PRIIPS

Last updated

Packaged retail investment and insurance products (PRIIPs) is European Union regulatory term to encompass a range of investment products that banks or other financial institutions offer to consumers. It was first used in regulation (EU) No 1286/2014, known as the PRIIPs regulation, the aim of which was to improve the transparency and comparability of investment products across the EU through mandating key information documents.

PRIIPs is used in the European Union as an alternative to savings accounts. [1] In particular, PRIIPs include non-equity financial products such as bonds, insurance policies, mutual funds and structured funds, structured deposits, and structured products. As of 2018, these investment products make up a market in Europe worth up to €10 trillion.

History

The EU regulatory project started in 2014 on the basis that retail investors across the EU often made investments without understanding the associated risks and costs, some of which led investors to suffer unforeseen losses. [2]

The regulation was introduced in 2018 with aims to protect retail investors by adopting some key-principles: - comparability: the investment prospectus has to allow direct comparison between different products that meet a retail investor’s stated aims; - synthesis: the key-information has to be contained in a prospectus of maximum three pages; - know your products: regulations has to set out new calculation methodologies in order to ensure risk-return transparency of the investment products; - standardization: the key-information document has to be valid across the EU and report homogeneous statements. [3] [4]

The regulation was made as a result of surveys and consultations conducted by the European Commission. These activities were to test the effectiveness of presented information to retail investors within the PRIIPs framework [5] The information presented during the test recalled the need of reporting performance scenarios about the investment [6]

This probabilistic scenarios approach was originally developed by Marcello Minenna within “a quantitative framework to assess the risk-return of non-equity products” [7] [8]

Contributions in support of the probabilistic approach arrived from the Movement for risk transparency (i.e.: a group of academics, consumers associations, unions and other representatives of investors’ interests) [9]

The new regulations were issued in 2018 and provided the obligation for the product manufacturers to elaborate for each investment product a Key-Information-Document of no more than 3 pages that would include a general description of the provider, an explanation of the main factors that the investment's return depends upon, the level of risk associated with the product (classed from 1 to 7), an indication of the possible maximum loss (including four performance scenarios), and a table explaining the costs of one's investment over time. [10]

Related Research Articles

<span class="mw-page-title-main">Investment banking</span> Type of financial services company

Investment banking pertains to certain activities of a financial services company or a corporate division that engages in providing advisory-based services on financial transactions for clients, such as institutional investors, corporations, and governments. Traditionally associated with corporate finance, such a bank might assist in raising financial capital by underwriting or acting as the client's agent in the issuance of debt or equity securities. An investment bank may also assist companies involved in mergers and acquisitions (M&A) and provide ancillary services such as market making, trading of derivatives and equity securities, FICC services or research. Most investment banks maintain prime brokerage and asset management departments in conjunction with their investment research businesses. As an industry, it is broken up into the Bulge Bracket, Middle Market, and boutique market.

<span class="mw-page-title-main">Banking regulation and supervision</span> Policy framework for credit institutions

Banking regulation and supervision refers to a form of financial regulation which subjects banks to certain requirements, restrictions and guidelines, enforced by a financial regulatory authority generally referred to as banking supervisor, with semantic variations across jurisdictions. By and large, banking regulation and supervision aims at ensuring that banks are safe and sound and at fostering market transparency between banks and the individuals and corporations with whom they conduct business.

Basel II is the second of the Basel Accords, which are recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision. It is now extended and partially superseded by Basel III.

A structured product, also known as a market-linked investment, is a pre-packaged structured finance investment strategy based on a single security, a basket of securities, options, indices, commodities, debt issuance or foreign currencies, and to a lesser extent, derivatives. Structured products are not homogeneous — there are numerous varieties of derivatives and underlying assets — but they can be classified under the aside categories. Typically, a desk will employ a specialized "structurer" to design and manage its structured-product offering.

<span class="mw-page-title-main">Markets in Financial Instruments Directive 2014</span> European Union law

Markets in Financial Instruments Directive 2014, commonly known as MiFID 2, is a legal act of the European Union (EU). Together with Regulation No 600/2014 it provides a legal framework for securities markets, investment intermediaries, in addition to trading venues. The directive provides harmonised regulation for investment services of the member states of the European Economic Area — the EU member states plus Iceland, Norway and Liechtenstein. Its main objectives are to increase competition and investor protection, as well as level the playing field for market participants in investment services. It repeals Directive 2004/39/EC.

The Undertakings for Collective Investment in Transferable Securities Directive (UCITS) 2009/65/EC is a consolidated EU directive that allows collective investment schemes to operate freely throughout the EU on the basis of a single authorisation from one member state. EU member states are entitled to have additional regulatory requirements for the benefit of investors.

<span class="mw-page-title-main">Capital Requirements Directives</span>

The Capital Requirements Directives (CRD) for the financial services industry have introduced a supervisory framework in the European Union which reflects the Basel II and Basel III rules on capital measurement and capital standards.

Solvency II Directive 2009 is a Directive in European Union law that codifies and harmonises the EU insurance regulation. Primarily this concerns the amount of capital that EU insurance companies must hold to reduce the risk of insolvency.

<span class="mw-page-title-main">Alternative Investment Fund Managers Directive 2011</span>

Alternative Investment Fund Managers Directive 2011 is a legal act of the European Union on the financial regulation of hedge funds, private equity, real estate funds, and other "Alternative Investment Fund Managers" (AIFMs) in the European Union. The Directive requires all covered AIFMs to obtain authorisation, and make various disclosures as a condition of operation. It followed the global financial crisis. Before, the alternative investment industry had not been regulated at EU level.

The European Securities and Markets Authority (ESMA) is an independent European Union Authority located in Paris.

<span class="mw-page-title-main">European Banking Authority</span>

The European Banking Authority (EBA) is a regulatory agency of the European Union headquartered in La Défense, Île-de-France. Its activities include conducting stress tests on European banks to increase transparency in the European financial system and identifying weaknesses in banks' capital structures.

<span class="mw-page-title-main">Financial Services and Markets Authority (Belgium)</span> Regulatory agency

The Financial Services and Markets Authority (FSMA) is the financial regulatory agency in Belgium.

<span class="mw-page-title-main">European Banking Supervision</span> Supranational banking supervisory framework

European Banking Supervision, also known as the Single Supervisory Mechanism (SSM), is the policy framework for the prudential supervision of banks in the euro area. It is centered on the European Central Bank (ECB), whose supervisory arm is referred to as ECB Banking Supervision. EU member states outside of the euro area can also participate on a voluntary basis, as was the case of Bulgaria as of late 2023. European Banking Supervision was established by Regulation 1024/2013 of the Council, also known as the SSM Regulation, which also created its central decision-making body, the ECB Supervisory Board.

<span class="mw-page-title-main">European company law</span>

European company law is the part of European Union law which concerns the formation, operation and insolvency of companies in the European Union. The EU creates minimum standards for companies throughout the EU, and has its own corporate forms. All member states continue to operate separate companies acts, which are amended from time to time to comply with EU Directives and Regulations. There is, however, also the option of businesses to incorporate as a Societas Europaea (SE), which allows a company to operate across all member states.

ESG Quant is an investment strategy, developed by Arabesque Partners, which involves quantitative equity investing while utilizing ESG information, often referred to as "non-financial" information. ESG Quant strategies are implemented within systematic trading or quantitative trading approaches that leverage a large and growing collection of commercial ESG, alternative and non-profit or academic datasets. As such, there is no human judgment or discretionary buy-sell decision making; rather, “in a pure quant model the final decision to buy or sell is made by the model” or through the “utilization of an expert system that replicates previously captured actions of real traders.”

<span class="mw-page-title-main">Capital Requirements Regulation 2013</span> EU banking law

The Capital Requirements Regulation(EU) No. 575/2013 is an EU law that aims to decrease the likelihood that banks go insolvent. With the Credit Institutions Directive 2013 the Capital Requirements Regulation 2013 reflects Basel III rules on capital measurement and capital standards.

<span class="mw-page-title-main">Pan-European Pension</span>

The Pan-European Pension Product (PEPP) or like Pan-European Personal Pension Product is a proposed pension which will be available to residents of the European Union. The PEPP is designed to give the 240 million savers in the EU a better choice in the fragmented and uneven European market, where options are nearly non-existent in some member states. PEPPs are regulated by the Regulation 2019/1238. This regulation lays the legal foundation for a single European market for personal pensions. The PEPP will be complementary to existing state, occupational and private pension systems on national level. After endorsement by the European Parliament and official adoption by the European Council the PEPP regulation was published in July 2019 and will enter into application in August 2020. The first PEPPs are expected to be offered in late 2021.

The Securities Financing Transactions Regulation (SFTR) is a body of European legislation for the regulation of securities lending and repo. It was published in the EU Official Journal on 23 December 2018.

<span class="mw-page-title-main">Capital Markets Union</span> European economic policy initiative

The Capital Markets Union (CMU) is an economic policy initiative launched by the former president of the European Commission, Jean-Claude Junker in the initial exposition of his policy agenda on 15 July 2014. The main target was to create a single market for capital in the whole territory of the EU by the end of 2019. The reasoning behind the idea was to address the issue that corporate finance relies on debt (i.e. bank loans) and the fact that capital markets in Europe were not sufficiently integrated so as to protect the EU and especially the Eurozone from future crisis. The Five Presidents Report of June 2015 proposed the CMU in order to complement the Banking union of the European Union and eventually finish the Economic and Monetary Union (EMU) project. The CMU is supposed to attract 2000 billion dollars more on the European capital markets, on the long-term.

<span class="mw-page-title-main">Regulation of ESG rating in the European Union</span> First regulation of ESG rating in the EU

Regulation of ESG rating in the European Union are proposed European Union regulations of environmental, social, and corporate governance (ESG) rating activities' transparency and integrity to improve clarity in the EU's ESG rating processes. The regulations were first designed after 2020 and an amended draft was published in 2023.

References

  1. ↑ "Packaged Retail and Insurance-Based Investment Products (PRIIPs)". European Commission.
  2. ↑ "Regulation (EU) No 1286/2014 of the European Parliament and of the Council of 26 November 2014 on key information documents for packaged retail and insurance-based investment products (PRIIPs)". European Commission.
  3. ↑ "Packaged Retail and Insurance-Based Investment Products (PRIIPs)". EIOPA.
  4. ↑ "PRIIPs - Overview and FAQs". HSBC.
  5. ↑ "ESAs invite stakeholders' input on PRIIPs review". European Supervisory Authorities.
  6. ↑ "Joint Consultation Paper concerning - amendments to the PRIIPs KID" (PDF). European Supervisory Authorities.
  7. ↑ "A Quantitative Framework to Assess the Risk-Reward Profile of Non-Equity Products". RiskBooks.
  8. ↑ "A Quantitative risk-based approach to the transparency on Non-Equity Products". Consob - The Italian Securities and Exchange Commission.
  9. ↑ "Risk Transparency via performance scenario". Movement4RiskTransparency.
  10. ↑ "Call for Input: PRIIPs Regulation – initial experiences with the new requirements" (PDF). Financial Conduct Authority.
This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.