Asociacion Española de Banca

patricia rodriguez
In general terms we agree with the description done, but it must be kept in mind that risk simplifications in indicators (Summary Risk Indicator) can be misleading. This is why we prefer narrative wording, with the same objective and easier to understand (e.g. “the possible maximum loss of invested capital”).

In this sense, probabilities must not be informed (e.g. probability of default) as can be misleading for clients as well as dangerous for entities.
AEB understands definitions of different types of risks are correct.
Qualitative format can give rise to very simplistic view of the risks. In this sense, quantitative descriptions are preferred to give a better understanding of risks and are seemed as easier to understand for clients.
If regulation looks for the most relevant information for the simplicity objective, contingent costs should not be included.
Information about performance scenarios which can be really appropriate can be negatively affected with the introduction of probabilities.

This information can be misleading for a client (a 90% probability of benefit could be an incentive to think that is going to win in any case).

Probabilities are very subjective and varied between entities. As ESAs make clear in the document, with the same input different methodologies lead to very different results.
ESMA itself, in the document “ESMA Working Paper No. 1, 2015 Real-world and risk-neutral probabilities in the regulation on the transparency of structured products”, shows great concerns with the use of probabilities.
It seems very difficult to achieve a minimum consistency level, specially with products with, for example, several underlying o payments conditions. Simplicity required does not help either to achieve this consistency. The better way of minimizing this impact could be the publication of examples and standardized models from ESAs, at least for most standardized products.
The AEB believes that the timeframe should be flexible for different PRIIPs.
Great work was done relating performance scenarios in UCITs. As the need of coordination is clear for all the parties, it seems necessary to replicate here, to what extend is possible, and rules for scenarios in UCITs.
The most convenient should be to present performance scenarios net of costs, but different circumstances may do this objective impossible or make information misleading. For example, tax impact would never be included as it depends on personal circumstances; there can be other problems when costs depend on third parties and/or can change during the products life.
It could be reasonable to present three scenarios, favourable, medium or slightly unfavourable and a negative one (similar to the “crash scenario” in the UK). With these options, the client can have a clear picture about risks and benefits to compare with others. In the case of products with several options at maturity or incomes related to different events, it could make sense to include more scenarios.
In regards that comparability is one of the objectives searched, the risk indicator designed for UCITs seems the most adequate.
Some of the examples presented are not easy to understand or intuitive. Once again, clarity should be the objective. So models as the one developed by ABI (Association of British Insurers) are preferred.
It does not seem realistic to combine risks and performance scenarios and expects a consistent indicator to result.

PRIIPs regulation must look for simplicity, but excessive simplification can lead to non representative information of the products
Indeed, as a rule of thumb, the retail investor should be aware of all the costs that he/she faces directly and that might impact his decision (e.g. entry and exit fees, management fees, performance fees and so on). Costs like transaction costs incurred by a fund on managing the portfolio, for instance, are irrelevant to the investor’s decision and are difficult (if not impossible) to estimate beforehand.
Too much information about costs can mislead the importance of some of them.
See answer to question 19
Disproportionate costs can be given by the coincidence of these new obligations with other existing ones (MiFID, Prospectuses...) what will be also detrimental for the objective of simplification of information for retail clients in order to facilitate their reading and understanding.
Different kinds of products have different cost structures. Similar legal format products, however, tend to have similar cost structures. Trying to make all products/formats conform to the same template or trying to accommodate for all special cases will be unworkable. He objective of a compiled and comparable APR is hardly achievable.
The presentation of the costs in the PRIIPs KID should be aligned with MiFID 2. To compare the costs an agreed break down of relevant direct- and indirect costs is needed. AEB members suggest including only costs that affect the investor’s decision (e.g. entry and exit fees, management fees, performance fees, etc.) and redirect the investor to a more comprehensive/ specific documents.
See answer to question 19 in relation with implicit costs.
It does not seem realistic to think that for all products included in the scope for PRIIPs is possible to define a RIY representative of all the costs.
Entities use very different methodologies for calculating cost and prices and are very sensitive information for them.
Implicit costs should not be taken into account explicitly because they are already considered in the payoff parameters.
The most important challenge is to achieve an standardized representation that reflects adequately all the costs for every product. In this sense, it is important to remember that too much simplicity can lead to the costs not being adequately reflected, so some flexibility is needed.
Option 6 is preferred. In the UK firms selling insurance-based investments are required to show cumulative effect of charges in two ways; in cash terms using an ‘effect of charges’ table and in percentage terms using the Reduction in Yield summary statistic which shows how the charges effectively reduce the investment growth. The effect of charges table shows the effect of charges over the lifetime of the contract on the value of the fund and the reduction in yield figure shows the effect of all product charges on performance, expressed a single percentage reduction in annual yield.
It is probable that this happens in some cases
AEB members prefer to work with one integrated risk indicator, visualized by a single element. A single integrated risk indicator is the most transparent and understandable measure for a potential client to perform a product assessment in terms of risk/return. The integration of three different risks will provide simplicity for a retail investor. A single visualisation makes it easier to comprehend and compare all risks of different financial products.
In relation with implicit costs, if ESAs is looking for information about “mark ups” being public, it must be realized that, first of all, this information could be misleading as it could be seen as the benefit for the entity, when there are lots of costs for the entity that are not reflected in the “mark up” secondly, being obliged to reveal this information could be against competence rules.
The PRIIPs Regulation requires disclosure of: “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” (Article 8). In view of the literal wording of the Regulation, we do not agree with the assumption in the Discussion Paper that the reference to “indirect costs” in the Level 1 text of the Regulation necessarily equates to disclosing “costs embedded in the purchase price”. “Indirect” costs instead refer to ancillary services or costs incurred in relation to the underlying portfolio or linked products that need to be acquired together with the PRIIP rather than embedded costs (i.e.: a structured bond that requires a securities and/or cash account as a condition to its acquisition). Further, there is no suggestion in the Level 1 text that to the extent embedded costs must be disclosed they should be broken down in the KID.
In fact, a clear difference should be established between the concept of “cost” and the concept of “price”. The Discussion Paper makes reference to the “margin incorporated in the purchase price”, but it should be borne in mind that margins incorporated in the purchase price, as its name suggests, are a component of the transaction price and, therefore, do not fall under the scope of “costs” for the clients. In fact, in the Consultation Paper published by ESMA on MIFID II/MIFIR on the 22nd May 2014, the following was stated: “ESMA would like to emphasize that “costs of the instrument” are distinct from “price of the instrument””.
In addition, we understand that this is not information that the client needs to know. What the client needs to know is the total price of the transaction (not the breakdown of the different components) and the costs/charges associated to such transactions or to the investment service provided and how such costs can affect the return of the investment. This information will enable the client to compare different instruments/services and counterparties and to take investment decisions on an informed basis. Furthermore, the information on the mark ups embedded in a transaction could be misleading information as each entity may have a different methodology for its calculation.
RTS should not be very strict in this sense, and once this minimum information has been included, each entity should be free. We do not agree with the DP that this can create confusion to the clients.
Alerts are considered very simplistic due to the great scope of clients that enters into the “retail category” and factors to be considered.

For example, variables difficult to understand could be exactly the ones reducing the product risks (e.g. a barrier that stops potential losses); the inclusion of an alert in this case could warn the client from acquiring a product with a lower risk and force the entities to distribute products with higher risks in order to avoid this “label”.
Legal classification could be a good starting point; A risk classification is not appropriate as these are described in other section of the KID, it will be reiterative and an unnecessary due to the reduced size of the kid.
It is important to clarify PRIIPs regulation intends to regulate the information given to the client, but no try to impose/create new classification. Classifications used by entities to classify their products in order to develop suitability and appropriateness test should remain at the entire entity decision.
No. It should be really complicated trying to unify different methodologies for classifications. It could be reasonable that the regulator supervises different methodologies in order to assure they comply with European standards but not trying to unify the metodologies.
A brief description of the product is necessary, but information regarding objectives is already done in risk and benefit analysis.

It is considered as excessive to include technical details or engineering description of the product as it appears en

Specific environmental or social objectives targeted do not seem relevant information for PRIIPs. For the sake of briefness this information should not be included in KID. As an alternative this information could be considered as relevant and as a consequence, included in the KID only when environmental or social objectives are pursued, but not as a general obligation.
No. All relevant aspects have been considered and it should be kept in mind that briefness is not only searched, but imposed by regulation; unnecessary reiterations should be avoided.
Consumer types are defined by regulation and these classifications should not be modified.

The adequacy of the product to the client will be done latter in the process (e.g. products subject to MiFID when tests are done) so in the moment of completing the KID there should not be more distinction.
No. The AEB is not aware of PRIIPs where the term may not be readily described, or where there are other issues.
The AEB is not aware of any specific challenges arising for specific PRIIPs in completing this section. Reference to Guarantee Schemes is considered as adequate.
In relation with the possibility early redemption as far as it is possible to sign contracts where is not permitted, it would be enough to alert the clients of this circumstance.
A distributor’s use of sub-distributors comes with the same challenges as described regarding manufacturer and distributor. It is important that generic information or a reference to where further information can be found is allowed
Yes the assessment made by the ESAs regarding 6(3) seems adequate.
The AEB believes that the ESAs must clarify whether unit-linked life insurance contracts and hybrid life insurance contracts are intended to be covered by the relevant rule here.
Some comments regarding to review, revision and republication of the KID:
(i) In accordance with the Recital 12 of the Regulation, the update obligations shall apply only when “the PRIIP is traded on a secondary market”. Consequently, level 2 of the Regulation must clearly exclude non tradable products from the scope of this obligation.
However, the DP considers the potential sale to the issuer as a “secondary market” and thus, subjects that situation to the update obligation (point 7.1). We cannot agree with that. An updated KID must be provided when a secondary market exists to ensure that potential retail buyers are aware of the nature and risk of the structured investment products (pre-trade information), but not to inform the actual owner about the potential risk and costs that may be applicable in the case of an early redemption (e.g. if the product is sold to the issuer), as they were already included in the KIID received by the client at the acquisition of the product.
Update obligations for PRIIPs that are not traded in a “secondary market” could be understandable only in case of Funds products where changes in the investment policy may affect to the investment key features and may imply risks that could not be assessed by clients in the purchase of the product.
(ii) The conditions and the material changes that imply that KID will be reviewed should be defined carefully. These definitions should not be restrictive in order to avoid unnecessary administrative costs.
It is necessary to consider the impact that other regulations may have on the PRIIP in question. For example, if cases where the PRIIP is subject to de prospectus directive, an update on the prospectus should not overlap with a requirement to update the KID.
(iii) In case that KID is updated if it is affected by a materially important change, a periodical review would not be necessary, as KID will always be updated.
Yes, we do. The KID provider does not know the identity of potential investors that may buy the product in the secondary market and cannot send or personally provide with the updated KID to them

Consequently, the only practicable way to communicate the update of the KID shall be the publication of a new KID in the manufacturer webpage. Its obligation shall consist only in uploading the new KID to the web so every investor interested in the product can access to the last version.
See answer to question 50.
No, we don’t foresee any circumstance which required an active communication model. In all cases where update obligation may apply, a passive model adapted to new technologies shall be used (e.g. including KID update in a webpage). If any additional action is considered, an option would be to reinforce the web publication with an alerts system that informs to such subscribed customers about the information available.

In all cases where update obligation may apply, a passive model adapted to new technologies shall be used (e.g. including KID update in a webpage). If any additional action is considered, an option would be to reinforce the web publication with an alerts system that informs to such subscribed customers about the information available.
In general, we agree that KID should be delivered with enough time to allow the investor to make an investment decision founded. We agree in taking into account the criteria defined in Recital 83 subject to our considerations explained in question 54
We should include the following considerations:
o A general timeframe that works as a safe harbor for distributors irrespectively of the experience or knowledge of the investor must be included.
o Experience shall include not only same products, but also in similar ones (i.e. structured deposit linked to share and structured bond linked to shares).
It must not be considered as a mandatory timeframe between the date the KID is made available for the investor and the purchase date: the distributor must provide the investor with the KID and the investor must have time until d+X to purchase the product, but if the investor does not need that time or does not want no wait until the end, it may be able to acquire the product immediately. Once the information has been given in a complete and comprehensive form, it is not necessary to wait more than the client needs. In other case the client would have to go twice to the office, waste time and perhaps lose benefits from the products.
We understand essential that ESAs develop prescribed templates and examples for each different type of PRIIPs, at least for the most common products. There are many obligations that still very open/ theoretical even in the DP (i.e. non-technical language) and may be implemented in different ways by firms and interpreted in many various manners by supervisors and courts. In our opinion accurate and complete templates/examples would be the only way to be able to (i) improve the quality and comparability of information provided to retail investor regarding to PRIIPs; (ii) improve legal certainty for firms
In general, we understand that both, a product offered with regular payments (e.g. endowment, savings plan) and same product offered on a single payment basis should be included in the same KID.
Only in case that the information related to the summary risk indicator, performance scenarios and cost information would be materially different for regular payment versus single payment arrangements, a separate KID might be considered.
Most of the costs have been mentioned. It is worth to mention that in case any of the indicators selected is one in colour, every office in every distributor would have to have colour printers with an important increase of costs.
Most of implementation costs have been mentioned. Regarding implementation not only costs are important, but also the need of enough time to develop KID for a large number of products must be taken into consideration.
Asociacion Española de Banca