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Czech Banking Association

Petr Vojáček
In general, consumers are not interested in information provided by investment firms at all. Provision of any information is perceived by them as annoyance. Consumers generally prefer to rely on investment firms recommendations and they do not like to study any information provided.

In addition, we believe that consumers are able and willing to understand only simple and easy information. Since structured products are complex ones per se, simplification of information on them will inadvertently lead to distortion.

We do not understand why the Discussion Paper deals with consumers. PRIIPS Regulation is applicable to retail clients, which is a broader group than consumers.

The list of KQs covers all consumer´s concerns regarding the single product. There is another question what if s/he is going to combine more PRIIPs in the portfolio.
We agree that market, credit and liquidity risks are the main risks for PRIIPs. We do not believe that operational risk should be taken into account in the PRIIPS KIDs.

Table on page 23f. Questions “How much can I win?” & “How much am I likely to win?”: Terms like “win” evoke images of gambling. The term “gain” should be used.

We do not believe that inflation risk should be included into the market risk. Inflation is a general economic concept and it influences all economic activities not only investments in structured products. Taking into account also inflation could be misleading for clients. In addition, inflation is difficult to estimate and it influences both returns and costs at the same rate. Inflation has the same impact on all PRIIPs. The only exception is the security with its return linked to inflation itself. So we recommend deleting inflation from the risk definition and to show its influence via scenarios only for mentioned securities.
We are of the opinion that the number of applicable measures for each type of risk should be reduced. Each type of risk should be measured by not more than 2 – 3 measures.VaR allows easy combination of all risk components and its concept is easy to understand. Inclusion of maximum return/ loss would provide the full information. RTS would provide guidance which components would be used. Values would be then scaled by RTS table like for SRRI.

Credit rating is easy to measure if the scale is available. But some issuers need not to have international rating. The producer should be able to present robust transformation system to the international scale. RTS would provide the scale.

Liquidity risk is difficult to measure ex ante. Scale might be derived from the verbal description provided by RTS.
Contingent or performance related costs should be included in costs/ scenario performance calculation as the part of total costs. Roles for performance related costs, if any, would be explained, where applicable, separately.
Performance scenarios should not be based on probabilistic modelling, because estimation of future developments is in fact impossible. Performance scenarios should show possible outcomes without any implications as to their likelihood.

Another solution may be, if presentation of each scenario provides information about its likelihood at least verbally. The customer should be sure that some scenarios were not intentionally omitted by the producer as they do not look nice. RTS should give the guidance how to cover the most likely outcomes.
Scenarios should be used on models, which are used by each PRIIP manufacturer for internal risk assessment and daily value estimates for the balance and risk management purposes. These models are easy to be checked and understood by the regulator. It is for the benefit of the manufacturer to use the best available model.
KID has low information value without recommended holding period. So RHP is the inherent feature of each PRIIP. Basic scenario should therefore be always based on this RHP. For the sake of comparability, standardized lengths like 1, 3, 5 years could be also used.
We suppose that performance scenarios may include both absolute figures and percentages. Another possibility would be to present only percentages.

In general, monetary amounts provide the easiest information to understand for ordinary customers. Very often they do not care about present value and the concept of discounting may be difficult for them to grasp. However, calculation of return in % should be also clearly prescribed by RTS. Sometimes time weighted return suitable for assessment of portfolio managers is used instead of money weighted return relevant from the point of view of the investor. For the sake of comparability, standardized volume of investment should be used for different scenarios.

In this regard we would like to express our astonishment on your conclusion on page 33, that consumers do not understand percentages and that it can be better presented in terms of frequencies, such as “10 out of 100”. Yes, some consumers surely do not understand percentages, and some of them are even illiterate. However, we believe that the law should be based on the presumption of average reasonable person.
Presentation of both gross and net of costs scenario is a good tool for provision of joined information both on the return and on the costs side. Provided that summary costs are to be compulsory information to be revealed we are not aware of any practical issues with presentation net of costs.
We prefer two or three scenarios (positive, neutral or negative scenario). Their selection should be, however, based on the assessment of probability as discussed in the Q5.
Three risk dimensions create big challenge. Disadvantages were mentioned in the Q5. Simultaneous presentation of scaling seems to be the optimal solution. It is easy to understand and good for PRIIPs comparison.

Generally, it seems that the best example is the multi-risk scale on page 39.
Each scenario should be accompanied by concise explanation of assumptions and by the comment on their feasibility. So we prefer separated chart presentation of gross and net value development for each scenario. Cumulating of the periodic investments should be clearly distinguished from the lump sum investment scenario.
We do not agree with the combination of risk and performance indicators. It would be difficult to produce such combination to proper reflect the risk / performance profile of any product. In addition, such combination would be with high probability misleading for the clients.
In general, consumers are not interested in information provided by investment firms at all. Provision of any information is perceived by them as annoyance. Consumers generally prefer to rely on investment firms recommendations and they do not like to study any information provided.

In addition, we believe that consumers are able and willing to understand only simple and easy information. Since structured products are complex ones per se, simplification of information on them will inadvertently lead to distortion.

We do not understand why the Discussion Paper deals with consumers. PRIIPS Regulation is applicable to retail clients, which is a broader group than consumers.
Yes, we agree with the outline of the main features of the cost structure for above mentioned products.
We take for sure that all investment companies and majority of structured product providers have already developed their own systems and procedures for measurement of market risk, scenario assessment, product approval processes and they have their own information systems, templates and web pages. PRIIPs initiative may bring all these systems closer. Insurance companies may be less experienced.
To establish common parameters and assumptions for calculating aggregate cost. As a main challenge we see resolution on how to deal with ex post/ex ante problem.
Because of different cost and fee structures for different groups of PRIIPs, only total costs figures are comparable. There is no full comparability of PRIIPs without full “fair” costs calculation (neither costs nor performance).
The best measure of implicit costs to be collected with the least effort is probably the difference between the purchase price and the internal evaluation of the product (the fair value).
We prefer the Fair value method. It seems to be the easiest for calculation. However, RIY is probably the second best and probably the best for simultaneous description of costs with the performance of scenarios.
We are not aware of any other suitable method.
If the growth rates are to be used it is necessary to set up some prescribed growth rate assumptions so as different scenario are comparable. Zero growth assumption might be one of them.
Transaction costs = Broker Commissions + Entry charges + Exit charges
Only the total cost figures p.a. are comparable for different sorts of PRIIPs. See also Q19. Options 8 and 9 seem to be very suitable because they enable easy comparison of different scenarios and are general enough to be used for all PRIIPs.
Q25 + Visualization with the scale is good for comparability. Performance/ cost chart shows nicely all components but is more suitable for cumulative investments. Options 4 and 5 suite UCITS. It is not as suitable for structured products as ongoing costs may be of marginal or no importance. But their big advantage is clear visualization of exit costs.
See Q25, 26.
We suppose that integration of market, credit and liquidity risk into one indicator is impossible, or such indicator would not reflect the product risk profile appropriately and correctly. We prefer a multi – risk indicator. We suppose that the multi-risk scale on page 39 is the most likely to be meaningful for the majority of retail clients.

There is also a question if all three dimensions have the same weights or importance. Possible correlation was also mentioned. So perhaps showing separate scaling in one table or chart is the solution. Overall Italian Risk example or similar also would do. Three dimensional charts might be also informative.
Cumulative costs would be presented together with relevant scenario as a part of total costs. Divergences from general cost calculation would be explained separately.
For the sake of clarity, simplicity and comparability only total costs should be presented. Above it the main costs for different PRIIPs groups should be defined and presented for the sake of comparability between PRIIPs within the particular group (e.g. portfolio management costs, sales fees and transaction costs for UCITS, structuring fees for structured deposits etc.).
As concise as possible so that the space of KID is not exhausted: Formal name of the manufacturer, formal name of the distributor and his website. In case of a telephone number, perhaps only the Call center of the distributor.
The recital 18 is too soft to set generally valid and applicable criteria. Some investors may be more familiar with the underlying asset than others, greater risk of misunderstanding, or taking advantage of behavioral biases is ambiguous without further explanation. In general, all PRIIPs may be difficult to understand for some investors. We would prefer clearer hard criteria like link to derivatives, more than three different asset classes etc.
We agree that some common principles are needed to be established, nevertheless due to a variability of PRIIPs, we believe that these principles should be used only for basic categorization. This standardized classification should be based on legal form of the contract or instrument. The detailed classification should be left to individual manufacturers.

In addition, we suppose that product classification should not be left to the manufacturer. We prefer legal form classification at level one and standard typology generally used for particular group of products at level two.
There are common names for different structures. They are used by SRP analysts in their statistics and databases both in Europe and in the USA. This would be suitable basis for the second level classification as the structure type is embedded in their name. Another classification of mutual funds is used for UCITS.
We agree that basic common principles are needed to be established in order to standardize various KID for different PRIIPs and to enable their comparison. UCITS KIID should be used as a starting point.

Although general principles and prescribed statements would be helpful, they should provide sufficient space for newly invented PRIIPs.
A short summary of the most important information at the beginning of the KID may increase the interest of the consumer to read further and to find out the details.
We believe that the fundamental in this context is to parallel consumer types under PRIIPs and the concept of target market under MIFID II.

We also suppose, that the types of consumers should be given by a common classification. But it is not only the type of the investor but also his investment goal he is looking for. While the type regards mainly the risk propensity of the investor the objective is linked to the particular features of the PRIIP. Both these dimension of suitability should be expressed together.
No answer.
No answer.
While the credit risk description regards the general assessment of the risk this part of KID would explain the specific procedures regarding the particular issuer.
This part overlaps the explanation of liquidity. It may be mentioned here why there are redemption fees and that it is not a penalty but rather (very often) the mean for cost coverage of early redemption at the side of the product manufacturer of even at the side of other investors.
This section regards again each particular product manufacturer or product distributor. They simply describe their standard complain systems and procedures.
Yes, we agree with above mentioned.
We agree with ESA´s criteria. Even if the general description of a product may be suitable for better comprehension, these criteria do not exclude that 6(3) would be used for all UCITS managed by one fund manager, e.g. This concept seems to be in contradiction with the concepts of single PRIIPs.
No answer.
No answer.
The option given in Article 6(3) should be limited to the specified groups of PRIIPs only.
General information would be only some general information that the group of individual PRIIPs have some common features and that the investor may opt for some specific one. It is also the place where the options can be compared.

On the other hand each particular specification should follow the same structure as any KID for a single PRIIP. It should not be vice versa that the generic description would replace single PRIIPs.
The purpose of both general and specific PRIIPs should be clearly explained. Otherwise their different purposes would be mixed and comparability of PRIIPs would be endangered.
We agree that UCITS KIID should be used as a starting point. UCITS rules are flexible enough for all sorts of PRIIPs. However, it should be mentioned that these rules provide also some hard criteria when the change is supposed to me “material” (e.g. change of risk group). Similar principles should be given in RTS as well.
No. The rules would be the same as for PRIIPs without secondary market.
No. Each particular PRIIP should abide the same rules as other PRIIPs.
We believe that “passive” model is completely sufficient method of informing retail investors about a revised KID. Not mentioning the expensiveness of the active approach, the main reason is, that manufacturer may not know the identity of the end-investors, in the situation where PRIIP is traded on a secondary market, or have their contact information.

We would prefer to inform retail investors by publication the revised KID on a website of the manufacturer.
Yes, we agree that Recital 83 of MiFID II should be used as a model in this context.
No, we are not aware.
We believe that it would be useful to develop basic template or templates (for broader groups of PRIIPs of similar type) in order to establish united visual layout of PRIIPs. ESAs should prepare detailed templates of KID at least one for each PRIIP product group (for each type of level one). This could simplify comparison between different PRIIPs for retail investors. Nevertheless, this template should operate as “safe harbors” for manufactures.

Such templates would also guide product manufacturer to provide the minimum required information. Higher standardization will facilitate higher comparability.
Yes. Both performance scenarios and perhaps the risk and for sure the costs structures are different for a lump sum and regular investments. By the PRIIPs concept, they would have two different KIDs.
No answer.
The outlined costs are showing full range of costs on the side of product manufacturers. Benefit drivers are less obvious. It is a big question if such a great effort really brings expected benefits for the investors.
Recommended holding period 1, 3 and 5 year time horizon for comparability. Zero growth + growth of the best, worst and expected scenarios. Standardized 10000 value of lump sum investment and 100 standardized value for regular monthly investment. Ex post probabilities based either on real values or on benchmark. For structured products models for fair value calculation would be used as the basis for ex post simulation or Monte Carlo simulation.
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