UK PRIIPs KIDs with optionally exceptional treatment for institutional investors.

The FCA is expected to publish the regulation for the United Kingdom in Q1 of this year. It will clarify the needs for the UK market and bring more guidance to the distribution process.

From 1 January 2023, the scenarios below will come into effect:

  • Optionality
  • Resolution of UK regulations
  • EU to UK
  • UK to EU
  • UCITS institutional share classes (optionality possible in the EU)
  • UK situation
  • EU/UK institutional and retail UCITS to UCITS KIID
  • EU/UK retail non-UCITS to PRIIPs KID under old RTS version
Jurisdiction Share Class Type UCITS Fund Non-UCITS
EU Retail PRIIPs KID PRIIPs KID
Institutional PRIIPs KID or UCITS KIID PRIIPs KID or UCITS KIID
UK Retail UCITS KIID PRIIPs KID
Institutional UCITS KIID To be defined by FCA

Considerations

Technology and resources

To prepare for a smooth transition in January 2023, asset managers should consider a scalable, end-to-end data technology platform. PRIIPs KID data has to be sourced, loaded, verified and calculated, which is the single most critical area, requiring extra due diligence at this early stage.

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 resides 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.

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

About DFIN

DFIN is a leading global risk and compliance company. We’re here to help you make smarter decisions with insightful technology, industry expertise and data insights at every stage of your business and investment lifecycles. As markets fluctuate, regulations evolve and technology advances, we’re there. And through it all, we deliver confidence with the right solutions in moments that matter.

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