Joint Committee Public consultation on PRIIPs KID Section II: Cost section of the KID

Transcription

1 Joint Committee Public consultation on PRIIPs KID Section II: Cost section of the KID Emmanuel Doumas ESMA / Chair of the Cost Work Stream 9 December

2 Outline 1. Presentation of the Cost Work Stream (CWS) 2. Legislative framework: What are the costs? section 3. Identifying costs 4. Aggregating costs 5. Presenting costs 6. Interaction with the Consultative Expert Group (CEG) 2

3 Presentation of the cost work stream Cost Work stream to feed into the PRIIPs Subgroup on the different cost disclosure aspects of the PRIIPs Regulation Chair: ESMA 10 members (ACPR, AFM, AMF, BaFIN, CONSOB, FIN-FSA, FMA, MNB, UK FCA + EIOPA) Contact point: Emmanuel Doumas emmanuel.doumas@esma.europa.eu 3

4 What are the costs? section of the KID Under Article 8.3 (f) of the PRIIPs Regulation, shall be disclosed: the costs associated with an investment in the PRIIP, comprising both direct and indirect costs to be borne by the retail investor, including one-off and recurring costs presented by means of summary indicators of these costs and to ensure comparability, total aggregate costs expressed in monetary and percentage terms, to show the compound effects of the total costs on the investment The key information document shall include a clear indication that advisors, distributors or any other person advising on, or selling, the PRIIP will provide information detailing any cost of distribution that is not already included in the costs specified above, so as to enable the retail investor to understand the cumulative effect that these aggregate costs have on the return of the investment 4

5 Identifying costs Funds Comprehensiveness of the list of costs starting from the CESR guidelines on the methodology for calculation of the ongoing charges figure; Distinction between one-off, recurring and incidental costs Calculation of transaction costs Calculation of actual transaction costs; Use of a standardized table in some specific cases (new PRIIPs that invest in liquid assets); Transaction costs included in the summary cost indicator and shown separately Calculation of performance fees Use of historical data (last 5 years) as a best estimate; Performance fees included in the summary cost indicator and shown separately 5

6 Identifying costs Life-Insurance products Comprehensiveness of the list of costs With-profit, unit-linked and hybrid life-insurance products; Distinction between one-off and recurring costs Cost disclosure of the biometric risk premium Use of the difference between the biometric risk premium and its fair value as a cost to be included in the summary cost indicator; How should the information on biometric risk premium and its fair value be disclosed in the KID? 6

7 Identifying costs Structured products, CFDs & SPVs PRIPs other than investment funds Comprehensiveness of the list of costs Distinction between one-off and recurring costs; Including hedging costs Disclosure of the costs embedded in the purchase price (and not only the explicit costs charged) Calculation of the fair value of the product Principle-based approach 7

8 Aggregating costs RIY Total Cost Ratio (TCR) vs Reduction in Yield (RIY) The timing of costs deductions is best taken into account by RIY (insurance-based investment products); The results of the consumer testing do not strongly discriminate between TCR and RIY Assumptions (time periods, growth rate: moderate scenario of the reward section of the KID) RIY for One-off, Recurring and Incidental costs Definition of RIY in the case of structured products Specify that for structured products calculations for the cost free scenario have to be based on an adjustment of the payments by the investor? 8

9 Compound effect of the costs Initial invested amount? (for investment funds and PRIPs other than investment funds); (for single premium insurance-based investment products); yearly (for regular premium insurance-based investment products). Three different holding periods, including the recommended holding period The total costs shall include one-off, recurring and incidental costs, and, if relevant, exit penalties Exit penalties to be distinguished from other exit costs which have to be paid in any case and therefore always need to be included in the one-off costs 9

10 Presenting costs (investment fund table 1) Summary cost indicator and compound effect of costs 1 0

11 Presenting costs (investment fund table 2) Breakdown of costs 1 1

12 Interaction with the Consultative Expert Group (CEG) Dedicated experts for the cost section of the KID (Consumer representatives, Industry and Academics) Dedicated task forces for specific sectorial issues on cost disclosure transaction costs; insurance-based investment products; structured products and calculation of RIY for structured products. Technical and quantitative input 1 2