ESMA has updated its PRIIPs KID Q&As document

On 5 December 2023, ESMA updated its PRIIPs Q&As adding new questions and answers to the following sections:

• General topics

• Market risk assessment - Product categories

• Performance Scenarios

• Multi-option products (MOPs) and

• Investment funds

The Q&As document contains not only the views of the European Supervisory Authorities (ESAs) on the application or implementation of the PRIIPs Regulation and its Level 2 Delegated Acts but also the responses of the European Commission to questions on interpretation of EU Law. The Commission's responses highlighted in blue in the Q&A document.

The new Q&As are as follows

Section I: General topics

A new Q&A 11 asks whether, where 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.

ESMA's view is that although 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, 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. To show this information, separate KIDs would need to be prepared.

Section IIIA: Market risk assessment - Product categories

A new Q&A 19 asks whether products with recurring premiums should be modelled as Category 2 PRIIPs or (because their performance does not depend only on the performance of the underlying at RHP) as Category 3 PRIIPs.

ESMA's response is that classification of a PRIIP as Category 2 or 3 concerns only the linearity (or not) of its expected pay-off - this is irrespective of how investment in the product is made by the retail investor.

So, 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.

Section VI: Performance Scenarios

A new Q&A 20 asks whether, in respect of life annuities, the sum of rents paid up to the period should be considered in the minimum scenario.

ESMA confirms that under Annex V, Part 1, point 3(b) of the PRIIPs Delegated Regulation, only guaranteed amounts should be reflected in the scenario showing the minimum investment return amount.

A new Q&A 21 confirms that, in accordance with Annex IV, point 7(a) of the PRIIPs Delegated Regulation, monthly data must be used for the calculation of performance scenarios, even where the NAV is available at more frequent intervals (e.g., daily or weekly).

A new Q&A 22 looks at an apparent contradiction in Annex IV, Case 3. ESMA confirms that:

• regarding calculation of performance scenarios, the description of "Case 3" above Annex IV, point 13 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 and;

  • does not need to show past performance against a benchmark.

    Here, the use of a benchmark regulated by the Benchmarks Regulation may be appropriate for the calculation of the performance scenarios (reference is made to Q&As 13 and 15 in Section VI).

• regarding the SRI calculation, Annex IV, point 15 does not change how the PRIIP is categorised under Part 1 of Annex II, Part 1, points 3-7. Where there are sufficient historical prices under Annex II, Part 1, point 5 and it is a Category 2 PRIIP, the SRI calculation should be performed using those historical prices and Annex II, Part 1, point 8 would not apply in such a case.

Section X: Multi-option products (MOPs)

A new Q&A 5 asks whether manufacturers of insurance-based investment products can signpost to KIDs produced by fund managers, rather than proper SIDs in their IBIP MOPs. And also what happens when the RHP of the insurance product is not compatible with that of the underlying fund.

In reply, ESMA notes that, where insurance-based investment products offer a range of options for investments, the insurance undertaking is responsible for designing the product, selecting the investment options offered within the product and complying with the provisions in Chapter II of the PRIIPs Delegated Regulation.

In this context, although there is no requirement for the product's RHP to be fully aligned with the RHP of individual investment options offered, the implications of any differences in RHPs must be appropriately addressed by the PRIIP manufacturer. This would include, for example, providing the necessary explanations in the KID and more generally ensuring that the product is compatible with the needs, characteristics and objectives of the customers belonging to the target market.

Section XI: Investment funds

A new Q&A 5 ESMA considers whether, in the case of a UCITS or AIF, the manufacturer of the PRIP can be an entity to which collective portfolio management functions, or other functions, have been delegated by either the fund, the ManCo or AIFM of the fund.

ESMA replies that the answer is no - even if the fund delegates functions to a third party, the PRIP manufacturer can only be the ManCo or the AIFM of the fund or (in the case of a self-managed UCITS or internally managed AIF) the fund itself.