Regulatory Frequently AskedQuestions86

Risk is summarized with a Summary Risk Indicator (SRI) on a scale from 1 (lowest risk) to 7 (highest risk). This reflects both market risk (volatility of returns) and credit risk (issuer default risk).

Where the time series covers more than 10 years, the manufacturer may proceed directly to the volatility calculation. Where the time series covers less than 10 years, a simulation approach must be used, based on historical values of either a reference asset or an appropriate benchmark. In all cases, the time series must not end more than 60 days before the calculation date.

• Category I (PE/Real Estate): often quarterly NAVs, higher risk by default (SRI 6)
• Category II (UCITS): straightforward volatility-based risk (VEV using Cornish Ficher formula)
• Category III/IV (Structured Products): complex payoffs, simulation-based risk score.

• Stress: formula-based, using stressed volatility.
• Unfavorable/Moderate/Favorable: sliding window method across historical data (can be a blend of actual PRIIP price data, reference share class and proxy/benchmark)
• Unfavorable: article 7B shrinking window ensures conservative worst-case outcomes.For category III instruments, the scenarios are determined via a Monte Carlo simulation.

Costs are always based on: (1) a 10,000 notional investment, (2) 0% return assumption for 1 year holding period and based on moderate scenarios for the other holding periods. This ensures comparability across products.

Costs are shown in two tables: (1) Cost over time: expected costs at 1 year, halfway, and at the recommended holding period. (2) Composition of costs: breaking down one-off, ongoing, transaction costs and performance fees (based on a 10,000 investment).

Yes. The CCI regime applies to non-UK products if they are made available or marketed to UK retail investors. The jurisdiction of the product or issuer is not relevant; what matters is whether UK retail investors are being targeted.

Not necessarily. A score of 7 can indicate either that the product allows losses beyond your initial investment or that it exhibits extremely high volatility. Some funds, such as certain crypto funds, are classified as 7 due to their volatility, even when losses are limited to the initial investment amount.

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.