Changes to the PRIIPs KID regulation: What you need to know and do

Background on the PRIIPs regulation

The PRIIPs regulation was implemented by the European Union in 2018 and aims to improve transparency and comparability across PRIIPs in the EU.

An important component of the regulation is the obligation for PRIIPs manufacturers and distributors to produce a Key Information Document (“KID”), as well as keep it up to date. The KID is a document that follows a prescribed format covering several information points such as basic details on the vehicle and its investment objectives, transaction costs, a summary risk indicator, and performance scenarios under various market conditions.

Transaction costs

A key section of a PRIIPs KID focuses on the transaction costs incurred by the PRIIP. These costs must be calculated on an annualised basis, based on an average of the transaction costs incurred by the entity over the previous 3 years.

Transaction costs include both explicit and implicit transaction costs. To date, UCITS and AIFs have benefited from two methodologies for the calculation of implicit costs:

1. Arrival price methodology; and
2. New PRIIPs methodology.

What is changing for implicit transaction costs?

From January 1 2025, UCITS and AIFs will no longer be able to calculate implicit transaction costs using the New PRIIPs methodology, meaning that the arrival price methodology will need to be applied, and along with it the requirement to capture 3 years of transaction costs as mentioned above.

In the absence of timestamps for orders placed, it is permissible to use the opening price of the investment on the day of the transaction as an arrival price or, where the opening price is not available, the previous closing price.

For further details please refer to Annex VI of the Commission Delegated Regulation EU 2017/653  and the ESMA Q&A on PRIIPs KIDS.on PRIIPs KIDS.

Getting ready for compliance

The switch to the arrival price methodology means PRIIPs must get ready well ahead of January 1 2025 to ensure adequate identifying, sourcing, and testing of arrival price related data from January 1 2022 onwards.

What about the UK?

Having left the EU, the UK has started examining various EU regulations transposed into its local regulatory framework, with the PRIIPS Regulation being one of them. In Q4 2023, as part of the Edinburgh Reforms, the UK Government outlined its intention to repeal and replace the EU-inherited PRIIPs Regulation by a Consumer Composite Investments (Designated Activities) Regulations 2024. The CCI Regulations, at the time of this paper, are still in draft and further updates are expected in 2024.

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