Local actuaries help to prepare for new regulations

Tuesday 09 January 2018

A local actuarial technology company has been working with international asset managers on Key Information Documents (KIDs) prepared in compliance with the EU’s new Packaged Retail and Insurance-based Investment Products (PRIIPs) regulations.

The PRIIPs regulations’ deadline of 1 January 2018 means that asset managers now need to adhere to new technical standards for the KID. The content must include summary risk indicators, projected returns and disclosure of costs for investment products.

The first week of January has already seen a leading UK investment platform remove several hundred products from its website for non-compliance with the new regulations.

Penalties for not complying with the regulation will range from being prohibited from marketing the PRIIP or significant fines. All new investment products and existing investment products marketing to retail investors in the EU will need to comply with the requirement for a KID.

The underlying calculations which feature in the document must be in line with the regulations and current practice guidelines, and accurately reflect the PRIIPs’ investment qualities. According to a local actuarial technology company, Dorey Financial Modelling, creating the numbers can be extremely complex.

"Product categorisation, the range of financial outcomes and costs can be complicated, and factors such as currency fluctuations, private equity, and fund wind-up dates come into play as well. All of this needs to be adequately explored with the product manufacturer and their legal teams, so we pay close attention and listen to the product manufacturers’ forward-looking views," Martyn Dorey, Managing Director, said.

"All KIDs require working closely with the product manufacturer to reflect their views of market practices and their expectations on risk."

The administration work to prepare KIDs is often outsourced to fund administration service providers.

Matt Tostevin, a director of fund administration firm, JTC Fund Services, said that while the final PRIIPs regulations were published in spring 2017, the complexity of the regulations and the amount of work required still caught many market practitioners by surprise and even large mainland EU investment houses were unprepared for the January deadline.

"A large number of local practitioners and their clients also found themselves within the scope of the regulations and required to prepare a KID," Mr Tostevin said.

"Fortunately, we in the Channel Islands are well accustomed to facing external challenges, both regulatory and otherwise, and our innovation has helped us to thrive."

The PRIIPs regulations aim to help retail investors to understand and compare the key features, risks, rewards and costs of different PRIIPs, through access to a short and consumer-friendly information document.