EUR-Lex Access to European Union law

Back to EUR-Lex homepage

This document is an excerpt from the EUR-Lex website

Document 02017R0653-20230101

Consolidated text: Commission Delegated Regulation (EU) 2017/653 of 8 March 2017 supplementing Regulation (EU) No 1286/2014 of the European Parliament and of the Council on key information documents for packaged retail and insurance-based investment products (PRIIPs) by laying down regulatory technical standards with regard to the presentation, content, review and revision of key information documents and the conditions for fulfilling the requirement to provide such documents (Text with EEA relevance)Text with EEA relevance

ELI: http://data.europa.eu/eli/reg_del/2017/653/2023-01-01

02017R0653 — EN — 01.01.2023 — 006.004


This text is meant purely as a documentation tool and has no legal effect. The Union's institutions do not assume any liability for its contents. The authentic versions of the relevant acts, including their preambles, are those published in the Official Journal of the European Union and available in EUR-Lex. Those official texts are directly accessible through the links embedded in this document

►B

COMMISSION DELEGATED REGULATION (EU) 2017/653

of 8 March 2017

supplementing Regulation (EU) No 1286/2014 of the European Parliament and of the Council on key information documents for packaged retail and insurance-based investment products (PRIIPs) by laying down regulatory technical standards with regard to the presentation, content, review and revision of key information documents and the conditions for fulfilling the requirement to provide such documents

(Text with EEA relevance)

(OJ L 100 12.4.2017, p. 1)

Amended by:

 

 

Official Journal

  No

page

date

 M1

COMMISSION DELEGATED REGULATION (EU) 2018/977 of 4 April 2018

  L 176

1

12.7.2018

 M2

COMMISSION DELEGATED REGULATION (EU) 2019/1866 of 3 July 2019

  L 289

4

8.11.2019

►M3

COMMISSION DELEGATED REGULATION (EU) 2021/2268 of 6 September 2021

  L 455I

1

20.12.2021

►M4

Amended by:  COMMISSION DELEGATED REGULATION (EU) 2022/975 of 17 March 2022

  L 167

35

24.6.2022

►M5

COMMISSION DELEGATED REGULATION (EU) 2022/975 of 17 March 2022

  L 167

35

24.6.2022

 M6

COMMISSION DELEGATED REGULATION (EU) 2022/1666 of 13 June 2022

  L 251

3

29.9.2022


Corrected by:

 C1

Corrigendum, OJ L 120, 11.5.2017, p.  31 (2017/653)

 C2

Corrigendum, OJ L 210, 15.8.2017, p.  16 (2017/653)

 C3

Corrigendum, OJ L 029, 10.2.2022, p.  46 (2021/2268)

►C4

Corrigendum, OJ L 115, 13.4.2022, p.  187 (2021/2268)

 C5

Corrigendum, OJ L 010, 12.1.2023, p.  111 (2021/2268)

►C6

Corrigendum, OJ L 077, 16.3.2023, p.  18 ((EU) 2021/2268)




▼B

COMMISSION DELEGATED REGULATION (EU) 2017/653

of 8 March 2017

supplementing Regulation (EU) No 1286/2014 of the European Parliament and of the Council on key information documents for packaged retail and insurance-based investment products (PRIIPs) by laying down regulatory technical standards with regard to the presentation, content, review and revision of key information documents and the conditions for fulfilling the requirement to provide such documents

(Text with EEA relevance)



CHAPTER I

CONTENT AND PRESENTATION OF THE KEY INFORMATION DOCUMENT

Article 1

General information section

The section in the key information document that relates to the identity of the PRIIP manufacturer and its competent authority shall contain all of the following information:

(a) 

the name of the PRIIP assigned by the PRIIP manufacturer and, where present, the PRIIP's International Securities Identification Number or Unique Product Identifier;

(b) 

the legal name of the PRIIP manufacturer;

(c) 

the PRIIP manufacturer's specific website address providing retail investors with information on how to get in contact with the PRIIP manufacturer, and a telephone number;

(d) 

the name of the competent authority responsible for the supervision of the PRIIP manufacturer in relation to the key information document;

(e) 

the date of production or, where the key information document has been subsequently revised, the date of the latest revision of the key information document;

▼C4

(f) 

where applicable, in cases where the PRIIP manufacturer forms part of a group of companies for legal, administrative or marketing purposes, the name of that group;

(g) 

where the PRIIP takes the form of an undertaking for collective investment in transferable securities (UCITS) or an alternative investment fund (AIF), the identification of the UCITS or AIF including the share class or investment compartment thereof, stated prominently;

(h) 

authorisation details, where applicable;

(i) 

where the PRIIP takes the form of a UCITS or AIF and in cases where a UCITS is managed by a management company as defined in Article 2(1), point (b), of Directive 2009/65/EC or where it is an investment company as referred to in Article 27 of that Directive (collectively ‘UCITS management company’) which is exercising in respect of that UCITS rights under Article 16 of that Directive, or in cases where an AIF is managed by an alternative investment fund manager (AIFM) which is exercising in respect of that AIF rights under Articles 31, 32 and 33 of Directive 2011/61/EU of the European Parliament and of the Council ( 1 ), an additional statement in respect of that fact shall be included.

▼B

Information in the section referred to in the first subparagraph shall also include the comprehension alert referred to in Article 8(3)(b) of Regulation (EU) No 1286/2014 where the PRIIP meets one of the following conditions:

(a) 

it is an insurance-based investment product which does not meet the requirements laid down in Article 30(3)(a) of Directive (EU) 2016/97 of the European Parliament and of the Council ( 2 );

(b) 

it is a PRIIP which does not meet the requirements laid down in points (i)-(vi) of Article 25(4)(a) of Directive 2014/65/EU of the European Parliament and of the Council. ( 3 )

▼M3

For the purposes of the first paragraph, point (g), in the case of an investment compartment or share class, the name of the UCITS or AIF shall follow the compartment or share class name. Where a code number identifying the UCITS or AIF, investment compartment or share class exists, it shall form part of the identification of the UCITS or AIF.

▼B

Article 2

‘What is this product?’ section

1.  
Information relating to the type of the PRIIP in the section entitled ‘What is this product?’ of the key information document shall describe its legal form.
2.  
Information stating the objectives of the PRIIP and the means for achieving those objectives in the section entitled ‘What is this product?’ of the key information document shall be summarised in a brief, clear and easily understandable manner. That information shall identify the main factors upon which return depends, the underlying investment assets or reference values, and how the return is determined, as well as the relationship between the PRIIP's return and that of the underlying investment assets or reference values. That information shall reflect the relationship between the recommended holding period and the risk and reward profile of the PRIIP.

Where the number of assets or reference values referred to in the first subparagraph is such that specific references to all of them cannot be provided within a key information document, only the market segments or instrument types in respect of the underlying investment assets or reference values shall be identified.

▼M3

2a.  

Where the PRIIP takes the form of a UCITS or an AIF, the information in the section entitled ‘What is this product?’ of the key information document shall cover those essential features of a UCITS or AIF about which a retail investor shall be informed, even where those features do not form part of the description of objectives and investment policy in the prospectus of a UCITS as referred to in Article 68 of Directive 2009/65/EC or the description of the investment strategy and objectives of the AIF referred to in Article 23(1), point (a), of Directive 2011/61/EU, including:

(a) 

the main categories of eligible financial instruments that are the object of investment;

(b) 

the possibility that the retail investor may redeem units of UCITS or AIF on demand, qualifying that statement with an indication as to the frequency of dealing in units, or where applicable a statement that there is no possibility to redeem units on demand;

(c) 

whether the UCITS or AIF has a particular target in relation to any industrial, geographic or other market sectors or specific classes of assets;

(d) 

whether the UCITS or AIF allows for discretionary choices in regards to the particular investments that are to be made, and whether this approach includes or implies a reference to a benchmark and if so, which one;

(e) 

whether dividend income is distributed or reinvested.

For the purposes of the first subparagraph, point (d), where a reference to a benchmark is implied, the degree of freedom available in relation to that benchmark shall be indicated, and where the UCITS or AIF has an index tracking objective, this shall be stated.

2b.  

The information referred to in paragraph 2a shall include the following, where relevant:

(a) 

where the UCITS or AIF invests in debt securities, an indication of whether those debt securities are issued by corporate bodies, governments or other entities, and, where applicable, any minimum rating requirements;

(b) 

where the UCITS or AIF is a structured investment fund, an explanation in simple terms of all elements necessary for a correct understanding of the pay-off and the factors that are expected to determine performance, including references, where necessary, to the details on the algorithm and its workings which appear in the prospectus of the UCITS or the description of the investment strategy and objectives of the AIF;

(c) 

where the choice of assets is guided by specific criteria, an explanation of those criteria, such as ‘growth’, ‘value’ or ‘high dividends’;

(d) 

where specific asset management techniques are used, which may include hedging, arbitrage or leverage, an explanation in simple terms of the factors that are expected to determine the performance of the UCITS or AIF.

2c.  

The information referred to in paragraphs 2a and 2b shall distinguish between the broad categories of investments as specified in paragraph 2a, points (a) and (c), and paragraph 2b, point (a), and the approach to those investments to be adopted by a UCITS management company or an AIFM as specified in paragraph 2a, point (d) and paragraph 2b, points (b), (c) and (d).

The section entitled ‘What is this product?’ of the key information document may contain other elements than those listed in paragraphs 2a and 2b, including the description of the UCITS or AIF’s investment strategy, where those elements are necessary to adequately describe the objectives and investment policy of the UCITS or AIF.

▼B

3.  
The description of the type of retail investor to whom the PRIIP is intended to be marketed in the section entitled ‘What is this product?’ of the key information document shall include information on the target retail investors identified by the PRIIP manufacturer, in particular depending on the needs, characteristics and objectives of the type of client for whom the PRIIPs is compatible. This determination shall be based upon the ability of retail investors to bear investment loss and their investment horizon preferences, their theoretical knowledge of, and past experience with PRIIPs, the financial markets as well as the needs, characteristics and objectives of potential end clients.
4.  
The details of insurance benefits in the section entitled ‘What is this product?’ of the key information document shall include in a general summary, namely, the key features of the insurance contract, a definition of each benefit included, with an explanatory statement indicating that the value of those benefits is shown in the section entitled ‘What are the risks and what I could get in return’ and information which reflects the typical biometric characteristics of the target retail investors, showing the overall premium, the biometric risk premium that forms part of that overall premium and either the impact of the biometric risk premium on the investment return at the end of the recommended holding period or the impact of the cost part of the biometric risk premium taken into account in the recurring costs of the ‘Costs over the time table’ calculated in accordance with Annex VII. Where the premium is paid in the form of a single lump sum, the details shall include the amount invested. Where the premium is paid periodically, the number of periodic payments, an estimation of the average biometric risk premium as a percentage of the annual premium, and an estimation of the average amount invested shall be included in the information.

The details referred to in the first subparagraph shall also include an explanation of the impact of the insurance premium payments, equivalent to the estimated value of insurance benefits, on the returns of the investment for the retail investor.

5.  

The information relating to the term of the PRIIP in the section entitled ‘What is this product?’ of the key information document shall include all of the following:

(a) 

the maturity date of the PRIIP or an indication that there is no maturity date;

(b) 

an indication of whether the PRIIP manufacturer is entitled to terminate the PRIIP unilaterally;

(c) 

a description of the circumstances under which the PRIIP can be automatically terminated, and the termination dates, if known.

▼M3

6.  
Where the PRIIP takes the form of a UCITS or an AIF, the identification and explanation of risks referred to in Annexes II and III to this Regulation shall be consistent with the internal process for identifying, measuring, managing and monitoring risk adopted by the UCITS’ management company in accordance with Directive 2009/65/EC or by AIFMs in accordance with Directive 2011/61/EU. Where a management company manages more than one UCITS or where an AIFM manages more than one AIF, the risks shall be identified and explained in a consistent manner.
7.  

Where the PRIIP takes the form of a UCITS or an AIF, the section entitled ‘What is this product?’ of the key information document shall contain the following information for every Member State in which the UCITS or AIF is marketed:

(a) 

the name of the depositary;

(b) 

where and how to obtain further information about the UCITS or AIF, copies of the UCITS’ prospectus or copies of the description of the investment strategy and objectives of the AIF, the latest annual report and any subsequent half-yearly report of the UCITS as referred to in Article 68(1), points (b) and (c), of Directive 2009/65/EC, or the latest annual report of the AIF as referred to in Article 22 of Directive 2011/61/EU, stating in which language or languages those documents are available, and that they may be obtained free of charge;

(c) 

where and how to obtain other practical information, including where to find the latest prices of units.

▼B

Article 3

‘What are the risks and what could I get in return?’ section

1.  
In the section entitled ‘What are the risks and what could I get in return?’ of the key information document, PRIIP manufacturers shall apply the methodology for the presentation of risk as set out in Annex II, include the technical aspects for the presentation of the summary risk indicator as set out in Annex III and comply with the technical guidance, the formats and the methodology for the presentation of performance scenarios, as set out in Annexes IV and V.
2.  

In the section entitled ‘What are the risks and what could I get in return?’ of the key information document, PRIIP manufacturers shall include the following:

(a) 

the level of risk of the PRIIP in the form of a risk class by using a summary risk indicator having a numerical scale from 1 to 7;

(b) 

an explicit reference to any illiquid PRIIP or PRIIP with materially relevant liquidity risk, as defined in Part 4 of Annex II, in the form of a warning to this effect in the presentation of the summary risk indicator;

(c) 

a narrative below the summary risk indicator explaining that if a PRIIP is denominated in a currency other than the official currency of the Member State where the PRIIP is being marketed, the return, when expressed in the official currency of the Member State where the PRIIP is being marketed, may change depending on currency fluctuations;

(d) 

a brief description of the PRIIP's risk and reward profile and a warning to the effect that the risk of the PRIIP may be significantly higher than the one represented in the summary risk indicator where the PRIIP is not held to maturity or for the recommended holding period, where appropriate;

(e) 

for PRIIPs with contractually agreed-upon early exit penalties or long disinvestment notice periods, a reference to the relevant underlying conditions in the section ‘How long should I hold it and can I take money out early?’;

(f) 

an indication of the possible maximum loss, and information that the investment may be lost if it is not protected or where the PRIIP manufacturer is unable to pay out, or that necessary additional investment payments to the initial investment may be required and that the total loss may significantly exceed the total initial investment.

3.  
PRIIP manufacturers shall include four appropriate performance scenarios, as set out in Annex V in the section entitled ‘What are the risks and what could I get in return?’ of the key information document. Those four performance scenarios shall represent a stress scenario, an unfavourable scenario, a moderate scenario and a favourable scenario.
4.  
For insurance-based investment products, an additional performance scenario shall be included in the section entitled ‘What are the risks and what could I get in return?’ of the key information document reflecting the insurance benefit the beneficiary receives where a covered insured event occurs.
5.  
For PRIIPs that are futures, call options and put options traded on a regulated market or on a third-country market considered to be equivalent to a regulated market in accordance with Article 28 of Regulation (EU) No 600/2014 of the European Parliament and of the Council ( 4 ), performance scenarios shall be included in the form of pay-off structure graphs as set out in Annex V in the section entitled ‘What are the risks and what could I get in return?’ of the key information document.

Article 4

‘What happens if [the name of the PRIIP manufacturer] is unable to pay out?’ section

PRIIP manufacturers shall include the following in the section entitled ‘What happens if [the name of the PRIIP manufacturer] is unable to pay out?’ of the key information document:

(a) 

an indication whether the retail investor may face a financial loss due to the default of the PRIIP manufacturer or to the default of an entity other than the PRIIP manufacturer, and the identity of that entity;

(b) 

a clarification whether the loss referred to in point (a) is covered by an investor compensation or guarantee scheme, and whether there are any limitations or conditions to that cover.

Article 5

‘What are the costs?’ section

1.  

PRIIP manufacturers shall apply the following in the section entitled ‘What are the costs?’ of the key information document:

(a) 

the methodology for the calculation of costs set out in Annex VI;

(b) 

the ‘Costs over time’ and ‘Composition of costs’ tables to information on costs, as set out in Annex VII in accordance with the relevant technical guidance therein.

2.  
In the ‘Costs over time’ table in the section entitled ‘What are the costs?’ of the key information document, PRIIP manufacturers shall specify the summary cost indicator of the total aggregated costs of the PRIIP as a single number in monetary and percentage terms for the different time periods set out in Annex VI.

▼M3

A prominent warning shall be added, where applicable, regarding the additional costs that may be charged by persons advising on, or selling, the PRIIP.

▼M3

3.  

In the ‘Composition of costs’ table in the section titled ‘What are the costs?’ of the key information document, PRIIP manufacturers shall specify summary indicators of the following types of costs:

(a) 

any one-off costs, such as entry and exit costs;

(b) 

any recurring costs, separating portfolio transaction costs and other recurring costs;

(c) 

any incidental costs, such as performance fees or carried interest.

4.  
PRIIP manufacturers shall describe each of the different costs included in the ‘Composition of costs’ table in the section titled ‘What are the costs?’ of the key information document, in accordance with Annex VII, and shall specify where and how those costs may differ from the actual costs the retail investor may incur, and where and how such costs may depend on whether the retail investor does or does not exercise certain options.

▼B

Article 6

‘How long should I hold it and can I take my money out early?’ section

PRIIP manufacturers shall include the following in the section entitled ‘How long should I hold it and can I take my money out early?’ of the key information document:

(a) 

a brief description of the reasons for the selection of the recommended, or the minimum required, holding period;

(b) 

a description of the features of the disinvestment procedure and when disinvestment is possible, including an indication of the impact of cashing-in early on the risk or performance profile of the PRIIP, or on the applicability of capital guarantees;

(c) 

information about any fees and penalties which are incurred for disinvestments prior to maturity or any other specified date other than the recommended holding period, including a cross reference to the information on costs to be included in the key information document pursuant to Article 5 and a clarification of the impact of such fees and penalties for different holding periods.

Article 7

‘How can I complain?’ section

PRIIP manufacturers shall provide the following information in the section entitled ‘How can I complain?’ of the key information document, in summary format:

(a) 

steps to be followed for lodging a complaint about the product or about the conduct of the PRIIP manufacturer or the person advising on, or selling, the product;

(b) 

a link to the relevant website for such complaints;

(c) 

an up-to-date postal address and an email address to which such complaints may be submitted.

Article 8

‘Other relevant information’ section

1.  
PRIIP manufacturers shall indicate in the section entitled ‘Other relevant information’ of the key information document any additional information documents that may be provided, and whether such additional information documents are made available based on a legal requirement or only at the request of the retail investor.
2.  
The information included in the section entitled ‘Other relevant information’ of the key information document may be provided in summary format, including a link to the website where further details other than the documents referred to in paragraph 1 are made available.

▼M3

3.  

For UCITS as defined in point 1(a) of Annex VIII, AIFs as defined in point 1(b) of that Annex, or unit-linked insurance-based investment products as defined in point 1(c) of that Annex, the section titled ‘Other relevant information’ of the key information document shall include:

(a) 

a link to the website, or a reference to a document, where the information about past performance published by the PRIIP manufacturer in accordance with Annex VIII is made available;

(b) 

the number of years for which past performance data is presented.

For PRIIPs referred to in Annex II, Part 1, point 5, that are open-ended funds, or other PRIIPs open to subscription, previous performance scenario calculations shall be published on a monthly basis and the section titled ‘Other relevant information’ shall state where those calculations can be found.

▼B

Article 9

Template

PRIIP manufacturers shall present the key information document by means of the template laid down in Annex I. The template shall be completed in accordance with the requirements set out in this Delegated Regulation and in Regulation (EU) No 1286/2014.

▼M3

CHAPTER II

SPECIFIC PROVISIONS ON THE KEY INFORMATION DOCUMENTS BY PRIIPs OFFERING A RANGE OF OPTIONS FOR INVESTMENT

▼B

Article 10

PRIIPs offering a range of options for investment

Where a PRIIP offers a range of underlying investment options, and the information regarding those underlying investment options cannot be provided within a single, concise, stand-alone key information document, PRIIP manufacturers shall produce one of the following:

▼M3

(a) 

a key information document for each underlying investment option within the PRIIP, in accordance with Chapter I, including information about the PRIIP as a whole, with each key information document reflecting the case that the retail investor invests in one investment option only;

(b) 

a generic key information document describing the PRIIP in accordance with Chapter I, unless otherwise specified in Articles 11 to 14, including a description of where the specific information on each underlying investment option can be found.

▼B

Article 11

‘What is this product’ section in the generic key information document

In the section entitled ‘What is this product’ by way of derogation from paragraphs 2 and 3 of Article 2, PRIIP manufacturers shall specify the following:

(a) 

a description of the types of underlying investment options, including the market segments or instrument types, as well as the main factors upon which return depends;

(b) 

a statement indicating that the type of investors to whom the PRIIP is intended to be marketed varies on the basis of the underlying investment option;

▼M3 —————

▼B

Article 12

‘What are the risks and what could I get in return?’ section in the generic key information document

1.  

In the section entitled ‘What are the risks and what could I get in return?’, by way of derogation from paragraphs 2(a) and 3 of Article 3, PRIIP manufacturers shall specify the following:

(a) 

the range of risk classes of all underlying investment options offered within the PRIIP by using a summary risk indicator having a numerical scale from 1 to 7, as set out in Annex III,

(b) 

a statement indicating that the risk and return of the investment varies on the basis of the underlying investment option;

(c) 

a brief description on how the performance of the PRIIP as a whole depends on the underlying investment options;

▼M3 —————

▼M3

Article 13

‘What are the costs?’ section in the generic key information document

In the section titled ‘What are the costs?’, by way of derogation from Article 5(1), point (b), PRIIP manufacturers shall specify the following:

(a) 

where the costs of the PRIIP other than the costs for the underlying investment option cannot be provided in a single figure, including where those costs vary depending on the underlying investment option selected:

(i) 

the range of costs for the PRIIP in the ‘Costs over time’ and ‘Composition of costs’ tables set out in Annex VII;

(ii) 

a statement indicating that the costs to the retail investor vary on the basis of the underlying investment options;

(b) 

where the costs of the PRIIP other than the costs for the underlying investment options can be provided in a single figure:

(i) 

those costs shown separately from the range of costs for the underlying investment options offered by the PRIIP in the ‘Costs over time’ and ‘Composition of costs’ tables set out in Annex VII;

(ii) 

a statement indicating that the total costs to the retail investor consist of a combination of the costs for the underlying investment options chosen and other costs of the PRIIP and vary on the basis of the underlying investment options.

Article 14

Specific information on each underlying investment option

The specific information on each underlying investment option, referred to in Article 10, point (b), shall be provided in a specific information document supplementing the generic key information document. PRIIP manufacturers shall include for each underlying investment option all of the following:

(a) 

a comprehension alert, where relevant;

(b) 

the investment objectives, the means for achieving them, and the intended target market as referred to in Article 2(2) and (3);

(c) 

a summary risk indicator and narrative, and performance scenarios, as referred to in Article 3;

(d) 

a presentation of the costs, in accordance with Article 5, including a statement on whether or not those costs include all of the costs of the PRIIP in the case that the retail investor invests in that specific investment option only;

(e) 

for underlying investment options that are UCITS as defined in point 1(a) of Annex VIII, AIFs as defined in point 1(b) of that Annex, or unit-linked insurance-based investment products as defined in point 1(c) of that Annex, information about past performance as required by Article 8(3).

The information referred to in points (a) to (e) of this paragraph shall follow the structure of the relevant parts of the template laid down in Annex I.

▼M3

CHAPTER IIa

SPECIFIC PROVISIONS ON THE KEY INFORMATION DOCUMENTS BY CERTAIN UCITS AND AIFs

Article 14a

Investment compartments of UCITS or AIFs

1.  
Where a UCITS or AIF consists of two or more investment compartments, a separate key information document shall be produced for each individual compartment.
2.  

Each key information document referred to in paragraph 1 shall contain, in the section entitled ‘What is this product?’, the following information:

(a) 

a statement that the key information document describes a compartment of a UCITS or AIF, and, where applicable, that the prospectus of the UCITS or the description of the investment strategy and objectives of the AIF and periodic reports are prepared for the entire UCITS or AIF named at the beginning of the key information document;

(b) 

whether or not the assets and liabilities of each compartment are segregated by law and how this might affect the investor;

(c) 

whether or not the retail investor has the right to exchange his investment in units in one compartment for units in another compartment, and if so, where to obtain information about how to exercise that right.

3.  
Where the UCITS management company or the AIFM sets a charge for the retail investor to exchange his investment in accordance with paragraph 2, point (c), and that charge differs from the standard charge for buying or selling units, that charge shall be stated separately in the section entitled ‘What are the costs?’ of the key information document.

Article 14b

Share classes of UCITS or AIFs

1.  
Where a UCITS or AIF consists of more than one class of units or shares, the key information document shall be prepared for each class of units or shares.
2.  
The key information document pertinent to two or more classes of the same UCITS or AIF may be combined into a single key information document, provided that the resulting document fully complies with all requirements on length, language and presentation of the key information document.
3.  
The UCITS management company or AIFM may select a class to represent one or more other classes of the UCITS or AIF, provided the choice is fair, clear and not misleading to potential retail investors in those other classes. In such cases, the section entitled ‘What are the risks and what could I get in return?’ of the key information document shall contain the explanation of material risk applicable to any of the other classes being represented. A key information document based on the representative class may be provided to retail investors in the other classes.
4.  
Different classes shall not be combined into a composite representative class as referred to in paragraph 3.
5.  
The UCITS management company or AIFM shall keep a record of which other classes are represented by the representative class referred to in paragraph 3 and the grounds justifying that choice.
6.  
Where applicable, the section entitled ‘What is this product?’ of the key information document shall be supplemented by an indication of which class has been selected as representative, using the term by which it is designated in the UCITS’ prospectus or in the description of the investment strategy and objectives of the AIF.
7.  
That section shall also indicate where retail investors can obtain information about the other classes of the UCITS or AIF that are marketed in their own Member State.

Article 14c

UCITS or AIFs as fund of funds

1.  
Where the UCITS invests a substantial proportion of its assets in other UCITS or other collective investment undertakings as referred to in Article 50(1), point (e), of Directive 2009/65/EC, the description of the objectives and investment policy of that UCITS in the key information document shall include a brief explanation of how the other collective undertakings are to be selected on an ongoing basis. Where a UCITS is a fund of hedge funds the key information document shall include information about the purchase of non-EU AIFs that are not under supervision.
2.  
Where the AIF invests a substantial proportion of its assets in other UCITS or AIFs, paragraphs 1 and 2 shall apply mutatis mutandis.

Article 14d

Feeder UCITS

1.  

For feeder UCITS, as defined in Article 58 of Directive 2009/65/EC, the key information document shall contain, in the section entitled ‘What is this product?’ the following information specific to the feeder UCITS:

(a) 

a statement that the master UCITS’ prospectus, key information document, and periodic reports and accounts are available to retail investors of the feeder UCITS upon request, how they may be obtained, and in which language(s);

(b) 

whether the items listed in point (a) of this paragraph are available in paper copies only or in other durable media, and whether any fee is payable for items not subject to free delivery in accordance with Article 63(5) of Directive 2009/65/EC;

(c) 

where the master UCITS is established in a different Member State to the feeder UCITS, and where this may affect the feeder UCITS’s tax treatment, a statement to this effect;

(d) 

information about the proportion of the feeder UCITS’ assets which is invested in the master UCITS;

(e) 

a description of the master UCITS’ objectives and investment policy, supplemented, as appropriate, by either of the following:

(i) 

an indication that the feeder UCITS’ investment returns will be very similar to those of the master UCITS; or

(ii) 

an explanation of how and why the investment returns of the feeder and master UCITS may differ.

2.  
Where the risk and reward profile of the feeder UCITS differs in any material respect from that of the master UCITS, that fact and the reason for it shall be explained in the section entitled ‘What are the risks and what could I get in return?’ of the key information document.
3.  
Any liquidity risk and the relationship between purchase and redemption arrangements for the master and feeder UCITS shall be explained in the section entitled ‘What are the risks and what could I get in return?’ of the key information document.

Article 14e

Structured UCITS or AIF

Structured investment funds are UCITS or AIFs which provide retail investors, at certain predetermined dates, with algorithm-based payoffs that are linked to the performance, or to the realisation of price changes or other conditions, of financial assets, indices or reference portfolios or UCITS or AIFs with similar features.

▼B

CHAPTER III

REVIEW AND REVISION OF THE KEY INFORMATION DOCUMENT

Article 15

Review

1.  
PRIIP manufacturers shall review the information contained in the key information document every time there is a change that significantly affects or is likely to significantly affect the information contained in the key information document and, at least, every 12 months following the date of the initial publication of the key information document.
2.  

The review referred to in paragraph 1 shall verify whether the information contained in the key information document remains accurate, fair, clear, and non-misleading. In particular, it shall verify the following:

(a) 

whether the information contained in the key information document is compliant with the general form and content requirements under Regulation (EU) No 1286/2014, or with the specific form and content requirements laid down in this Delegated Regulation;

(b) 

whether the PRIIP's market risk or credit risk measures have changed, where such a change has the combined effect that necessitates the PRIIP's move to a different class of the summary risk indicator from that attributed in the key information document subject to review;

(c) 

whether the mean return for the PRIIP's moderate performance scenario, expressed as an annualised percentage return, has changed by more than five percentage points;

▼M3

(d) 

where the performance scenarios are based on appropriate benchmarks or proxies, the consistency of the benchmark or proxy with the objectives of the PRIIP.

▼B

3.  
For the purposes of paragraph 1, PRIIP manufacturers shall establish and maintain adequate processes throughout the life of the PRIIP where it remains available to retail investors to identify without undue delay any circumstances which might result in a change that affects or is likely to affect the accuracy, fairness or clarity of the information contained in the key information document.

Article 16

Revision

1.  
PRIIP manufacturers shall without undue delay revise the key information document where a review pursuant to Article 15 concludes that changes to the key information document need to be made.
2.  
PRIIP manufacturers shall ensure that all sections of the key information document affected by such changes are updated.
3.  
The PRIIP manufacturer shall publish the revised key information document on its website.

CHAPTER IV

DELIVERY OF THE KEY INFORMATION DOCUMENT

Article 17

Conditions on good time

1.  
The person advising on or selling a PRIIP shall provide the key information document sufficiently early so as to allow retail investors enough time to consider the document before being bound by any contract or offer relating to that PRIIP, regardless of whether or not the retail investor is provided with a cooling off period.
2.  

For the purposes of paragraph 1, the person advising on or selling a PRIIP shall assess the time needed by each retail investor to consider the key information document, taking into account the following:

(a) 

the knowledge and experience of the retail investor with the PRIIP or with PRIIPs of a similar nature or with risks similar to those arising from the PRIIP;

(b) 

the complexity of the PRIIP;

(c) 

where the advice or sale is at the initiative of the retail investor, the urgency explicitly expressed by the retail investor of concluding the proposed contract or offer.

▼M3

CHAPTER IVa

CROSS-REFERENCES

Article 17a

Use of cross-references to other sources of information

Without prejudice to Article 6 of Regulation (EU) No 1286/2014, cross-references to other sources of information, including the prospectus and annual or half-yearly reports, may be included in the key information document, provided that all information fundamental for the retail investors’ understanding of the essential elements of the investment is included in the key information document.

Cross-references shall be permitted to the website of the PRIIP or the PRIIP manufacturer, including a part of any such website containing the prospectus and the periodic reports.

Cross-references referred to in the first subparagraph shall direct the retail investor to the specific section of the relevant source of information. Several different cross-references may be used within the key information document but they shall be kept to a minimum.

▼B

Article 18

Final Provision

This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.

It shall apply from 1 January 2018.

▼M4 M5

Article 14(2) shall apply until 31 December 2022.

▼B

This Regulation shall be binding in its entirety and directly applicable in all Member States.

▼M3




ANNEX I

TEMPLATE FOR THE KEY INFORMATION DOCUMENT

PRIIP manufacturers shall comply with the section order and titles set out in the template, which however does not fix parameters regarding the length of individual sections and the placing of page breaks, and is subject to an overall maximum of three sides of A4-sized paper when printed.



Key Information Document

Purpose

This document provides you with key information about this investment product. It is not marketing material. The information is required by law to help you understand the nature, risks, costs, potential gains and losses of this product and to help you compare it with other products.

Product

[Name of Product]

[Name of PRIIP manufacturer]

(where applicable) [ISIN or UPI]

[website for PRIIP manufacturer]

[Call [telephone number] for more information]

[[Name of Competent Authority] is responsible for supervising [Name of PRIIP Manufacturer] in relation to this Key Information Document]

(where applicable) [This PRIIP is authorised in [name of Member State]]

(where applicable) [[Name of UCITS management company] is authorised in [name of Member State] and regulated by [identity of competent authority]

(where applicable) [Name of AIFM] is authorised in [name of Member State] and regulated by [identity of competent authority]

[date of production of the KID]

[Alert (where applicable) You are about to purchase a product that is not simple and may be difficult to understand]

What is this product?

Type

Term

Objectives

Intended retail investor

[Insurance benefits and costs]

What are the risks and what could I get in return?

Risk

Description of the risk-reward profile

Indicator

Summary Risk Indicator

SRI template and narratives as set out in Annex III, including on possible maximum loss: can I lose all invested capital? Do I bear the risk of incurring additional financial commitments or obligations? Is there capital protection against market risk?

Performance

Performance Scenario templates and narratives as set out in Annex V

Scenarios

Scenarios including where applicable information on conditions for returns to retail investors or built-in performance caps, and statement that the tax legislation of the retail investor’s home Member State may have an impact on actual payout

What happens if [PRIIP manufacturer] is unable to pay out?

Information on whether there is a guarantee scheme, the name of the guarantor or investor compensation scheme operator, including the risks covered and those not covered.

What are the costs?

Narratives on information to be included on other distribution costs

Costs over Time

Template and narratives according to Annex VII

Composition of Costs

Template and narratives according to Annex VI

How long should I hold it and can I take money out early?

Recommended [required minimum] holding period: [x]

Information on whether one can disinvest before maturity, the conditions for this, and applicable fees and penalties if any. Information on the consequences of cashing-in before the end of the term or before the end of the recommended holding period.

How can I complain?

Other relevant information

Where applicable a short description of the information published on past performance

▼B




ANNEX II

METHODOLOGY FOR THE PRESENTATION OF RISK

PART 1

Market risk assessment

Determination of the market risk measure (MRM)

1. Market risk is measured by the annualised volatility corresponding to the value-at-risk (VaR) at a confidence level of 97,5 % over the recommended holding period, unless stated otherwise. The VaR is the percentage of the amount invested, that is returned to the retail investor.

▼M3

2. The PRIIP shall be assigned a MRM class in accordance with the following table:



MRM class

VaR-equivalent volatility (VEV)

1

< 0,5  %

2

≥ 0,5  % and < 5,0  %

3

≥ 5,0  % and < 12  %

4

≥ 12  % and < 20  %

5

≥ 20  % and < 30  %

6

≥ 30  % and < 80  %

7

≥ 80  %

▼B

Specification of PRIIP categories for the purposes of the market risk assessment

3. For the purposes of determining market risk, PRIIPs are divided into four categories.

4. Category 1 covers the following:

(a) 

PRIIPs where investors could lose more than the amount they invested;

(b) 

PRIIPs that fall within one of the categories referred to in items 4 to 10 of Section C of Annex I to Directive 2014/65/EU of the European Parliament and of the Council ( 5 );

(c) 

PRIIPs or underlying investments of PRIIPs which are priced on a less regular basis than monthly, or which do not have an appropriate benchmark or proxy, or whose appropriate benchmark or proxy is priced on a less regular basis than monthly.

5. Category 2 covers PRIIPs which, either directly or on a synthetic basis, offer non-leveraged exposure to the prices of underlying investments, or a leveraged exposure on underlying investments that pays a constant multiple of the prices of those underlying investments, where at least 2 years of historical daily prices, or 4 years of historical weekly prices, or 5 years of monthly prices are available for the PRIIP, or where existing appropriate benchmarks or proxies are available, provided that such benchmarks or proxies fulfil the same criteria for the length and frequency of the price history.

6. Category 3 covers PRIIPs whose values reflect the prices of underlying investments, but not as a constant multiple of the prices of those underlying investments, where at least 2 years of daily prices of the underlying assets, 4 years of weekly prices or 5 years of monthly prices, or where existing appropriate benchmarks or proxies are available, provided that such benchmarks or proxies fulfil the same criteria for the length and frequency of the price history.

7. Category 4 covers PRIIPs whose values depend in part on factors not observed in the market, including insurance-based PRIIPs which distribute a portion of the PRIIP manufacturer's profits to retail investors.

Use of appropriate benchmarks or proxies to specify PRIIPs categories

Where appropriate benchmarks or proxies are used by a PRIIP manufacturer, those benchmarks or proxies shall be representative of the assets or exposures that determine the performance of the PRIIP. The PRIIP manufacturer shall document the use of such benchmarks or proxies.

MRM class determination for Category 1 PRIIPs

8. The MRM class for Category 1 PRIIPs shall be 7, with the exception of PRIIPs referred to in point 4(c) of this Annex, where the MRM class shall be 6.

MRM class determination for Category 2 PRIIPs

9. The VaR shall be calculated from the moments of the observed distribution of returns of the PRIIP's or its benchmark or proxy's price during the past 5 years. The minimum frequency of observations is monthly. Where prices are available on a daily basis, the frequency shall be daily. Where prices are available on a weekly basis, the frequency shall be weekly. Where prices are available on a bi-monthly basis, the frequency shall be bi-monthly.

10. Where data on daily prices covering a period of 5 years are not available, a shorter period may be used. For daily observations of a PRIIP's or its benchmark or proxy's price, there shall be at least 2 years of observed returns. For weekly observations of a PRIIP's price, there shall be at least 4 years of observed data. For monthly observations of a PRIIP's price, there shall be observed data covering a period of at least 5 years.

11. The return over each period is defined as the natural logarithm of the ratio of the price at the market close at the end of the current period to the market close at the end of the preceding period.

12. The VaR measure in return space is given by the Cornish-Fisher expansion, as follows:

image

where N is the number of trading periods in the recommended holding period; and σ, μ1, μ2 are respectively the volatility, skew and excess kurtosis measured from the return distribution. The volatility, skew and excess kurtosis are calculated from the measured moments of the distribution of returns in accordance with the following:

— 
the zero moment, M0 , is the count of the number of observations in the period as under point 10 of this Annex
— 
the first moment, M1 , is the mean of all the observed returns in the sample
— 
the second M2 , third M3 and fourth M4 moments are defined in the standard manner:

image

,

image

,

image

,
where ri is the return measured on the ith period in the history of returns.
— 
the volatility, σ, is given by

image

.
— 
the skew, μ1, is equal to M33.
— 
the excess kurtosis, μ2, is equal to M44 – 3.

▼C6

13. The VEV is given by:

image

Where T is the length of the recommended holding period in years.

▼B

14. For PRIIPs that are managed according to investment policies or strategies that pursue certain reward objectives by participating through flexible investment in different financial asset classes (e.g. in both equity and fixed-income markets), the VEV that shall be used shall be determined as follows:

(a) 

where there has been no revision of the investment policy over the period referred to in point 10 of this Annex, the VEV that shall be used is the highest of the following VEVs

(i) 

the VEV computed in accordance with points 9 to 13 of this Annex;

(ii) 

the VEV of the returns of the pro-forma asset mix that is consistent with the reference asset allocation of the fund at the time of the computation;

(iii) 

the VEV which is consistent with the risk limit of the fund, if any and appropriate.

(b) 

where investment policy has been revised during the period referred to in point 10 of this Annex, the VEV that shall be used is the highest of the VEVs referred to in point (a)(ii) and (iii).

15. The PRIIP shall be assigned to a MRM class as laid down under point 2 of this Annex depending on the VEV. In the case of a PRIIP having only monthly price data, the MRM class assigned under point 2 of this Annex shall be increased by one additional class.

MRM class determination for Category 3 PRIIPs

16. The VaR in price space shall be calculated from a distribution of PRIIP values at the end of the recommended holding period. The distribution shall be obtained by simulating the price or prices, which determine the value of the PRIIP, at the end of the recommended holding period. The VaR shall be the value of the PRIIP at a confidence level of 97,5 % at the end of the recommended holding period discounted to the present date using the expected risk-free discount factor from the present date to the end of the recommended holding period.

▼M3

17. The VEV is given by:

image

where T is the length of the recommended holding period in years. Only in cases where the product is called or cancelled before the end of the recommended holding period according to the simulation, the period in years until the call or cancellation is used in the calculation.

▼B

18. The PRIIP shall be assigned to a MRM class as laid down in point 2 of this Annex, depending on the VEV. In the case of a PRIIP having only monthly price data, the MRM class assigned under point 2 of this Annex shall be increased by one additional class.

19. The minimum number of simulations is 10 000 .

20. The simulation is based on bootstrapping the expected distribution of prices or price levels for the PRIIP's underlying contracts from the observed distribution of returns for these contracts with replacement.

21. For the purposes of the simulation referred to in points 16 to 20 of this Annex, there are two types of market observables that may contribute to a PRIIP's value: spot prices (or price levels) and curves.

22. For each simulation of a spot price (or level), the PRIIP manufacturer shall:

(a) 

calculate the return for each observed period in the past 5 years, or the years referred to in point 6 of this Annex, by taking the logarithm of the price at the end of each period divided by the price at the end of the previous period;

(b) 

randomly select one observed period which corresponds to the return for all underlying contracts for each simulated period in the recommended holding period (the same observed period may be used more than once in the same simulation);

(c) 

calculate the return for each contract by summing the returns from the selected periods and correcting this return to ensure that the expected return measured from the simulated distribution of returns is the risk-neutral expectation of the return over the recommended holding period. The final value of the return is given by:

image

Where:

— 
the second term corrects for the impact of the mean of the observed returns;
— 
the third term corrects for the impact of the variance of the observed returns;
— 
the last term corrects for the quanto impact if the strike currency is different from the asset currency. The terms contributing to the correction are as follows:
— 
ρ is the correlation between the asset price and the relevant Fx rate — measured over the recommended holding period;
— 
σ is the measured volatility of the asset;
— 
σccy is the measured volatility of the Fx rate.
(d) 

calculate the price of each underlying contract by taking the exponential of the return.

23. For curves, a principal component analysis (PCA) shall be performed to ensure that the simulation of the movements of each point on the curve over a long period results in a consistent curve.

(a) 

The PCA is performed by:

(i) 

collecting the historical record of tenor points that define the curve for each trading period over the past 5 years, or the years referred to in point 6 of this Annex;

(ii) 

ensuring that each tenor point is positive — where there is a negative tenor point, all tenor points shall be shifted by the minimum whole number or percentage to ensure positive values for all tenor points;

(iii) 

calculating the return over each period for each tenor point by taking the natural logarithm of the ratio between the price/level at the end of each observed period and the price/level at the end of the preceding period;

(iv) 

correcting the returns observed at each tenor point so that the resulting set of returns at each tenor point has a zero mean;

(v) 

calculating the covariance matrix between the different tenors by summing over returns;

(vi) 

calculating the eigenvectors and eigenvalues of the covariance matrix;

(vii) 

selecting the eigenvectors that correspond to the three largest eigenvalues;

(viii) 

forming a matrix with 3 columns where the first column is the eigenvector with the largest eigenvalue; the middle column is the eigenvector with the second-largest eigenvalue and the last column is the eigenvector with the third-largest eigenvalue;

▼M3

(ix) 

projecting the returns onto the three principal eigenvectors calculated in the previous step by multiplying the NxM matrix of returns obtained in point (v) by the Mx3 matrix of eigenvectors obtained in point (viii);

▼B

(x) 

calculating the matrix of returns to be used in the simulation by multiplying the results in point (ix) with the transpose of the matrix of eigenvectors obtained in point (viii). This is the set of values to be used in the simulation.

(b) 

The curve simulation is performed as follows:

(i) 

the time step in the simulation is one period. For each observation period in the recommended holding period select a row at random from the calculated matrix of returns. The return for each tenor point, T, is the sum over the selected rows of the column corresponding to tenor point, T.

(ii) 

the simulated rate for each tenor point T, is the current rate at tenor point T:

— 
multiplied by the exponential of the simulated return,
— 
adjusted for any shifts used to ensure positive values for all tenor point, and
— 
adjusted so that the expected mean matches current expectations for the rate at tenor point T, at the end of the recommended holding period.

24. For PRIIPS in Category 3 that are characterized by an unconditional protection of capital, the PRIIP manufacturer may assume that the VaR at a confidence level of 97,5 % is equal to the level of the unconditional capital protection at the end of the recommended holding period, discounted to the present date using the expected risk-free discount factor.

MRM class determination for Category 4 PRIIPs

25. Where the PRIIP performance depends on a factor or factors unobserved in the market or to some extent under the control of the PRIIP manufacturer, or this is the case for a component of the PRIIP, the PRIIP manufacturer shall follow the method in this section to account for this factor or factors.

26. The different components of the PRIIP that contribute to the performance of the PRIIP shall be identified, in order for those components that are not wholly or partly dependent on a factor or factors that are unobserved in the market to be treated according to the relevant methods set out in this Annex for Category 1, 2 or 3 PRIIPs. For each of these components a VEV shall be calculated.

27. The component of the PRIIP that depends wholly or partly on a factor or factors that are unobserved in the market shall follow robust and well recognised industry and regulatory standards for determining relevant expectations as to the future contribution of these factors and the uncertainty that may exist in respect of that contribution. Where the component is not wholly dependent on a factor that is unobserved in the market, a bootstrap methodology shall be used to account for the market factors, as set out for Category 3 PRIIPs. The VEV for the component of the PRIIP shall be the result of the combination of the bootstrap methodology and robust and well recognised industry and regulatory standards for determining relevant expectations as to the future contribution of these factors that are unobserved in the market.

28. The VEV of each component of the PRIIP shall be weighted proportionally in order to arrive at an overall VEV of the PRIIP. When weighing the components, product features shall be taken into account. Where relevant, product algorithms mitigating the market risk as well as specificities of the with-profit component shall be considered.

29. For Category 4 PRIIPs that are characterized by an unconditional protection of capital, the PRIIP manufacturer may assume that VaR at a confidence level of 97,5 % is equal to the level of unconditional capital protection at the end of the recommended holding period, discounted to the present date using the expected risk-free discount factor.

PART 2

Methodology for assessing credit risk

I.   GENERAL REQUIREMENTS

30. A PRIIP or its underlying investments or exposures shall be taken to entail credit risk where the return of the PRIIP or its underlying investments or exposures depends on the creditworthiness of a manufacturer or party bound to make, directly or indirectly, relevant payments to the investor. A PRIIP with a MRM of 7 is not required to assess credit risk.

31. Where an entity directly engages to make a payment to a retail investor for a PRIIP, credit risk shall be assessed for the entity that is the direct obligor.

32. If all payment obligations of an obligor or one or more indirect obligors are unconditionally and irrevocably guaranteed by another entity (the guarantor), the credit risk assessment of the guarantor can be used if it is more favourable than the credit risk assessment of the respective obligor or obligors.

33. For PRIIPs which are exposed to underlying investments or techniques, including PRIIPs which themselves entail credit risk or in turn make underlying investments that entail credit risk, the credit risk shall be assessed in relation to the credit risk entailed both by the PRIIP itself and the underlying investments or exposures (including exposures to other PRIIPs), on a look-through basis and adopting a cascade assessment where necessary.

34. Where the credit risk is entailed solely at the level of underlying investments or exposures (including to other PRIIPs), the credit risk shall not be assessed at the level of the PRIIP itself but instead at the level of these underlying investments or exposures on a look-through basis. Where the PRIIP is an Undertaking for Collective Investment in Transferable Securities (UCITS) or an Alternative Investment Fund (AIF), the UCITS or AIF itself shall be taken to entail no credit risk, whereas the underlying investments or exposures of the UCITS or AIF shall be assessed where necessary.

35. Where a PRIIP is exposed to multiple underlying investments entailing a credit risk exposure, the credit risk entailed by each underlying investment representing an exposure of 10 % or more of the total assets or value of the PRIIP shall be separately assessed.

36. Underlying investments or exposures to exchange-traded derivatives or cleared OTC derivatives shall be assumed for the purposes of the credit risk assessment to carry no credit risk. No credit risk shall be taken to be entailed where an exposure is fully and appropriately collateralised, or where uncollateralised exposures that entail credit risk amount to less than 10 % of the total assets or value of the PRIIP.

II.   CREDIT RISK ASSESSMENT

Credit assessment of obligors

37. Where available, a PRIIP manufacturer shall define ex-ante one or more external credit assessment institutions (ECAI) certified or registered with the European Securities and Markets Authority (ESMA) in accordance with Regulation (EC) No 1060/2009 of the European Parliament and the Council ( 6 ) whose credit assessments will consistently be referred to for the purpose of the credit risk assessment. Where multiple credit assessments are available according to that policy, the median rating shall be used, defaulting to the lower of the two middle values in case of an even number of assessments.

38. The level of credit risk of the PRIIP and each relevant obligor shall be assessed on the basis of, as applicable:

(a) 

the credit assessment assigned to the PRIIP by an ECAI;

(b) 

the credit assessment assigned to the relevant obligor by an ECAI;

(c) 

in the absence of a credit assessment under either (a) or (b) or both, a default credit assessment as set out in point 43 of this Annex.

Allocation of credit assessments to credit quality steps

39. The allocation of credit assessments of ECAIs to an objective scale of credit quality steps shall be based on Commission Implementing Regulation (EU) 2016/1800 ( 7 ).

40. In the case of credit risks assessed on a look-through basis, the credit quality step assigned shall correspond to the weighted average credit quality steps of each relevant obligor for which a credit assessment needs to be undertaken, in proportion to the total assets they respectively represent.

41. In the case of credit risks assessed on a cascade basis, all credit risk exposures shall be separately assessed, per layer, and the credit quality step assigned shall be the highest credit quality step, being understood that between a credit quality step set at 1 and a credit quality step set at 3, the higher of the two is 3.

42. The credit quality step pursuant to point 38 of this Annex shall be adjusted to the maturity or recommended holding period of the PRIIP, according to the following table, except where a credit assessment has been assigned that reflects that maturity or recommended holding period):



Credit quality step pursuant to point 38 of this Annex

Adjusted credit quality step, in the case where the maturity of the PRIIP, or its recommended holding period where a PRIIP does not have a maturity, is up to one year

Adjusted credit quality step, in the case where the maturity of the PRIIP, or its recommended holding period where a PRIIP does not have a maturity, ranges from one year up to 12 years

Adjusted credit quality step, in the case where the maturity of the PRIIP, or its recommended holding period where a PRIIP does not have a maturity, exceeds 12 years

0

0

0

0

1

1

1

1

2

1

2

2

3

2

3

3

4

3

4

5

5

4

5

6

6

6

6

6

43. If the obligor has no external credit assessments, the default credit assessment as referred to in point 38 of this Annex shall be:

(a) 

credit quality step 3, if the obligor is regulated as a credit institution or an insurance undertaking under the applicable Union law or the legal framework deemed equivalent under Union law and if the rating of the Member State where the obligor is domiciled would be credit quality step 3;

(b) 

credit quality step 5, for any other obligor.

III.   CREDIT RISK MEASURE

44. A PRIIP shall be allocated to a credit risk measure (CRM) on a scale ranging from 1 to 6 on the basis of the mapping table laid down in point 45 of this Annex and by applying the credit risk mitigating factors under points 46, 47, 48 and 49 of this Annex, or the credit risk escalating factors under points 50 and 51 of this Annex, as appropriate.

45. Table on the mapping of credit quality steps into a CRM:



Adjusted credit quality step

Credit risk measure

0

1

1

1

2

2

3

3

4

4

5

5

6

6

46. The CRM may be assigned as 1 where the assets of a PRIIP or appropriate collateral, or assets backing the payment obligation of the PRIIP, are:

(a) 

at all times until maturity equivalent to the payment obligations of the PRIIP to its investors;

(b) 

held with a third party on a segregated account under equivalent terms and conditions as those laid down in Directive 2011/61/EU of the European Parliament and of the Council ( 8 ) or Directive 2014/91/EU ( 9 ); and

(c) 

not, under any circumstances, accessible to any other creditors of the manufacturer under applicable law.

47. The CRM may be assigned as 2 where the assets of a PRIIP or appropriate collateral, or assets backing the payment obligation of the PRIIP, are:

(a) 

at all times until maturity equivalent to the payment obligations of the PRIIP to its investors;

(b) 

identified and held on accounts or registers, based on applicable law, including Articles 275 and 276 of Directive 2009/138/EC of the European Parliament and of the Council ( 10 ); and

(c) 

such that the claims of retail investors have priority over the claims of other creditors of the PRIIP manufacturer or party bound to make, directly or indirectly, relevant payments to the investor.

48. Where credit risk is to be assessed on a look-through or cascade basis, the mitigation factors under point 46 and 47 of this Annex may also be applied when assessing credit risk in relation to each underlying obligor.

49. Where a PRIIP is not able to satisfy the criteria under point 47 of this Annex, the CRM pursuant to point 45 of this Annex may be reduced by one class where the claims of retail investors have priority over the claims of ordinary creditors, as set out in Article 108 of Directive 2014/59/EU, of the PRIIP manufacturer or party bound to make, directly or indirectly, relevant payments to the investor, in so far as the obligor is subject to relevant prudential requirements in respect of ensuring an appropriate matching of assets and liabilities.

50. The CRM pursuant to point 45 of this Annex shall be increased by two classes where the claim of a retail investor is subordinate to the claims of senior creditors.

51. The CRM pursuant to point 45 of this Annex shall be increased by three classes where a PRIIP is part of the own funds of the PRIIP obligor, as defined in Article 4(1)(118) of Regulation (EU) No 575/2013 of the European Parliament and of the Council ( 11 ) or in Article 93 of Directive 2009/138/EU.

PART 3

Aggregation of market and credit risk into the summary risk indicator

52. The overall summary risk indicator (SRI) is assigned according to the combination of the CRM and the MRM classes, in accordance with the following table:



MRM class

CRM class

MR1

MR2

MR3

MR4

MR5

MR6

MR7

CR1

1

2

3

4

5

6

7

CR2

1

2

3

4

5

6

7

CR3

3

3

3

4

5

6

7

CR4

5

5

5

5

5

6

7

CR5

5

5

5

5

5

6

7

CR6

6

6

6

6

6

6

7

▼M3

52a. Where the PRIIP manufacturer considers that the summary risk indicator number assigned following the aggregation of market and credit risk in accordance with point 52 does not adequately reflect the risks of the PRIIP, that PRIIP manufacturer may decide to increase that number. The decision making process for such an increase shall be documented.

▼B

Monitoring data with relevance for the summary risk indicator

53. The PRIIP manufacturer shall monitor market data relevant to the calculation of the MRM class and, if the MRM class changes to a different MRM class, the PRIIP manufacturer shall attribute the corresponding MRM class to the MRM class which the PRIIP has matched for the majority of the reference points over the preceding four months.

54. The PRIIP manufacturer shall also monitor credit risk criteria relevant to the calculation of the CRM and, if according to these criteria the CRM would change to a different CRM class, the PRIIP shall re-attribute the CRM to the relevant CRM class.

55. A review of the MRM class shall always be carried out following a decision by the PRIIP manufacturer in respect of the PRIIP's investment policy and/or strategy. In those circumstances, any changes to the MRM shall be understood as a new determination of the PRIIP's MRM class, and consequently, be carried out according to the general rules concerning the determination of an MRM class for the PRIIP category.

PART 4

Liquidity risk

56. A PRIIP shall be considered as having a materially relevant liquidity risk where either of the following criteria are fulfilled:

(a) 

the PRIIP is admitted to trading on a secondary market or alternative liquidity facility and there is no committed liquidity offered by market makers or the PRIIP manufacturer, so that the liquidity depends only on the availability of buyers and sellers on the secondary market or alternative liquidity facility, taking into account that regular trading of a product at one point in time does not guarantee the regular trading of the same product at any other point in time;

(b) 

the average liquidity profile of the underlying investments is significantly lower than the regular reimbursement frequency for the PRIIP, when and to the extent liquidity offered by the PRIIP is conditional to the liquidation of its underlying assets;

(c) 

the PRIIP manufacturer estimates that the retail investor may face significant difficulties in terms of time or costs for disinvesting during the life of the product, subject to specific market conditions.

57. A PRIIP shall be considered illiquid, whether contractually or not, if either of the following criteria are fulfilled:

(a) 

the PRIIP is not admitted to trading on a secondary market, and no alternative liquidity facility is promoted by the PRIIP manufacturer or a third party, or the alternative liquidity facility is subject to significant limiting conditions, including significant early exit penalties or discretionary redemption prices, or where there is an absence of liquidity arrangements;

(b) 

the PRIIP offers potential early exit or redemption possibilities prior to the applicable maturity, but these are subject to significant limiting conditions, including significant exist penalties or discretionary redemption prices, or to the prior consent and discretion of the PRIIP manufacturer;

(c) 

the PRIIP does not offer potential early exit or redemption possibilities prior to the applicable maturity.

58. A PRIIP shall be considered liquid in all other cases.




ANNEX III

PRESENTATION OF SRI

Presentation format

▼M3

1. PRIIP manufacturers shall use the format below for the presentation of the SRI in the key information document. The relevant number shall be highlighted as shown depending on the SRI for the PRIIP.

image

▼B

Completion guidance with regard to the SRI

2. The narrative explanation after the SRI shall briefly explain the purpose of the SRI and the underlying risks.

▼M3

3. Immediately below the SRI, the time frame of the recommended holding period shall be indicated. In addition, a warning shall be included directly below the SRI as set out in the above template in the following cases:

(a) 

where the risk of the PRIIP is considered to be significantly higher if the holding period is different;

(b) 

where a PRIIP is considered to have a materially relevant liquidity risk, whether this is contractual in nature or not;

(c) 

where a PRIIP is considered to be illiquid whether this is contractual in nature or not.

▼B

4. As applicable for each PRIIP, the narrative explanation shall include:

(a) 

a warning in bold font where:

(i) 

a PRIIP is considered to have currency risk as referred to in Article 3(2)(c) of this Regulation (Element C);

(ii) 

a PRIIP holds a possible obligation to add to the initial investment, (Element D);

(b) 

where applicable, an explanation of risks materially relevant to the PRIIP which could not be adequately captured by the SRI (Element E);

(c) 

a clarification:

(i) 

that the PRIIP holds a (partial) capital protection against market risk where relevant, including a specification of the percentage of the invested capital that is protected (Element F);

(ii) 

of the specific conditions of the limitations where the (partial) capital protection against market risk is limited (Element G);

(iii) 

that the PRIIP holds no capital protection against market risk, where relevant (Element H);

(iv) 

that the PRIIP holds no capital guarantee against credit risk, where relevant (Element I);

(v) 

of the specific conditions of the limitations where the protection against credit risk is limited (Element J).

5. For PRIIPs offering a range of options for investment, PRIIP manufacturers shall use the format referred to point 1 of this Annex for the presentation of the SRI, indicating all of the risk classes offered from the lowest risk class to the highest risk class.

6. For derivatives that are futures, call options and put options traded on a regulated market or on a third-country market considered to be equivalent to a regulated market in accordance with Article 28 of Regulation (EU) No 600/2014, Elements A, B, and, where relevant, H, shall be included.

▼M3

6a. For Category 1 PRIIPs as defined in point 4(b) of Annex II, the terminology used for the narratives explanations accompanying the SRI shall be adjusted, where appropriate, to reflect the specific features of the PRIIP, such as the absence of an initial investment amount.

▼B

Narrative explanations

7. For the purposes of the SRI presentation, including point 4 of this Annex, the following narrative explanations shall be used, as appropriate:

[Element A] The summary risk indicator is a guide to the level of risk of this product compared to other products. It shows how likely it is that the product will lose money because of movements in the markets or because we are not able to pay you.
[Element B] We have classified this product as [1/2/3/4/5/6/7] out of 7, which is [1=‘the lowest’/2=‘a low’/3=‘a medium-low’/4=‘a medium’/5=‘a medium-high’/6=‘the second-highest’/7=‘the highest’] risk class.
[In addition, insert a brief explanation of the classification of the product with a maximum of 300 characters in plain language]
[An example explanation: This rates the potential losses from future performance at a [1=‘very low’/2=‘low’/3=‘medium-low’/4=‘medium’/5=‘medium-high’/6=‘high’/7=‘very high’] level, and poor market conditions [1, 2=‘are very unlikely to’/3=‘are unlikely to’/4=‘could’/5=‘will likely’/6=‘are very likely to’] impact [our] [the] capacity [of X] to pay you].
[[Where applicable:] Element C, in bold] Be aware of currency risk. You will receive payments in a different currency, so the final return you will get depend on the exchange rate between the two currencies. This risk is not considered in the indicator shown above.
[[Where applicable:] Element D] In some circumstances you may be required to make further payments to pay for losses. (in bold) The total loss you may incur may significantly exceed the amount invested.
[Where applicable:] [Element E] [Other risks materially relevant to the PRIIP not included in the summary risk indicator to be explained with a maximum of 200 characters]
[Where applicable:] [Element F] [You are entitled to receive back at least [insert %] of your capital. Any amount over this, and any additional return, depends on future market performance and is uncertain.]
[Where applicable:] [Element G] [However, this protection against future market performance will not apply if you [..]
— 
[Where early exit conditions apply] cash-in before [… years/months/days]]
— 
[Where ongoing payments must be made] fail to make your payments in time.
— 
[Where other limitations apply: explain these in a maximum of […] characters in plain language.]
[Where applicable:] [Element H] [This product does not include any protection from future market performance so you could lose some or all of your investment.]
[Where applicable:] [Element I] [If (we) (are) not able to pay you what is owed, you could lose your entire investment.]
[Where applicable:] [Element J] [However, you may benefit from a consumer protection scheme (see the section ‘what happens if we are unable to pay you’). The indicator shown above does not consider this protection.]

▼M3




ANNEX IV

PERFORMANCE SCENARIOS

Number of scenarios

1. The performance scenarios under this Regulation which shall show a range of possible returns, shall be the following:

(a) 

a favourable scenario;

(b) 

a moderate scenario;

(c) 

an unfavourable scenario;

(d) 

a stress scenario.

2. The stress scenario shall set out significant unfavourable impacts of the PRIIP not covered in the unfavourable scenario referred to in point 1(c) of this Annex. The stress scenario shall show intermediate periods where those periods are shown for the performance scenarios under point 1(a) to (c) of this Annex.

3. An additional scenario for insurance-based investment products shall be based on the moderate scenario referred to in point 1(b) of this Annex, where the performance is relevant in respect of the return of the investment.

4. The minimum investment return shall also be shown not taking into account the situation where the PRIIP manufacturer or party bound to make, directly or indirectly, relevant payments to the retail investor, is not able to pay.

Calculation of unfavourable, moderate and favourable scenario values for the recommended holding period for Category 2 PRIIPs

Case 1: PRIIPs referred to in point 1 of Annex VIII with sufficient historical data

5. The following rules shall apply to PRIIPs referred to in point 1 of Annex VIII, where, at the time the calculation is made, the following criteria are satisfied in relation to the length of yearly consecutive historical values for the PRIIP:

(a) 

it is greater than 10;

(b) 

it is five years longer than the length of the PRIIP’s recommended holding period.

6. Where the recommended holding period is five years or less, the unfavourable, moderate and favourable scenarios shall be calculated over the last 10 years from when the calculation is made. Where the recommended holding period is more than five years, the unfavourable, moderate and favourable scenarios shall be calculated over a time period which is equal to the recommended holding period plus five years from when the calculation is made.

7. The calculation of the unfavourable, moderate, and favourable scenarios shall include the following steps:

(a) 

within the time period specified in point 6 of this Annex, identification of all overlapping sub intervals individually equal in length to the duration of the recommended holding period, and which start or end in each of the months, or at each of the valuation dates for PRIIPs with a monthly valuation frequency, which are contained within that period;

(b) 

for PRIIPs with a recommended holding period of more than one year, identification of all overlapping sub intervals individually equal or shorter in length to the duration of the recommended holding period, but equal to or longer than one year, and which end at the end of the time period identified in point 6 of this Annex;

(c) 

for each sub interval referred to in points (a) and (b), calculation of the performance of the PRIIP in accordance with the following:

(i) 

based on the performance of the PRIIP during the exact duration of each sub interval;

(ii) 

net of all applicable costs;

(iii) 

on the basis that any distributable income of the PRIIP has been reinvested;

(iv) 

by using a linear transformation to obtain the performance in sub intervals shorter than the recommended holding period, in order to render all sub- intervals of comparable length;

(d) 

rank the sub intervals identified in accordance with point (a) according to the performance calculated in accordance with point (c), to identify from within those sub intervals the median and best sub intervals in terms of performance;

(e) 

rank together the sub intervals identified in accordance with points (a) and (b) according to the performance calculated in accordance with point (c), to identify from within those sub intervals the worst sub interval in terms of performance.

8. The unfavourable scenario shall represent the worst evolution of the PRIIP’s value in accordance with i point 7(e) of this Annex.

9. The moderate scenario shall represent the median evolution of the PRIIP’s in accordance with point 7(d) of this Annex.

10. The favourable scenario shall represent the best evolution of the PRIIP’s value in accordance with point 7(d) of this Annex.

11. The scenarios shall be calculated at least on a monthly basis.

Case 2: PRIIPs referred to in point 1 of Annex VIII without sufficient historical data and with the possibility to use a benchmark

12. For PRIIPs referred to in point 1 of Annex VIII, the unfavourable, moderate and favourable scenarios shall be calculated as specified in points 6 to 11 of this Annex, using data of a benchmark to supplement the values for the PRIIP less all applicable costs, where:

(a) 

the length of PRIIP values do not meet the criteria set out in point 5 of this Annex;

(b) 

the benchmark is appropriate to estimate performance scenarios in accordance with the criteria specified in point 16 of this Annex; and

(c) 

there is historical data for the benchmark that meets the criteria set out in point 5 of this Annex.

If the information on the objectives of the PRIIP makes reference to a benchmark, that benchmark shall be used, provided the conditions in the first subparagraph are met.

Case 3: PRIIPs referred to in point 1 of Annex VIII without sufficient historical data and with no benchmark, or with a benchmark without sufficient historical data, or any other Category 2 PRIIP

13. For PRIIPs referred to in point 1 of Annex VIII that are not covered by case 1 or case 2 above or any other Category 2 PRIIP, the unfavourable, moderate and favourable scenarios shall be calculated as specified in points 6 to 11 of this Annex using benchmarks regulated by Regulation (EU) 2016/1011 of the European Parliament and of the Council ( 12 ). Those benchmarks represent the asset classes in which the PRIIP invests or the underlying investments to which the PRIIP is exposed, to supplement the values for the PRIIP or the benchmark referred to in point 12 of this Annex. All asset classes in which the PRIIP could invest more than 25 % of its assets or underlying investments that represent more than 25 % of the exposure shall be considered. Where such a benchmark does not exist, an appropriate proxy shall be used.

14. If the PRIIP invests in different asset types or offers exposure to different types of underlying investments and more than one benchmark as referred to in point 13 of this Annex has been identified, the scenarios shall be calculated using a ‘composite benchmark’, considering the weights of the estimated investment in each type of assets or underlying investments.

15. For Category 2 PRIIPs for which there is not an appropriate benchmark or proxy with sufficient historical data which meets the criteria set out in point 5 of this Annex for the PRIIP, performance scenarios shall be calculated in accordance with points 21 to 27 of this Annex using 15 years of historical returns of the PRIIP or an appropriate benchmark or proxy.

Cases 2 and 3: Use of appropriate benchmarks or proxies

16. In order to assess whether the use of a particular benchmark or proxy is appropriate to estimate the performance scenarios, PRIIP manufacturers shall use the following criteria, provided that such criteria are consistent with the objectives of the PRIIP and the type of assets in which the PRIIP invests or the underlying investments to which the PRIIP offers exposure and are relevant for the PRIIP:

(a) 

risk-return profile where the benchmark or proxy and the PRIIP fall into the same category of SRI or volatility and expected return or both;

(b) 

expected return;

(c) 

asset allocation composition (where the asset composition of the PRIIP reflects a composite index, the reference benchmark or proxy for the purpose of the calculation of performance scenarios shall consistently reflect the weights of the composite index);

(d) 

potential assets in which the PRIIP invests, consistent with the investment policy;

(e) 

exposure to underlying asset classes;

(f) 

geographical exposures;

(g) 

sector exposures;

(h) 

income distribution of the PRIIP;

(i) 

liquidity measures (e.g.: daily trading volumes, bid-ask spreads etc.);

(j) 

duration;

(k) 

credit rating category;

(l) 

volatility or historical volatility or both.

PRIIP manufacturers may use criteria additional to those listed in the first subparagraph provided they demonstrate that those additional criteria are relevant in terms of the objectives of the PRIIP and the type of assets in which the PRIIP invests or the type of underlying investments to which the PRIIP offers exposure.

17. PRIIP manufacturers shall be able to demonstrate the consistency of the benchmarks with the objectives of the PRIIP and shall document their decision, including a clear justification of the benchmark used.

Calculation of the stress scenario for Category 2 PRIIPs

18. For Category 2 PRIIPs, the calculation of the stress scenario shall have the following steps:

(a) 

identify a sub interval of length w which corresponds to the following intervals:



 

1 year

> 1 year

Daily prices

21

63

Weekly prices

8

16

Monthly prices

6

12

(b) 

identify for each sub interval of length w the historical lognormal returns rt, where t = t1, t2, …, tw ;

(c) 

measure the volatility based on the following formula starting from ti = t1 rolling until ti = t H w +1 where H is the number of historical observations in the period:

image

Where Mw is the count of number of observations in the sub interval and image is the mean of all the historical lognormal returns in the corresponding sub interval.

(d) 

infer the value that corresponds to the 99th percentile for one year and the 95th percentile for the other holding periods; that value shall be the stressed volatility image.

19. For Category 2 PRIIPs, the expected values at the end of the recommended holding period for the stress scenario shall be: