Regulatory Frequently AskedQuestions78

UCITS have, usually, daily NAVs and linear payoffs (no embedded options/leverage). Therefore, they fall into Category II with simpler, volatility-based calculations.

No. Firms are not required to describe a target market. The FCA considers that the information included in the product summary provides consumers with sufficient information to assess whether a product is suitable for their needs.

Yes they are in scope of CCI. Just like CEIFs (listed Closed-Ended Investment Fund).

No. PRIIPs fall into four categories depending on NAV frequency, payoff structure and availability of (sufficient) historical data. Generally we could state that UCITS are always Category II, closed-ended privat market funds (Private Equity/Real Estate) are Category I, and Structured Products fall into Category III or IV. Semi-liquids (evergreens) are often Category I because of the lack of an appropriate benchmark or proxy.

For PRIIPs that have been operating for less than 3 years, on any period covering the highest multiple of six months that the PRIIP has been operating, transaction costs are calculated based on slippage or arrival price methodology. For the remaining period up to three years, transaction costs shall be estimated by multiplying:

A.) An estimate of portfolio turnover in each asset class (high level buckets like Investment grade corporate bonds or high yield corporate bonds).

B.) Average bid-ask spreads in these same asset class buckets. In fact, the bid-ask spreads collected shall then be divided by two to obtain the estimated cost of transaction for each point in time. The average of those values is the estimated cost of transaction in each asset class under normal market conditions. On top of these bid-ask spreads, an estimate for the corresponding explicit costs should be added.

Estimates of portfolio turnover for a PRIIP that has been operating for less than one year must be made on a consistent basis with the investment policy disclosed in the offering documents.

Example 1: A fund is launched for 4 months. No slippage or arrival price is yet calculated, and the full 36 month period is estimated based on point A and B.  The turnover should be aligned with the long-term view of the investment manager and be aligned with the investment policy disclosed in the prospectus. These turnovers are multiplied with the corresponding spreads in point B. Of course, the applicable capital deployed to each corresponding bucket is taken into account, in other words the portfolio is decomposed over the different asset class buckets, each having an applicable cost estimate.

Example 2: A fund is launched for 1 year and 10 months. Then for 1.5 year, covering 3 buckets of 6 months, arrival price methodology is applied over the observed trades. For the remaining 1.5 year, the “New PRIIP” approach based on point A and B is applied.

A PRIIP is a Packaged Retail and Insurance-Based Investment Product. Examples include investment funds (UCITS and semi-liquid funds), structured products, insurance-based investments, and alternative funds (p.e. closed-ended private market funds). Key is that the product is offered to retail investors.