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Document 32017R0653

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. )

C/2017/1473

OJ L 100, 12.4.2017, p. 1–52 (BG, ES, CS, DA, DE, ET, EL, EN, FR, HR, IT, LV, LT, HU, MT, NL, PL, PT, RO, SK, SL, FI, SV)

Legal status of the document In force: This act has been changed. Current consolidated version: 01/01/2023

ELI: http://data.europa.eu/eli/reg_del/2017/653/oj

12.4.2017   

EN

Official Journal of the European Union

L 100/1


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)

THE EUROPEAN COMMISSION,

Having regard to the Treaty on the Functioning of the European Union,

Having regard to Regulation (EU) No 1286/2014 of the European Parliament and of the Council of 26 November 2014 on key information documents for packaged retail and insurance-based investment products (PRIIPs) (1), and in particular Article 8(5), Article 10(2) and Article 13(5) thereof,

Whereas:

(1)

Regulation (EU) No 1286/2014 introduces a new standardised key information document to improve the retail investor's understanding of packaged retail and insurance-based investment products (‘PRIIPs’) and the comparability of those products.

(2)

In order to provide retail investors with key information that is easy to read, understand and compare, a common template should be established for the key information document.

(3)

The identity and contact details mentioned in Article 8(3)(a) of Regulation (EU) No 1286/2014 should include the International Securities Identification Number or Unique Product Identifier for the PRIIP, where that identifier is available, in order to make it easier for the retail investor to find additional information about the PRIIP.

(4)

In order to ensure that retail investors understand and compare the economic and legal features of the PRIIP, as well as to provide them with an appropriate overview of the investment policy and strategy of the PRIIP, the key information document should contain standardised information concerning the type of the PRIIP, its investment objectives and how they will be achieved and the key features or aspects of the product, such as the insurance coverage.

(5)

The information provided to retail investors should enable those investors to understand and compare the risks associated with investments in PRIIPs so that they can make informed investment decisions. The risks pertaining to a PRIIP can vary. The most important risks are market risk, credit risk and liquidity risk. In order for retail investors to fully understand those risks, information on the risks should be aggregated as far as possible and numerically presented as a single summary risk indicator with sufficient narrative explanations.

(6)

When assessing credit risk, PRIIP manufacturers should take into account certain factors that may mitigate credit risk for a retail investor. In this respect, where assessing whether assets of a PRIIP or appropriate collateral, or assets backing the payment obligations of a PRIIP, are at all times until maturity equivalent to the payment obligations of the PRIIP to its investors, such assessment should reflect that the assets held by an insurance undertaking correspond at any time to the current amount that the insurance undertaking would have to pay to transfer its obligations in respect of the PRIIP to another insurance undertaking.

(7)

Currently, ratings of External Credit Assessment Institutions (ECAIs) provide a consistent proxy for credit risk across different Union sectors. The reliance on credit ratings is, however, to be reduced wherever possible. Therefore, it is important that the summary risk indicator is objectively accurate and ensures comparability between different PRIIPs and that it is appropriately monitored with regard to market risk and credit risk, so that evidence on the effectiveness of the risk measurement in practice can be made available for the review of Regulation (EU) No 1286/2014 foreseen by 31 December 2018. The review should take into account the extent to which ECAI ratings in practice reflect the creditworthiness of the PRIIP manufacturer and credit risk faced by investors in individual PRIIPs.

(8)

Where there is a risk that the liquidity of a PRIIP might vary in light of the opportunities to exit the PRIIP early or to find a buyer on a secondary market, a specific warning should be provided. That warning should also include the circumstances under which there is a risk that pay outs from the PRIIP may be significantly different than expected for early exits, including through the application of exit penalties.

(9)

While estimates on returns from a PRIIP are difficult to produce and understand, information on such estimates are of primary interest for retail investors and should be included in the key information document. Retail investors should be provided with clear information on return estimates that is consistent with realistic assumptions about possible outcomes and with the estimates of the PRIIPs' level of market risk, presented in such a way so as to make clear the uncertainty of that information and the fact that better or worse outcomes are possible.

(10)

In order for retail investors to be able to appreciate the risk, the key information document should provide retail investors with information as to potential consequences where a PRIIP manufacturer is not able to pay out. The degree of protection of the retail investor in such cases under investment, insurance or deposit guarantee schemes should be clearly set out.

(11)

Information on costs is important for retail investors when comparing different PRIIPs, which can have different cost structures, and when considering how the cost structure of a particular PRIIP might apply to them, which depends on how long they are invested, how much they invest, and how well the PRIIP performs. For this reason, the key information document should contain information that allows the retail investor to compare the overall total cost levels between different PRIIPs when held for their recommended holding periods and shorter periods, and to understand how these costs might vary and evolve over time.

(12)

Consumer testing research has shown that retail investors can understand monetary figures more readily than percentages. Small differences in costs expressed in percentages may correlate with large differences in the costs borne by the retail investor when expressed in monetary terms. For this reason, the key information document should also provide the total costs for the recommended holding periods and shorter periods, both in monetary terms and as a percentage.

(13)

Given that the impact of different kinds of cost on returns can vary the key information document should also provide a breakdown of the different kinds of costs. The breakdown of costs should be expressed in standardised terms and as a percentage so that the amounts for different PRIIPs can be easily compared.

(14)

Retail investors may experience a change in personal circumstances where longer term investments unexpectedly need to be disinvested. Disinvestments due to market developments may also be necessary. Given the difficulties for retail investors to anticipate the degree of liquidity they may need in their investment portfolios as a whole, information on recommended holding periods and required minimum holding periods, and the possibility of partial or complete early exit, is particularly important and should be included in the key information document. For the same reasons, the availability and consequences of such early disinvestment should be made clear. Specifically, it should be clear whether such consequences are due to explicit fees, penalties or limitations on disinvestment rights, or to the fact that the value of the particular PRIIP to be disinvested is particularly sensitive to the timing of the disinvestment.

(15)

Given that the key information document is also likely to be used as a summary of the main features of the PRIIP by retail investors, it should contain clear information on how a complaint might be lodged about the product or about the conduct of the PRIIP manufacturer or a person advising on, or selling, the product.

(16)

Some retail investors may wish to obtain further information on specific aspects of the PRIIP. The key information document should therefore include a clear and specific cross-reference to where further specific information can be found, where such information is to be included in the key information document pursuant to Regulation (EU) No 1286/2014. Where the PRIIP manufacturer is obliged to disclose certain other information according to national or Union law, the retail investor should be informed of this fact and of how to obtain those other documents, even if they are only to be provided on request. In view of ensuring that the key information document is as concise as possible, links to those other documents may be provided by means of a website, as long as their existence is made clear and they can be accessed by means of that website.

(17)

A key information document for a PRIIP that offers many underlying investment options cannot be provided in the same format as a key information document for another PRIIP, since each underlying investment option will have a specific risk, performance and cost profile, which prevents all necessary information to be provided in a single, concise stand-alone document. The underlying investment options may be investments in PRIIPs or other investments of a similar nature, or standardised portfolios of underlying investments. Those underlying investment options can have different risks, rewards and costs. Depending on the nature and number of underlying investment options, the PRIIP manufacturer should therefore, if he deems it appropriate, be able to prepare individual key information documents for each option. Those key information documents should also contain generic information about the PRIIP.

(18)

Where individual key information documents for each option are deemed not appropriate for retail investors by the PRIIP manufacturer, specific information about the underlying investment options and the generic information about the PRIIP, should be provided, separately. To avoid confusion, the generic information about the PRIIP provided in the key information document should indicate the range of risks, performance and costs that can be expected across the different underlying investment options offered. In addition, the specific information on the underlying investment options should always reflect the features of the PRIIP through which the underlying investment options are offered. This specific information may be provided in different forms, for example in the form of single document setting out the necessary information on all the different underlying investment options, or through individual documents for each underlying investment option. UCITS and non-UCITS funds to which Articles 78 to 81 of Directive 2009/65/EC of the European Parliament and of the Council (2) apply with regard to the format and content of their key investor information document are afforded a transitional exemption period under Regulation (EU) No 1286/2014. In order to provide those funds with a consistent transitional legal regime, PRIIP manufacturers should be allowed to continue using those key investor information documents in respect of PRIIPs offering those types of funds as the only underlying investment options, or alongside other underlying investment options. Where PRIIP manufacturers opt to use the key investor information documents in case of PRIIPs offering those types of funds alongside other investment options, the generic key information document should show a single range of risk classes in the format of the PRIIPs risk scale. The range of risk classes for all underlying investment options offered within the given PRIIP should combine synthetic risk and reward indicator pursuant to Article 8 of Commission Regulation (EU) No 583/2010 (3) for the UCITS or non-UCITS funds and summary risk indicator in accordance with this Regulation for other underlying investment options. Where the PRIIP offers only UCITS or non-UCITS funds as investment options, the PRIIP manufacturer should be allowed to use the presentation and methodology pursuant to Article 10 of Regulation (EU) No 583/2010. Regardless of the form chosen, the specific information should always be consistent with the information that is contained in the key information document.

(19)

PRIIP manufacturers must prepare key information documents that are accurate, fair, clear and not misleading. The information contained in the document should be capable of being relied on by a retail investor when making an investment decision, even in the months and years following the initial preparation of the key information document, for those PRIIPs that remain available to retail investors. Standards should therefore be laid down to ensure timely and appropriate review and revision of key information documents, so that those documents remain accurate, fair and clear.

(20)

Data that is used for preparing the information contained in the key information document, such as data on costs, risks and performance scenarios, may change over time. Changing data can lead to changes in the information to be included, such as a change in the risk or costs indicators. For this reason, PRIIP manufacturers should establish periodic processes to review the information contained in the key information document. Those processes should include an assessment of whether changes in the data would necessitate a revision and republication of the document. The approach by PRIIP manufactures should reflect the extent to which the information to be included in the key information document changes, for instance for an exchange-traded derivative, such as a standardised future, call or put, there should be no necessity to continuously update the key information document as the information required for these instruments on their risks, rewards and costs would not fluctuate. Periodic reviews may not be sufficient in cases where the PRIIP manufacturer becomes aware or should have become aware of changes outside the periodic review process that may significantly impact the information contained in the key information document, such as changes to a previously disclosed PRIIP investment policy or strategy that would be significant for retail investors, or significant changes to the cost structure or risk profile. For this reason, PRIIP manufacturers should also be required to establish processes for identifying situations where the information contained in the key information document should be reviewed and revised on an ad hoc basis.

(21)

Where a periodic or ad hoc review of a key information document identifies changes to the information that is required to be included in the document, or concludes that information contained in the key information document is no longer accurate, fair, clear and not misleading, the PRIIP manufacturer should be required to revise the key information document to take that changed information into account.

(22)

Given that changes may be relevant for retail investors and their future allocation of investment assets, retail investors should be able to easily locate the new key information document, which should therefore be published, and be clearly identifiable, on the website of the PRIIP manufacturer. Where possible, the PRIIP manufacturer should inform retail investors when the key investor documents have been revised, for example by means of mailing lists or email alerts.

(23)

In order to ensure that the timing of the delivery of key information documents is approached in a consistent way across the Union, PRIIP manufacturers should be required to provide the key information document in good time before those retail investors are bound by any contract or offer relating to that PRIIP.

(24)

The key information document should be made available to retail investors sufficiently prior to their investment decision, so that they are able to understand and take into account the relevant PRIIP information when making that decision. Since the investment decision is made prior to the commencement of any mandatory cooling off period, the key information document should be provided prior to such a cooling off period.

(25)

While in all cases retail investors should receive the key information document in good time before they are bound by any contract or offer related to the PRIIP, what might be considered sufficient time for a retail investor to understand and take into account the information may vary, given that different retail investors have different needs, experience and knowledge. The person advising on, or selling, a PRIIP should therefore take into account such factors in relation to individual retail investors when determining the time that those retail investors will need to consider the contents of the key information document.

(26)

In order to make an informed investment decision, a retail investor may need additional time to consider the key information document of a complex PRIIP or a PRIIP that is unknown to that investor. Accordingly, such factors should be taken into account when considering what amounts to the provision of the key information document in good time.

(27)

The urgency of the situation, for instance where it is important for a retail investor to buy a PRIIP at a given price and the price is sensitive to the timing of the transaction, should also be considered when determining the extent of the good time criterion.

(28)

For reasons of consistency and in order to ensure the smooth functioning of the financial markets, it is necessary that the provisions of this Regulation and the provisions laid down in Regulation (EU) No 1286/2014 apply from the same date.

(29)

This Regulation is based on the draft regulatory technical standards submitted to the Commission by the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority (the ‘European Supervisory Authorities’).

(30)

The European Supervisory Authorities have conducted open public consultations on the draft regulatory technical standards on which this Regulation is based, analysed the potential related costs and benefits and requested the opinion of the Banking Stakeholder Group established in accordance with Article 37 of Regulation (EU) No 1093/2010 of the European Parliament and of the Council (4), the Insurance and Reinsurance Stakeholder Group established in accordance with Article 37 of Regulation (EU) No 1094/2010 of the European Parliament and of the Council (5), and the Securities and Markets Stakeholder Group established in accordance with Article 37 of Regulation (EU) No 1095/2010 of the European Parliament and of the Council (6),

HAS ADOPTED THIS REGULATION:

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.

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 (7);

(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. (8)

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.

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.

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 (9), 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.

3.   In the ‘Composition of costs’ table in the section entitled ‘What are the costs?’ of the key information document, PRIIP manufacturers shall specify the following:

(a)

any one-off costs, as entry and exit costs, presented in percentage terms;

(b)

any recurring costs, as portfolio transaction costs per year, and other recurring costs per year, presented in percentage terms;

(c)

any incidental costs, such as performance fees or carried interest, presented in percentage terms.

4.   PRIIP manufacturers shall insert a description of each of the different costs included in the ‘Composition of costs’ table in the section entitled ‘What are the costs?’ of the key information document, specifying where and how such costs may differ from the actual costs the retail investor may incur or may depend on the retail investor choosing to exercise or not exercise certain options.

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.

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.

CHAPTER II

SPECIFIC PROVISIONS ON THE KEY INFORMATION DOCUMENT

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:

(a)

a key information document for each underlying investment option within the PRIIP including information about the PRIIP in accordance with Chapter I;

(b)

a generic key information document describing the PRIIP in accordance with Chapter I, unless otherwise specified in Articles 11 to 14.

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;

(c)

an indication where the specific information on each underlying investment option is to be found.

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;

(d)

an indication where the specific information on each underlying investment option is to be found.

2.   Where PRIIP manufacturers use the key investor information document in accordance with Article 14(2), for the purposes of specifying the risk classes referred to in point (a) of paragraph 1, they shall use the synthetic risk and reward indicator pursuant to Article 8 of Regulation (EU) No 583/2010 in relation to UCITS or non-UCITS funds as underlying investment options.

Article 13

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

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

(a)

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

(b)

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

(c)

an indication where the specific information on each underlying investment option is to be found.

2.   Notwithstanding the requirements laid down in Article 5(1)(a), and by way of derogation from points 12 to 20 of Annex VI, where PRIIP manufacturers use the key investor information document in accordance with Article 14(2), they may apply the methodology set out in point 21 of Annex VI to existing UCITS or non-UCITS funds.

3.   Where PRIIP manufacturers use the key investor information document in accordance with Article 14(2) with UCITS or non-UCITS funds as the only underlying investment options, by way of derogation from Article 5, they may specify the range of charges for the PRIIP in accordance with Article 10 of Regulation (EU) No 583/2010.

Article 14

Specific information on each underlying investment option

1.   In relation to the specific information referred to in Articles 11, 12 and 13, 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 in accordance with paragraphs 2 and 3 of Article 2;

(c)

a summary risk indicator and narrative, and performance scenarios in accordance with Article 3;

(d)

a presentation of the costs in accordance with Article 5.

2.   By way of derogation from paragraph 1, PRIIP manufacturers may use the key investor information document drawn up in accordance with Articles 78 to 81 of Directive 2009/65/EC to provide specific information for the purposes of Articles 11 to 13 of this Delegated Regulation where at least one of the underlying investment option referred to in paragraph 1 is a UCITS or non-UCITS fund referred to in Article 32 of Regulation (EU) No 1286/2014.

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.

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.

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.

Article 14(2) shall apply until 31 December 2019.

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

Done at Brussels, 8 March 2017.

For the Commission

The President

Jean-Claude JUNCKER


(1)   OJ L 352, 9.12.2014, p. 1.

(2)  Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) (recast) (OJ L 302, 17.11.2009, p. 32).

(3)  Commission Regulation (EU) No 583/2010 of 1 July 2010 implementing Directive 2009/65/EC of the European Parliament and of the Council as regards key investor information and conditions to be met when providing key investor information or the prospectus in a durable medium other than paper or by means of a website (OJ L 176, 10.7.2010, p. 1).

(4)  Regulation (EU) No 1093/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Banking Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/78/EC (OJ L 331, 15.12.2010, p. 12).

(5)  Regulation (EU) No 1094/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Insurance and Occupational Pensions Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/79/EC (OJ L 331, 15.12.2010, p. 48).

(6)  Regulation (EU) No 1095/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Securities and Markets Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/77/EC (OJ L 331, 15.12.2010, p. 84).

(7)  Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance distribution (OJ L 26, 2.2.2016, p. 19).

(8)  Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (OJ L 173, 12.6.2014, p. 349).

(9)  Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Regulation (EU) No 648/2012 (OJ L 173, 12.6.2014, p. 84).


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.

Image 1

Image 2


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.

2.

The PRIIP shall be assigned a MRM class according to the following table:

MRM class

VaR-equivalent volatility (VEV)

1

< 0,5 %

2

0,5 % - 5,0 %

3

5,0 % - 12 %

4

12 % - 20 %

5

20 % - 30 %

6

30 % - 80 %

7

> 80 %

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 (1);

(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:

Formula

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:

Formula
,

Formula
,

Formula
,

where ri is the return measured on the ith period in the history of returns.

the volatility, σ, is given by

Formula
.

the skew, μ1, is equal to M33.

the excess kurtosis, μ2, is equal to M44 – 3.

13.

The VEV is given by:

Formula

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

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.

17.

The VEV is given by:

Formula

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.

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:

Formula

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;

(ix)

projecting the returns onto the 3 principal eigenvectors calculated in the previous step by multiplying the N×M matrix of returns obtained in point (iv) by the M×3 matrix of eigenvectors obtained in point (viii);

(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 (2) 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 (3).

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 (4) or Directive 2014/91/EU (5); 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 (6); 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 (7) 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

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.

(1)  Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (OJ L 173, 12.6.2014, p. 349).

(2)  Regulation (EC) No 1060/2009 of the European Parliament and of the Council of 16 September 2009 on credit rating agencies (OJ L 302, 17.11.2009, p. 1).

(3)  Commission Implementing Regulation (EU) 2016/1800 of 11 October 2016 laying down implementing technical standards with regard to the allocation of credit assessments of external credit assessment institutions to an objective scale of credit quality steps in accordance with Directive 2009/138/EC of the European Parliament and of the Council (OJ L 275, 12.10.2016, p. 19).

(4)  Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010 (OJ L 174, 1.7.2011, p. 1).

(5)  Directive 2014/91/EU of the European Parliament and of the Council of 23 July 2014 amending Directive 2009/65/EC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) as regards depositary functions, remuneration policies and sanctions (OJ L 257, 28.8.2014, p. 186).

(6)  Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) (OJ L 335, 17.12.2009, p. 1).

(7)  Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (OJ L 176, 27.6.2013, p. 1).


ANNEX III

PRESENTATION OF SRI

Presentation format

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.