By Scott Eason FIA, Partner and Head of Insurance Consulting, Barnett Waddingham
As we explained in our previous KIDs blog, these documents require market risk measures (‘MRMs’) and future performance scenarios figures to be produced based on “bootstrapping” historic performance data.
For products that have had varying asset allocations and no fixed risk limits over the observation period – such as most with-profits funds - the risk measure will be calculated using the current asset mix and historic asset returns.
Annex II Paragraph 7 of the Regulatory Technical Standards (RTS) suggested that appropriate benchmarks or proxies could be used as the historical asset returns. This was appealing to many firms, especially as index data is readily observable daily and the use of historic data observed more frequently than monthly allows firms to use a lower MRM.
However, the Q&A document issued on 18 August 2017 (Question 11) clearly states that benchmark data can only be used where available market data is insufficient. This is primarily if the historic data is not available for long enough and then only for the data that is missing.
Therefore, actual asset performance data is going to be required from your investment manager. Question 34 of the Q&A document states that the exact frequency of monitoring of the MRM is not prescribed, however, we believe that monthly re-calculation and monitoring is required. Clearly you need at least monthly asset performance data to do this and you will require it in a timely manner.
In addition, the costs that need to be disclosed include asset transactional costs. These tend to be outside of the AMC and will again need to be provided to you by your investment manager(s). Our discussions with several investment managers indicate that they are able to provide this information, but we recommend you engage with your own investment managers to confirm this.
So, as you can see, you are going to need regular support from your asset manager(s) to enable you to comply with the KIDs for PRIIPs regulations. We strongly advise you to discuss your requirements as soon as possible to enable them to provide this information from 1 January 2018.
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