Joint Committee Public consultation

Transcription

1 Joint Committee Public consultation Session I: Risk and Reward section KID (art 5 &6 RTS) Public Hearing: KID for PRIIPs 09/12/2015 Hannie de Cloe-Vos, AFM Barbara Antonides, AFM 1

2 Outline 1. Presentation of the Risk and Reward Work Stream (RRWS) 2. Legislative framework: What are the risks and what could I get in Return? section 3. Market Risk Measure 4. Credit Risk Measure 5. Summary Risk indicator 6. Presentation of the SRI 7. Performance scenarios. 8. Presentation of the Performance scenarios 2

3 Presentation of the Risk and Reward work stream RRWS to feed into the PRIIPs Subgroup on the different risk and reward disclosure aspects of the PRIIPs Regulation Chair: AFM 9 members (ACPR, AMF, BaFIN, BdP, CNMV, CONSOB, FCA (UK), FSMA, MNB (central bank of Hungary) + EIOPA) Contact point: Hannie De Cloe-Vos Hannie.decloe-vos@afm.nl Barbara Antonides Barbara.Antonides@afm.nl 3

4 What are the risks and what could I get in return? Under Article 8.3 (d) of the PRIIPs Regulation, shall be disclosed: On Risk a brief description of the risk-reward profile comprising the following elements: (i) a summary risk indicator, supplemented by a narrative explanation of that indicator, its main limitations and a narrative explanation of the risks which are materially relevant to the PRIIP and which are not adequately captured by the summary risk indicator; (ii) the possible maximum loss of invested capital, including, information on: whether the retail investor can lose all invested capital, or whether the retail investor bears the risk of incurring additional financial commitments or obligations, including contingent liabilities in addition to the capital invested in the PRIIP, and where applicable, whether the PRIIP includes capital protection against market risk, and the details of its cover and limitations, in particular with respect to the timing of when it applies; On Performance (iii) appropriate performance scenarios, and the assumptions made to produce them; (iv) information on conditions for returns to retail investors or built-in performance caps; (v) a statement that the tax legislation of the retail investor's home Member State may have an impact on the actual payout; 4

5 Article 5 on the Summary Risk Indicator (SRI) - SRI based on assessment of market and credit risk Annex II - Review and revision Annex II Part 4 - Liquidity risk explained in a narrative Annex II Part 5 and Annex III - Presentation SRI on a numerical scale (1-7) and SRI related narratives Annex III - Warning with respect to SRI and the recommended holding period (RHP) Annex III - Exit penalties or long disinvestment notice periods Internal reference in KID 5

6 Market Risk Measure (MRM): Errata where N is equal to the number of days of the Recommended holding period. Further the 97,5% VaR is used, which is the 2,5% percentile of the return distribution and not the 2,5% VaR. 7 december 2015 Consultation Paper PRIIPs Pagi na 6

7 Market risk measure - Category I Capital guarantee (5 yr), contingent liabilities, derivatives - Category II Linear pay-off profile PRIIPs - Category III Non-linear pay-off profile PRIIPs - Category IV Factors non observable from market data (insurance) - Category V Insufficient market data available The MRM is dependent of the type of PRIIP and is determined because of that either qualitatively or quantitatively. 7

8 Market risk measure Quantitative criteria Products with linear pay-off structures (for example UCITS, AIFs); 97,5% VaR Cornish Fisher expansion 5 years of historical data Products with non-linear pay-off 97,5% VaR Bootstrapping 8

9 Credit Risk Measure (CRM) Credit risk is only determined when relevant. Where not relevant credit quality step 0. Credit Risk assessment is based on: External rating of the de PRIIP External rating of the relevant obligor(s) Default credit assessment: credit quality step Based on the external rating, default credit assessment and possible mitigating factor follows in the credit quality step. Translated into a credit risk class (1 tot 6) Treatment of liquidity risk - Criteria illiquidity in Part 5 (paragraph 76) - Additional warning within the SRI picture 7 december 2015 Consultation Paper PRIIPs Pagi na 9

10 Aggregation of market and credit risk in SRI 1 0

11 SRI Presentation Narratives to be included below Additional warning 1 1

12 Article 6 on the Performance Scenarios - Performance scenarios in the KID: unfavourable, moderate and favourable Annex IV and guidelines - At the recommended holding period and for certain holding periods in between, when appropriate Annex IV and V (illiquid PRIIPs) - Insurance related event Annex IV - Format of presentation Annex V 1 2

13 Performance Scenarios Presentation 1 3

14 Questions 1 4