1. The Latest PRIIPs RTS Everything you need to know
Ronan Brennan, Chief Technology Officer
15th March 2017

2. Agenda:
Why did the European Parliament reject the original RTS (Regulatory Technical Standards)?
What are the changes in the latest RTS?
What are the key implementation considerations?
What can be done now to reduce implementation risk?

3. Why did the European Parliament reject the Regulatory Technical Standards?

4. Adoption of final version of the regulation
2014
The summer of discontent
September Parliament rejects the original RTS
November Commission confirms a one year delay
December ESAs reject the revised RTS
2016
March Agreement on new RTS with 3m scrutiny period underway
…soon after we’ll have Level 3 text
Roll on 1st January 2018
2017
History lesson

5. What were the issues though?
The treatment of Multi Option PRIIPs (MOPs)
Specifically where the underlying were UCITS
The performance scenario calculations
Specifically the unfavourable scenario was overly optimistic
Comprehension alerts
Specifically the non-uniformity across PRIIPs, MiFID II and IDD and standardization of when it should be used
The disclosure of any insurance costs and benefits
Specifically the Commission wanted to simplify the presentation of these costs so as not to confuse investors
….Transaction Costs
Specifically the funds industry is struggling to get ready for TCA wrt PRIIPs, MiFID II and LGPS

6. So what are the proposed changes to the RTS
So what are the proposed changes to the RTS? & What are the practical implications?

7. Multi-Option Products – Proposed changes
Article 12
New paragraph (2): provision for blending UCITS SRRI and PRIIPs SRI in the risk range on the generic KID
Article 13
New paragraph (2): derogation for UCITS to use estimated TCA (Annex IV P21)
New paragraph (3): derogation for presentation of costs in UCITS form
Article 14
New paragraph (2): derogation from 14(1) for UCITS regime products to use UCITS KIID for the UIOP SID disclosure
Article 18: limits derogation in 14(2) up to 31st December 2019

8. Multi-Option Products – Practical implications
Generic MOP KID – Where the MOP has one of more underlying UCITS UIOP:
The generic KID for a MOP can use a risk range based on a mix of PRIIPs SRI and UCITS SRRI
UCITS will look comparatively more risky to an equivalent PRIIP
The TCA for the UCITS can be calculated using the spread/2 method allowed for new funds
Generic MOP KID – Where the MOP has only underlying UCITS UIOPs:
The cost summary on the Generic KID can be presented as per UCITS
UIOP SID (Specific Information Document) – where the UIOP has an existing UCITS KIID
The UIOP can use the UCITS KIID as the SID to cover disclosure and obtain derogation from Article 14(1)
There is no derogation for UCITS wrapped in ULF structure!

9. Performance Scenarios – Proposed changes
Article 3:
New paragraph (3): new mandatory stress test introduced
Deleted paragraph (4): the previously optional “significantly unfavourable scenario” has been removed
Annex IV:
Points (1-15): new stress test specified in detail
Annex V
Parts (1-2): Templates and narratives updated to account for stress test introduction

10. Performance Scenarios – Practical implications
There are now 4..5 performance scenarios (the optional one being the “death” one)
The stress test is mandatory
The commission ignored pleas for historical/future blended view
Key point:
the problem with the previous RTS changes floated at end of 2017 were too bearish, but the current RTS could be argued as too bullish, in particular where TCA idiosyncrasies are applied

11. Comprehension Alerts – Proposed changes
Article 1
New paragraph (2): introduces a standardised comprehension for complex products that harmonises approach for PRIIPs with MiFID & IDD (previously IMD)

12. Comprehension Alerts – Practical implications
The commission have attempted to align the comprehension alert in PRIIPs with the definition of complex product in MiFID II and the IDD
Problem 1:
MiFID II complexity is awaiting L3 Q&A clarification
Problem 2:
The IDD is 1-2y behind in MiFID II in design and clarity
Timing is also mis-aligned, IDD is due mid 2018, PRIIPs is start of 2018

13. Biometric Risk Premium – Proposed changes
Article 2
Updated to add insurance cost to ‘What is the product?’
Article 5
Points 3-4: removal of insurance costs from ‘What are the costs?’
Article VI
Point 52: addition of insurance costs to roll-up under ongoing costs in Table 2 Annex VII
Annex VII
Table 2: removal of the insurance costs section

14. Biometric Risk Premium – Practical implications
The commission actually felt the way insurance costs were being disclosed was likely to lead to confusion for the investor and would be counter productive
The changes reflect a simplification of the disclosure to allow these costs be rolled up under the ongoing costs

15. Frustration still abounds…
UCITS
Can use spread/2 TCA where used in MOPS, but what about where they are wrapped by a Unit Linked Fund in a 1:1 set-up?
Target Market
Will IDD align with MiFID II?....we hope and expect it will!
TCA
Why not use spread/2 for everything? ….it works!
Performance Scenarios
If they are too bullish and you take into account the potential misleading TCA data and impact of ADL – has the regulator created moral hazard?

16. What can be done now to reduce implementation risk?

17. Common areas of risk This is not a simple 3-page document
9 months is not a lot of time
now layer on MiFID II or IDD depending on your regime
There is a high volume of burdensome work to get through where you have many products
Consistent, high quality and timely data is critical

18. Life / Wealth firms – some specific challenges
How to deal with MOPS?
How to capture data from 100s of managers for potentially 1000s of funds?
How to review and sign off 1000s of KIDs and SIDs?
How to ensure vendor set is best of breed?
Document producer
Data collector
Calculator for all PRIIPs categories

19. Asset Management firms
TCA: PRIIPs / MiFID II / DWP LGPS
Arrival price not being captured today with little or no knowledge of how to do it
Data capture strategy has to align for PRIIPs and MiFID
TCA vendors are not regulatory focussed
April 2018 need 1Y data for MiFID II which means clarity needed now….
Slippage methodology (as per PRIIPs / LGPS) cannot be used as it includes market risk – will L3 / Q&A fix this?
Spread/2 works….why not use it everywhere

20. Asset Management firms
Distributors
Program needed to speak with all PRIIPs distributors and understand their needs
Life / WM firms that are wrapping products are not being clear on what they want – or – are asking for different things
Dissemination strategy is a challenge as it is not as simple as shipping on the UCITS KIIDs – the EPT/CEPT + KIID has to be communicated
Calculations are a challenge for some firms as the distributors want different things

21. Asset Management firms
Regulatory mis-alignment
MiFID and PRIIPs did not align = more work
PRIIPs cannot be used for MiFID II disclosure (yet) – alignment is not exact
EMT emerging, but is very early
The data exchange needs to be increased for MiFID to allow for investor specific cost disclosures for specific investment horizons

22. Q&A