BNP AM

The sustainable investor for a changing world

Search for

Filter by

Asset class

Economics

Geography

Investing

FRONT OF MIND | ARTICLE – 1 Min

PRIIP regulation – Essential aspects and practical implications

In this article:

    In this new paper, we examine key aspects of the European Union’s new regulation on Packaged Retail and Insurance-based Investment Products (PRIIPs), particularly the methodologies for calculating risk and the performance scenarios required for the new Key Information Document (KID).[1]

    PRIIPs are designed to be sold to retail investors in the EU. They include investment funds, exchange-traded funds (ETFs), structured products and insurance-based investment products.

    The regulation sets out rules for the production, approval and distribution of PRIIPs. The aim is to standardise pre-contractual information that asset managers, investment banks and insurers offer to retail investors, and so improve the disclosure of information and protection of retail investors.

    In our paper, we compare the calculation of risk under the PRIIP regulation and under the UCITS (Undertakings for Collective Investment in Transferable Securities) regulation. It appears that the PRIIP’s classification tends to shrink the risk scale of funds relative to UCITS.

    Analysing performance scenarios, we find that performance scenario returns are poor indicators of future performance; they just tend to be higher after a good historical performance and lower after a poor performance.

    Disclaimer

    [1] The KID provides retail investors with key information about the product including the risks and costs associated with investing in it. Standardisation should improve the transparency and comparability of PRIIPs, making it easier for retail investors to understand the risks and potential returns associated with these products and compare the different options available to them. The distribution of KID documents for all UCITS and non-UCITS PRIIPs distributed to retail investors went live in January 2023.

    • Any views expressed here are those of the author as of the date of publication, based on available information, and subject to change without notice. This material does not constitute investment advice.
     
    The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.
    Past performance or achievement is not indicative of current or future performance. Performances is calculated net of fees unless otherwise stated.
    • Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).
    • Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

    Related posts

    Talking Heads – US stocks: small is also beautiful
    Portfolio perspectives | Podcast - 13:25 MIN

    Talking Heads – US stocks: small is also beautiful

    Small is still beautiful and that also applies to US small-capitalisation stocks, Geoff Dailey, Head of US and Global Thematic...

    GEOFF DAILEY
    +1 other(s)
    | 27.03.2024
    Weekly Market Update – Doves! Ready for take-off?
    Front of mind | Article - 3 Min

    Weekly Market Update – Doves! Ready for take-off?

    The latest decisions and comments by central banks confirm that 2024 should see the start of monetary loosening in the...

    NATHALIE BENATIA
    | 25.03.2024

    Viewpoint highlights

    Subscribe to receive this week’s articles straight to your inbox.

    Please enter a valid email
    Please check the boxes below to subscribe

    FOLLOW VIEWPOINT

    Receive daily updates