Manufacturers and distributors of Packaged Retail and Insurance-based Investment Products (PRIIPs), don’t miss this date: July 1st, 2022!
Here’s an important update on PRIIPs, MiFID II, UCITS, and the new challenges the fund industry faces in 2022.
Background on PRIIPs
PRIIPs – Packaged Retail Investment and Insurance Products – are financial products where the repayable amount is not fixed. Such products are mutual funds, structured products, OTC derivatives, and other investment products that provide a return over time depending on the performance of an underlying asset like a rate, stock, index, etc. All these PRIIPS instruments have in common that they imply a certain amount of risk.
The PRIIPs Key Information Document (KID)
Regulators early on wanted to increase transparency in the market and implemented specific standards to assist retail clients’ decision-making processes. So they introduced the PRIIPs KID in 2018, an information document to be provided by manufacturers and distributors of investment products. Regulations stipulate that this key information document be written in a clear and standardized manner, making it easier to compare the product and giving the investor a good idea of the risks involved in the investment.
So far, the fund industry has been exempt from this regulation, at least in parts: Extensive PRIIPs KIDs were not required from them as part of their advisory service. Instead, manufacturers of mutual funds have had to provide UCITS KIIDs to their clients – a less demanding and less data-focused investor information document. This exemption, however, will come to an end in 2022, after two extensions have already been granted.
What’s happening on July 1st, 2022?
From July 1st, 2022, the extended PRIIPs regulation will bring significant changes to manufacturers and distributors of PRIIPs, especially for the fund industry. The up-to-then required UCITS KIIDs will be replaced with the stricter PRIIPs KIDs requirements. Changes will – among other things – lie in the calculation methods, affecting the computation of risks, performance scenarios, and transaction costs. The new regulations will also require existing KID production systems to be reviewed, analyzed for gaps, modified, and tested before the go-live date in July next year.
The relevant industries will have to start planning an efficient transition to the new PRIIPs KIDs world to be ready on time. This is where TTMzero comes into play. The Berlin-based technology company combines two areas of expertise: The valuation of financial instruments, which is paramount to calculate the required risk and performance parameters for a PRIIPs KID, and its year-long experience in the automation of issuing processes for financial securities.