MiFID II and PRIIPs Count down for asset managersAugust 2017
Executive summary On 10 July 2017, the European Securities and Markets Authority (ESMA) clarified in their Q&A for MiFID II/MIFIR Investor Protection that asset managers need to provide transaction cost according to the PRIIPs regulation. This puts further pressure on asset managers, since now the broader fund range (i.e., all UCITS) are affected by the PRIIPs regulation, which will come into force at the same time as MiFID II as of January 2018.
EY supported intensively the European Working Groups to define a standard for data exchange between asset manager and insurer for PRIIPs, the European PRIIPs template (EPT), and as well between asset manager and distributors for MiFID II, the European MiFID II Template (EMT).
The EMT includes the target market definition, distribution strategy and costs and charges for ex-ante and ex-post.
Readiness checklistTarget market defined for various investor groups?
New market data (bid & ask ticks, opening prices and index constituents) sourced for transaction cost calculation?
Engine in place to calculate transaction cost using the new PRIIPs/estimate and arrival price methodology for broader fund range (e.g., UCITS, fond en euros)?
Engine in place to calculate summary risk indicator and performance scenarios?
Engine in place to report for MiFID II (EMT) and PRIIPs (EPT, KID) and UK pension scheme (FCA/IA code)?
Due diligence performed on first tier distributors?
Dissemination channel defined and setup for distributors (MiFID II EMT) and insurers/fund of funds (PRIIPs EPT)?
Fund distribution at risk due to target market, cost disclosure (including transaction cost calculation) and dissemination challenge
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Asset manager’s new reporting requirements for MiFID II, PRIIPs and UK pension scheme
PRIIP transaction cost calculation also required for MiFID II and FCA/IA code
New cost disclosure
New PRIIP performance scenarios
New PRIIP summary risk indicator
Investment €10 000Scenarios 1 year 3 years 5 years Stress scenario What you might get back after costs €9,778.26 €8,660.30 €7,882.97
Average return each year 97.78% 95.32% 95.35%Unfavourable scenario What you might get back after costs €8,901.03 €8,884.26 €9,243.40
Average return each year 89.01% 96.13% 98.44%Moderate scenario What you might get back after costs €10,685.19 €12,184.43 €13,894.03
Average return each year 106.85% 106.81% 106.80%Favourable scenario What you might get back after costs €12,800.74 €16,676.31 €20,841.81
Average return each year 128.01% 118.59% 115.82%
Estimate per PRIIP asset class
Costs per PRIIP asset class• NON-OTC products: use of index
constituents data • OTC-products: survey
Turnover• Deriving turnover per each PRIIP
asset class by classify each transaction into an asset class
One-off costs
Entry costs 5.00%
Exit costs 0.00%
Ongoing costs
Portfolio transaction costs
0.60%
Other ongoing costs 1.40%
Incidental costs Performance fees 0.00%
Arrival price method
Arrival price• At the time, when trade has been transmitted to the market• Sourcing of opening prices and bid & ask price ticks• Heavy effort to collect and to push data through the value chain
PRIIPs
EPT
KID
CEPT
MiFID II
Dis
trib
utor
sEMT
...
UK Pension scheme
FCA/IA code
LGP
S c
lient
sW
DC
P c
lient
s
Type of clients to whom the product is
targeted
Knowledge and experience
Financial situation with a focus on the
ability to bear losses
Risk tolerance and compatibility of the risk/reward profile of the product with the target market
Clients’ objectives and needs
Target market and product governanceThe identification of a target market should be based on both quantitative and qualitative information
Governance arrangements to be implemented throughout the product’s life-cycle
• Product review• Sales information• Governance
arrangements• Product offering
compatibility
• Product selection process• Distribution agreements• Distributor’s target market• Information to investors
• Product approval process• Conflict of interest• Scenario analysis• Product feature• Charging structure
• Manufacturer’s target market• Distribution strategy
and channels• Information to distributors
Design
Product Governance
Monitor
MarketDistribute
Lower risk Higher risk
1 2 3 4 5 6 7
Actual costs per transaction
Purchase/sale-1/1
Transaction costs
Net realized execution price of the
transactionArrival price Units=
=
- XX
X
!
Estimate of portfolio turnover in each asset class
!Cost per each
asset class
!
Inve
stor
sIn
sure
rs
Ongoing managed service and monitoring of regulatory changes
EY Regulatory Reporting Service
Why EY?
EY assists you in a fast implementation of these new regulations and offers as well a managed service for ongoing regulatory reporting to your distributors/investors:
We monitor regulatory changes for you, implement in a fast-track approach and provide a comprehensive regulatory reporting service:• Flexible interfaces and connection to third party administrators• Calculation engine including transaction cost• Sourcing of required market data• Flexible reporting engine• Open dissemination platform• No black box – client dashboards through EY’s managed service
platform
Initial scope determination and implementation
Lifecycle Management
Data Management Production Distribution
Data gathering
• Data collection and formatting from multiple sources
• Content managment covering all KID sections, target market,...
Time of provision
• Regular distribution of• EMT• (C) EPT• FCA/IA Code
• KID version management (material changes/annual review)
Calculation, translation, reporting
• Calculation of risk, performance scenarios and costs
• Calculation of transaction cost• Translation of narratives • Generation of (C) EPT, EMT, FCA/IA• Production of KID document
Consistency review
• Assistance in the content consistency with other product documentation
• Data quality checks
Dissemination
• Dissemination of (C) EPT, EMT, FCA/IA code and KID to identified target recipients (distributors, investors)
• Publishing of the KID
Contact
Client dashboard
Bernhard Bittner Executive Director EMEIA Regulatory Reporting Service Leader +352 42 124 8913 [email protected]
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This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice.
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