On 19 July 2018, the European Securities and Markets Authority (ESMA) updated its Q&As on the PRIIPs key information document (KID) and published flow diagrams for risk and reward calculations in the PRIIPs KID.

The new Q&As address three issues:

  • Whether the KID needs to be published on the public section of the website – In short, the answer is yes.
  • How performance and cost figures should be presented in the KID if the recommended holding period (RHP) is less than one year – It should be assumed that the performance scenarios should reflect the projected return over the RHP, whilst the disclosure obligations in the performance scenarios for over 1 year and half of the RHP would not be applicable and the costs figures presented in the KID should reflect the projected costs over the RHP. Other resulting amends would also be required to the KID, including explaining the implications of the figures being presented over the RHP rather than per year on the comparability with other PRIIPs of different RHP and explaining any risks associated with holding open-ended PRIIPs with extremely short RHPs.
  • How to present the costs if a moderate scenario shows a total loss of capital or negative return – Point 71(c) of Annex VI should be applied, such that performance should be assumed to be 3% annual growth for the purposes of determining the reduction in yield.

The flow diagrams document sets out the calculation steps for the summary risk indicator (including the calculation of the market risk measure and the credit risk measure) and performance scenario calculations. Although the diagrams are non-binding in nature, they should assist when performing the relevant calculations required under Commission Delegated Regulation 2017/653.

Many of these clarifications had been anticipated following a recent speech by Stephen Maijoor, Chair of ESMA. For more about the speech, please click here.