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ESMA, EBA and EIOPA’s joint technical discussion paper on KID for PRIIPs

PRIIPs are a kind of product which constitutes a market worth up to €10 trillion in the EU according to European Commission estimates.

The Joint Committee of the European Supervisory Authorities (ESAs) -EBA, EIOPA and ESMA- were mandated by the PRIIPs Regulation to develop draft Regulatory Technical Standards (RTS) on the content and presentation of the KIDs for PRIIPs.

The KID is an essential document that provides EU retail investors with transparent consumer-friendly information about complex investment products. After the ESAs’ first Discussion Paper of November 2014, the Joint Committee published a Technical Discussion Paper on 23 June 2015.

Last 17 August 2015 finished the term given by the Joint Committee of the ESAs to receive feedback from all concerned stakeholders on the Technical Discussion Paper on risk, performance scenarios and cost disclosures for Key Information Documents (KIDs) for packaged retail and insurance-based investment products (PRIIPs).

During these last two months the ESA’s have collected stakeholders’ views on the possible methodologies to determine and display risks, performance and costs in the KID.

All this feedback will derive in the issuance of a Consultation Paper setting out the aforementioned standards envisaged in Article 8 of the PRIIPs Regulation concerning the content of the KID, which will be submitted to the European Commission by 31 March 2016.

Moreover, a separate Consultation Paper will also be published for the draft RTS under Articles 10 and 13, concerning the PRIIP manufacturer’s obligation to review the content of the KID regularly and concerning the provision of the KID to retail investors. Thus, the final consultation paper will be essential for the content of the KID.

Numerous institutions from every Member State have sent responses to this last technical discussion paper, the CNVM advisory committee and the Spanish Banking Association among them.

The former stated that “high-level general principles for defining a model and the method of choosing the model parameters for the purpose of calculating a risk measure and determining performance under a variety of scenarios should be set in the regulatory technical standards, taking into account the specificities of the different products under the scope of PRIIPs, while the fine-tuning or detailing the parameters to be used should be developed at national level by the different PRIIPs manufacturers in close cooperation with the local supervisory authorities”.

Moreover, concerning growth rates, the CNMV advisory committee stated that “Risk premiums shouldn´t be used neither for performance scenarios nor for risk indicator purposes. As the Technical Discussion Paper recognizes, the inclusion of a risk premium within a model can bias estimate of a product´s risk and performance”.