Response to joint Discussion Paper on Key Information Documents (KIDs)
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Note: However, for the purpose of investor distribution and understanding, a standard for each category of PRIPPs would be necessary, while ensuring consistency with the product’s investment horizon. With this in mind, and for products with a fixed maturity, the scenarios should be calibrated to this maturity.
Meanwhile, there is still the matter of whether a summary risk indicator can be set up that would apply to all products.
Moreover, a category-based approach to standardisation would help investors in their comparisons.
Changes in fees, in particular, should be covered in a mere announcement and a document made available to clients.
2: Do you agree with the description of the consumer´s perspective on risk expressed in the Key Questions?
PRIIPs are products offered for portfolio/investment diversification purposes. Selling them helps to develop long-term savings and to take part in financing the real economy. While the Key Questions justifiably stress the risk of loss, a balanced presentation should be made that also highlights potential gains (under performance scenarios).3: Do your agree that market, credit and liquidity risk are the main risks for PRIIPs? Do you agree with the definitions the ESA’s propose for these?
Yes, we do. No special remarks.4: Do you have a view on the most appropriate measure(s) or combinations of these to be used to evaluate each type of risk? Do you consider some risk measures not appropriate in the PRIIPs context? Why? Please take into account access to data.
This is more the province of manufacturers. However, from the point of view of distribution, it is important that the result be presented in a synthetic and readable manner that is easily understood by both the distributor and the consumer.5: How do you think market, credit and liquidity risk could be integrated? If you believe they cannot be integrated, what should be shown on each in the KID?
We don’t exactly understand the notion of “contingent costs”.6: Do you think that performance scenarios should include or be based on probabilistic modelling, or instead show possible outcomes relevant for the payouts feasible under the PRIIP but without any implications as to their likelihood?
Both the probabilistic or scenario-based approaches are possible from the distributor’s point of view.7: How would you ensure a consistent approach across both firms and products were a modelling approach to be adopted?
To the greatest extent possible, it is necessary to stick to the provisions and practices already in effect for UCITS.8: What time frames do you think would be appropriate for the performance scenarios?
To the greatest extent possible, it is necessary to stick to the provisions and practices already in effect for UCITS.Note: However, for the purpose of investor distribution and understanding, a standard for each category of PRIPPs would be necessary, while ensuring consistency with the product’s investment horizon. With this in mind, and for products with a fixed maturity, the scenarios should be calibrated to this maturity.
9: Do you think that performance scenarios should include absolute figures, monetary amounts or percentages or a combination of these?
The rule should be consistent with MiFID, in line with provisions and practices already in force for UCITS and along the lines of customary practices, which have proven themselves and focus on percentages.10: Are you aware of any practical issues that might arise with performance scenarios presented net of costs?
As KIDs and, more specifically, the scenarios are in the hands of the manufacturers, they must include only the costs known to the producers, while drawing clients’ attention to this point.11: Do you have any preferences in terms of the number or range of scenarios presented? Please explain.
Three presentations of scenarios12: Do you have any views, positive or negative, on the different examples for presentation of a summary risk indicator? Please outline advantages and disadvantages, and provide any other examples that you are aware of that you think would be useful.
It is better to be consistent with UCITS KID standards, with, preferably, a 1-to-7 risk scale. Where relevant, it would be better for the summary risk indicator to make a clear distinction between risk to invested capital on the one hand and performance on the other (see above, guaranteed-capital investment products).Meanwhile, there is still the matter of whether a summary risk indicator can be set up that would apply to all products.
13: Do you have any views, positive or negative, on the different examples for presentation of performance scenarios? Please outline advantages and disadvantages, and provide any other examples that you are aware of that you think would be useful.
From the distributor’s point of view, it is important that they be easily understandable by advisors, who will have to explain the presentation(s) to investors.14: Do you have any views on possible combinations of a summary risk indicator with performance scenarios?
Same answer as for question 13.15: Do you agree with the description of the consumer´s perspective on costs expressed in the Key Questions?
No comment on this.16: What are the main challenges you see in achieving a level-playing field in cost disclosures, and how would you address them?
No comment on this.17: Do you agree with the outline of the main features of the cost structures for insurance-based investment products, structured products, CfDs and derivatives? Please describe any other costs or charges that should be included.
Same replay as for question 57.18: Do you have any views on how implicit costs, for instance costs embedded within the price of a structured product, might be best estimated or calculated?
From the point of view of distribution, the important thing for the client is to have visibility on the amount actually invested compared to the initial sum paid in.19: Do you agree with the costs and charges to be disclosed to investors as listed in table 12? If not please state your reasons, including describing any other cost or charges that should be included and the method of calculation.
See reply 16. For investors, price is what matters the most.20: Do you agree that a RIY or similar calculation method might be used for preparing ‘total aggregate cost’ figures?
This indicator leads to a bias, as it lumps definite costs with estimated returns.21: Are you aware of any other calculation methodologies for costs that should be considered by the ESAs?
The client must be able to understand precisely the nature of cash flows paid to and received by the bank and in particular: (i) out of 100 initially paid in, how much will be actually invested in the product; (ii) the amount of fees that will be charged to him each year throughout the product’s life; and (iii) what will the product ultimately cost him, i.e., the amount of loss in the event that performance is zero.22: Do you agree that implicit or explicit growth rates should be assumed for the purpose of estimating ‘total aggregate costs’? How might these be set, and should these assumptions be adjusted so as to be consistent with information included on the performance scenarios?
To the greatest extent possible, it is necessary to stick to the provisions and practice already in effect for UCITS.23: How do you think implicit portfolio transaction costs should be taken into account, bearing in mind also possible methods for assessing implicit costs for structured products?
To the greatest extent possible, it is necessary to stick to the provisions and practice already in effect for UCITS.24: Do you have any views on possible assumptions that should be made, and how these might be calibrated or set?
To ensure overall standardisation and consistency, the approach chosen should be similar to the one already in effect for UCITS KIDs, even if that requires adding to it items and/or information that will provide a clear vision of the net return on the investment.Moreover, a category-based approach to standardisation would help investors in their comparisons.
25: What do you think are the key challenges in standardising the format of cost information across different PRIIPs, e.g. funds, derivatives, life insurance contracts?
Option 5, as it helps limit the number of lines, which makes reading and understanding easier for distributors and their clients.26: Do you have a marked preference or any objection for any of the presentational examples? If so, why? Please provide any alternative examples which you believe could be useful.
No comment on this.27: In terms of a possible breakdown of costs, are you aware of cost structures for which a split between entry or exit costs, ongoing costs, and costs only paid in specific situations or under specific conditions, would not work?
It should be stressed that combining market, liquidity and credit risk within the same product does not necessarily lead to an increase in the product’s overall level of risk for the client, and it is indeed this overall risk that must be presented clearly to the client. For example, in the case of guaranteed-capital investment products (which are very common in times of low interest rates), there is generally little risk to principal (the counterparty risk for the guarantor), whereas performance risk, is, in essence, especially high (i.e., investment in highly speculative instruments, which alone are likely to provide a high return on investment in a low-interest-rate environment).28: How do you think contingent costs should be addressed when showing total aggregated costs?
Based on an option 5 presentation, the information should be split into annual cost, in percentage and amounts.29: How do you think should cumulative costs be shown?
No, as it is hard to understand by either the investor or advisors in the distribution networks.30: Do you have any views on the identity information that should be included?
A website, an email and postal address, the product name, its ISIN ticker, and its supervisor.31: Do you consider that the criteria set out in recital 18 are sufficiently clear, or would you see some merit in ESAs clarifying them further?
For the purpose of harmonisation and simplicity for the client, it would be better to use the criteria already set by various local regulators, in particular by the AMF (Position 2010-05).32: Do you agree that principles on how a PRIIP might be assigned a ‘type’ will be needed, and do you have views on how these might be set?
Yes.33: Are you aware of classifications other than by legal type that you think should be considered?
Yes. The major product families should be considered.34: Do you agree that general principles and as necessary prescribed statements might be needed for completing this section of the KID?
These are already in the UCITS KID. The recommendations from this consultation should be based on them and remain as close as possible to them.35: Are you aware of other measures that might be taken to improve the quality of the section from the perspective of the retail investor?
No.36: Do you have views on the information PRIIPs manufacturers should provide on consumer types?
The definition of “consumer” types should correspond to the target market of end-clients provided in MiFID 2 and be broad enough so that it does not hinder implementation by distributors.37: What is the key information that needs to be given to the retail investor on insurance benefits, and how should this be presented?
It must be equivalent to that presented in life insurance contracts.38: Are you aware of PRIIPs where the term may not be readily described, or where there are other issues?
No comment on this.39: Are you aware of specific challenges arising for specific PRIIPs in completing this section?
No, no specific challenges40: Are you aware of specific challenges arising for specific PRIIPs in completing this section?
No.41: Are you aware of specific challenges arising for specific PRIIPs in completing this section?
No.42: Do you agree that this section should link to a webpage of the manufacturer?
Yes43: Do you agree with the assessment of when PRIIPs might be concerned by article 6(3)?
Yes.44: In your market, taking into account the list of criteria in the above section, what products would be concerned by article 6(2a)? What market share do these represent?
No comment on this.45: Please provide sufficient information about these products to illustrate why they would be concerned?
No comment on this.46: Do you have views on how you think the KID should be adapted for article 6(3) products, taking into account the options outlined by the ESAs?
One KID per envelope and one KID per underlying are necessary.47: How do you consider that the product manufacturer should meet the requirements to describe and detail the investment options available?
Same reply as for question 46.48: Are you aware of further challenges that should be taken into account?
Same reply as for question 46.49: Do you agree with the measures outlined for periodic review, revision and republication of the KID where ‘material’ changes are found?
It would be better for the items provided in the UCITS KID in this area to be used in PRIIPs:Changes in fees, in particular, should be covered in a mere announcement and a document made available to clients.