[JC 2023 22 ] Consolidated Q&As on the PRIIPs Key Information Document

The three ESAs have published a new consolidated version of their Q&As on the PRIIPs KID, to be furnished by manufacturers and distributors of products falling under the PRIIPs Regulation.
Compared to the following version, these eight questions were included:
Page 8: I. General topics
11. If a product, linked to a single ISIN code, is available in both the single and recurring premium versions, it is possible to provide a representation of the riskier version of the two by reporting in the other relevant information section the possibility of purchasing the other version of the product?
This answer clarifies that when a product is available in both single and recurring premium versions, representing the riskier version in the KID is possible. It highlights that separate KIDs are required for single and regular premium versions to comply with KID template regulations.
The PRIIPs Delegated Regulation does not prescribe the approach to be used where a product allows both single and regular premium payments to be made. However, it is not compliant with the KID template to include separate values for the risk, performance and cost information for single and regular premium payments in the same KID. In order to show this information, separate KIDs would need to be prepared.
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page 22: III. Market risk assessment (Annex II, Part 1)
19. Could you confirm if products with recurring premiums are to be modelled as Category 2 PRIIPs or Category 3 PRIIPs? Our opinion is that they should be modelled as category 3 because their performance does not depend only on the performance of the underlying at RHP. However, in the case in which a manufacturer shall produce KIDs for PRIIPs available as both single and recurring premium versions, it may lead to KIDs that are not comparable, mainly given to modelling assumptions (for example, the different lengths of the data series for Category 2 and 3 PRIIPs).
This answer discusses the modeling of products with recurring premiums as Category 2 or Category 3 PRIIPs, it emphasizes that the classification depends on the linearity of expected payoff, which remains consistent regardless of the premium type.
The classification of a PRIIP as Category 2 or 3 concerns only the linearity, or not, of its expected payoff, which will hold irrespective of the way in which investment in the product is made by the retail investor.
Consequently, where a product is, or would be, a Category 2 PRIIP when a single premium or investment is made, it should also be considered as a Category 2 PRIIP when a regular premium or investment is made.
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page 40: VI. Performance Scenarios (Articles 3 and 8 and Annexes IV and V)
20. In life annuities, should the sum of rents paid up to the period be considered in the minimum scenario?
In accordance with point 3(b) of Part 1 of Annex V of the PRIIPs Delegated Regulation, only guaranteed amounts should be reflected in the scenario showing the minimum investment return amount.
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21. Could you confirm that for what concerns the calculation of performance scenarios, as specified in Annex IV, point 7, the manufacturer must always use monthly data even if the NAV is available at higher frequencies (i.e. daily or weekly)?
Yes, monthly data shall be used in accordance with point 7(a) of Annex IV of the PRIIPs Delegated Regulation.
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[22. In Annex IV, Case 3 for PRIIPs referred to in point 1 of Annex VIII without sufficient historical data and with no benchmark, or with a benchmark without sufficient historical data, or any other Category 2 PRIIPs. In point 13 it is said to use a benchmark regulated by Regulation (EU) 2016/1011 of the European Parliament and of the Council. Is not that a contradiction? In point 15 it is said that in the case in which there is not an appropriate benchmark or proxy with sufficient historical data which meets the criteria set out in point 5 of this Annex for the PRIIP, performance scenarios shall be calculated in accordance with points 21 to 27 of this Annex using 15 years of historical returns of the PRIIP or an appropriate benchmark or proxy.
1) Does that mean we are to treat the PRIIP as a Category 3 product?
2) It seems contradictory that the regulation is asking to calculate performance scenarios in accordance with points 21 to 27 with 15 years of historical returns, when we have not been able to obtain 10 years historical data, either from the actual product or its appropriate benchmark](https://www.esma.europa.eu/sites/default/files/2023-05/JC_2023_22_-_Consolidated_JC_PRIIPs_Q_As.pdf#page=41)
If we do not have sufficient data to meet the amended performance scenario calculations, may we treat the PRIIP as Category 1 according to the definition in Annex II, point 4(c). Accordingly, its Moderate, Favourable and Unfavourable performance scenarios should be “reasonable and conservative best estimates of the expected values“. If yes, we would like to clarify if the SRI calculation should be set at a “6” in the case where the product may have sufficient data for SRI calculation (e.g. 5 years monthly), but insufficient data for performance scenario calculation (e.g. 10 years historical returns not available).
The response clarifies that Case 3 refers to PRIIPs exempt from referencing a benchmark in the „What is this product?“ section and emphasizes that using a regulated benchmark may be appropriate. The clarification aligns Case 3 with the broader regulatory framework and directs readers to related Q&As for further understanding.
Regarding the calculation of performance scenarios, the description of “Case 3” above point 13 of Annex IV of the PRIIPs Delegated Regulation refers to 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 this case, the use of a benchmark regulated by Regulation (EU) 2016/1011 of the European Parliament and of the Council may be appropriate for the calculation of the performance scenarios. Please also see the answers to Q&As 13 and 15 in this section.
Regarding the SRI calculation, the application of point 15 of Annex IV of the PRIIPs Delegated Regulation does not change the categorisation of the PRIIP in accordance with points 3-7 of Part 1 of Annex II of the PRIIPs Delegated Regulation. Where there are sufficient historical prices in accordance with point 5 of Part 1 of Annex II of the PRIIPs Delegated Regulation and it is a Category 2 PRIIP, the SRI calculation should be performed using those historical prices. Point 8 of Part 1 of Annex II of the PRIIPs Delegated
Regulation does not apply in this case.
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page 55: X. Multi-option products (MOPs)
5. Could you confirm if manufacturers of insurance-based investment products are allowed to signpost to KIDs produced by fund managers instead of proper SIDs in their IBIP MOPs? What happens when the RHP of the insurance product is not compatible with the RHP of the underlying fund?
This answer clarifies the responsibilities of insurance undertakings in designing products with various investment options. It states that there is no strict requirement for the Return of Holding Periods (RHPs) of the product to align with those of individual investment options but emphasizes the need to address differences appropriately.
For insurance-based investment products offering a range of options for investments, the insurance undertaking is responsible for designing the product, including selecting the investment options that are offered within the product and for complying with the provisions in Chapter II of the PRIIPs Delegated Regulation. Article 14 sets out the requirements for the specific information document – in particular, please also see the answer to the previous Q&A 4 in this Section.
In this context, there is not a requirement for the RHP of the product to be fully aligned with the RHP of individual investment options offered. However, the implications of any differences in RHPs need to be appropriately addressed by the PRIIP manufacturer. This would include, for example, providing the necessary explanations in the KID, as well as more generally ensuring that the product (including investment options) is compatible with the needs, characteristics and objectives of the customers belonging to the target market.
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page 57: XI. Investment funds
4. While currently UCITS (or their management companies) send their KIID to the home competent authority of the UCITS, it is unclear whether the reading of Articles 82 and 82a of Directive 2009/65/EC implies that from 1 January 2023:
a) UCITS (or their management companies) shall send the PRIIPs KID (instead of the UCITS KIID) to the home competent authority of the UCITS (as per Article 82 of Directive 2009/65/EC); or
b) Whether Article 82 of Directive 2009/65/EC would no longer apply, and UCITS (or their management companies) would not need to send their PRIIPs KID to any competent authority, except in those Member States where the ex-ante notification option, allowed by Regulation (EU) No 1286/2014 of the European Parliament and of the Council has been implemented. And in that case, the notification would need to be made to the competent authority of the Member States where it is going to be marketed (host NCA)?
The response clarifies that UCITS should send PRIIPs KID to the home competent authority instead of UCITS KIID, starting from January 1, 2023.
The correct reading is as set out in point (a): UCITS (or their management companies) shall send the PRIIPs KID (instead of the UCITS KIID) to the home competent authority of the UCITS (as per Article 82 of Directive 2009/65/EC). Explanation: According to recital 7 of Directive (EU) 2021/2261 of the European Parliament and of the Council, 2 which introduced Article 82a in Directive 2009/65/EC, “The key investor information and the KID cover essentially the same information requirements. It is therefore necessary to ensure that retail investors in PRIIPs interested in acquiring units of UCITS do not receive, from 1 January 2023, both documents for the same financial product.” The new Article 82a of Directive 2009/65/EC therefore provides that the key information document (“PRIIPs KID”) drawn up, provided, revised and translated by a management company for a UCITS pursuant to Regulation (EU) No 1286/2014 is considered to “satisfy the requirements applicable to key investor information set out in Articles 78 to 82 and Article 94 of this Directive.” Therefore, the PRIIPS KID replaces the UCITS KIID for the purposes of Directive 2009/65/EC and Articles 78 to 82 and Article 94 of Directive 2009/65/EC, relating to the drawing up, the content, the translation, the updating of key information
are considered to be satisfied in the presence of a PRIIPS KID. The notification requirement to home NCAs under Article 82 of Directive 2009/65/EC still applies, but the UCITS KIID is replaced by the PRIIPs KID for the satisfaction of that requirement.
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5. In the case of an investment fund (UCITS or AIF), can the manufacturer of the PRIP be an entity to which collective portfolio management functions, or other functions, have been delegated to by the fund or by the management company (manager) or alternative investment fund manager of the fund (those entities to which functions have been delegated might, for example, be referred to as the fund promoter, sponsor, etc.)?
No, even if the fund delegates functions to third parties, the PRIP manufacturer can only be the management company or the alternative investment fund manager of the fund, or, in particular in the case of a self-managed UCITS or internally managed AIF, the fund itself.