A Guernsey-based actuarial technology company has been working with international asset managers to provide calculations required for Key Information Documents (KIDs) prepared in compliance with the EU’s new Packaged Retail and Insurance-based Investment Products (PRIIPs) regulations.
The PRIIPs regulations’ deadline of 1st January 2018 means that asset managers now need to adhere to new technical standards for the KID. The content must include summary risk indicators, projected returns and disclosure of costs for investment products.
The first week of January has already seen a leading UK investment platform remove several hundred products from its website for non-compliance with the new regulations.
Penalties for not complying with the regulation will range from being prohibited from marketing the PRIIP or significant fines. All new investment products and existing investment products marketing to retail investors in the EU will need to comply with the requirement for a KID.
The underlying calculations which feature in the document must be in line with the regulations and current practice guidelines, and accurately reflect the PRIIPs’ investment qualities. According to a local actuarial technology company, Dorey Financial Modelling, creating the numbers can be extremely complex.
‘Product categorisation, the range of financial outcomes and costs can be complicated, and factors such as currency fluctuations, private equity, and fund wind-up dates come into play as well. All of this needs to be adequately explored with the product manufacturer and their legal teams, so we pay close attention and listen to the product manufacturers’ forward-looking views.
‘All KIDs require working closely with the product manufacturer to reflect their views of market practices and their expectations on risk,’ explained Martyn Dorey, Managing Director of Dorey Financial Modelling.
The administration work to prepare KIDs is often outsourced to fund administration service providers.
Matt Tostevin, a director of fund administration firm, JTC Fund Services, said: ‘Although the final PRIIPs regulations were published in spring 2017, with EU regulators and industry bodies subsequently publishing detailed guidance, the complexity of the regulations and the amount of work required caught many market practitioners by surprise and even large mainland EU investment houses were unprepared for the January deadline.
‘A large number of local practitioners and their clients also found themselves within the scope of the regulations and required to prepare a KID. Fortunately, we in Guernsey are well accustomed to facing external challenges, both regulatory and otherwise, and our innovation has helped us to thrive.’
Haley Camp, Chair of Guernsey Investment Fund Association’s Technical Committee, agreed: ‘Guernsey has been in the investment funds business for over 50 years and in that time has built a considerable depth and breadth of expertise, ensuring we are more than capable of coping with whatever comes our way.
‘The work currently carried out on PRIIPs by local firms is evidence of our adaptability and helps explain why global fund managers continue to find Guernsey such an attractive home for their products.’
‘I expect some market participants may struggle with the calculations for the summary risk indicator and the projected performance data, as well of some of the more complex textual disclosures, which are governed by numerous different requirements and restrictions in the regulations. In addition, because the regulations include provisions that the KID shall constitute pre-contractual information, that it must be fair, accurate and not misleading and that retail investors should be able to hold the product manufacturer liable for any infringement of the regulations or damage suffered as a result of reliance on the KID, the consequences for getting it wrong could be extremely significant and expensive,’ said Mr Tostevin.
Dorey Financial Modelling has engaged with a number of investment administrators to provide the underlying calculations which feature in the KID and has worked with international administrators and managers based in Canada, the US, Europe and South Africa.
‘Our long experience of specialised investment actuarial work means we have been well placed to deliver basic as well as very demanding KIDs,’ said Mr Dorey.
The PRIIPs regulations aim to help retail investors to understand and compare the key features, risks, rewards and costs of different PRIIPs, through access to a short and consumer-friendly information document.