Regulatory Frequently AskedQuestions78

The KID shows four scenarios: stress, unfavorable, moderate, and favorable. These are based on historical data and illustrate possible outcomes, but are not predictions. All scenarios are shown net of costs and assume reinvestment of dividends/income. Structured products obtain their performance scenarios via Monte Carlo simulation.

Material changes include any change to a consumer composite investment’s investment objectives or investment strategy, as well as the occurrence of market events or circumstances that the firm ought reasonably to know are capable of materially altering the investment’s risk and return information.

Transaction costs are explicit costs or charges incurred when buying or selling investments. They must be calculated on an annualised basis, using an average of transaction costs over the previous 36 months. Where the fund has existed for less than three years, transaction costs must be calculated on a reasonable alternative basis.

Product information, what is this product, costs summary, composition of costs, risk and performance information. 

The line graph must show the performance of a £10,000 investment, or an equivalent amount in another currency that is divisible by 1,000. It must include at least one data point per month, with the last day of each month included in the time series. The x-axis must be expressed in calendar years (or parts thereof), and the y-axis must be linear, showing values as whole-number amounts.

The manufacturer must retain a copy of the product summary for each consumer composite investment once it has been prepared, as well as after any subsequent reviews, amendments, or updates. Each version of the product summary must be kept for a minimum period of three years.

Trades are gathered from a variety of systems and repositories: portfolio management systems, order management systems, fund accounting systems, etc...We identified two major categories of issues:

 1) Incorrect Data:

Inclusion of cancelled trades or option exercises, which do not impact slippage calculations and should be excluded.

Timestamp errors, such as using local time instead of a fixed timezone like UTC.

Some participants have corporate actions (stock-splits, dividend payments,...) nested amongst the bulk of the transactions,  

2) Incomplete Data:

Unclear currency denominations, such as confusion between pounds and pence.

Missing MIC codes, which are essential to identify the trading market for trades identified by the ISIN number of the underlying asset.

Under the CCI, manufacturers are required to provide standardised underlying product information in a machine-readable format to support distributors’ disclosures, unless the firm is the sole distributor of its own products, in which case a machine-readable file is not required.

Where performance fees or carried interest apply, the product summary must include at least one illustrative example showing how much the performance fee and/or carried interest could amount to, based on a hypothetical £10,000 investment and reasonable assumptions about the performance of the CCI. A CCI is also considered subject to a performance fee or carried interest where it invests in one or more investments to which such fees apply.

Where there is less than three months of past performance data, the manufacture may choose not to include a performance graph. In such cases, the product summary must clearly explain that there is insufficient information to produce the graph.

Where a consumer composite investment is a fund that invests in one or more funds managed by the same person, the product summary must disclose any actual or potential benefits to that person arising from the investment in the investee funds.

Where the past performance data covers less than one year, the product summary must include a warning stating that the performance shown relates to a short period and may not be representative of the consumer composite investment’s performance over the longer term (DISC 5.3.3).