By Ulf Herbig, Specialist – Business Project Management, KNEIP
The upcoming PRIIPs regulation, due to go live in January 2018, aims to increase transparency and comparability of packaged retail and insurance-based investment products through the issue of a disclosure statement called a Key Information Document (KID).
To make this less burdensome, banks and asset managers have the choice to use a European PRIIPs Template (EPT), which has been designed to provide the minimum level of data to insurers needed to comply with the regulations. The EPT will include information on: 1) features of the product; 2) risks; 3) reward profile; 4) costs, as well as comparable information from the 5) UCITS KIID.
At this stage, it is crucial that asset managers determine whether they can comply with the regulations in-house, or need to appoint a third party to help them.
A Two-Way Street
One important issue that few managers have fully grasped is that UCITS funds have a grandfathering period until end of 2019. On the surface, this is good news as it means they will not need to immediately comply with PRIIPs. However, from a commercial perspective, it is in the interests of UCITS fund managers to comply with PRIIPs now.
Why? Because insurance companies selling their funds will still need PRIIPs-compliant information. If an insurer cannot provide information on the funds they are offering, then they will no longer be compliant to sell those funds.
UCITS managers will, by proxy, need their data to be ‘PRIIPs-ready’ come January.
One of the challenges here is that, unlike the regular distribution process with MiFID-regulated entities (banking platforms etc.), there are often no such distribution agreements in place with insurers. Many asset managers do not know exactly which insurer is selling their fund(s) unless the insurer is actively contacting them.
To overcome this, platforms like ours have been designed to facilitate the two-way flow of information. We support insurers by connecting with the asset managers, who supply us with all the necessary fund information (i.e. EPT), and at the same time support the asset managers by disseminating information to the insurers who they are selling the funds to.
Another advantage of two-way data sharing on a platform like ours, is that through a set of programmed rules and intelligent automation, asset managers can accurately calculate risk, performance and costs.
This is done through:
– Individual mapping of accounts for ongoing charges, and asset classes for transaction costs
– Clear oversight of all transaction cost methods i.e. arrival price and new PRIIP
– Automatic monitoring of calculations to ensure regulatory compliant results, and
– Sourcing of market data.
This capability provides regular calculation information to comply with PRIIPs and MiFID II, and also aids in the production for EPT and EMT’s.
That dual sharing of data between manufacturers and distributors – be they MiFID-compliant entities with EMT or PRIIPs-compliant insurers with EPT– not only means that asset managers only have to worry about sending one set of data, it also means they are supporting their distribution partner complying with two distinct regulations, and gaining increased transparency on who their funds are being sold to.
In other words, asset managers only have to integrate their data once.
– one vendor;
– one data source – leverage of cross referenced information, such as product static data and cost information (both used in EPT & EMT);
– cost and time efficiencies.
Insurers have the option, if they wish, to receive either PRIIPS-compliant data or UCITS KIID data from the asset manager. However, some asset managers are still of the opinion that because they produce the UCITS KIID, they don’t need to do anything else.
When talking to clients, I also ask them: ‘What would you do if an insurer came to you with a subscription of EUR10 million but said they wouldn’t allocate unless they received PRIIPs-compliant data?’
Under PRIIPs regulation, whether an asset manager supplies just a UCITS KIID is not their choice. It’s up to the insurer under the PRIIPs RTS – article 14.
The platform solution
KNEIP’s digital platform solution offers enormous potential for efficiency gains. Moreover, improved operational effectiveness can be achieved by combining and connecting the data:
– Efficiency gains: A single platform approach will pave the way to leaner and more cost effective operations. The potential automation ability is greatly escalated, resulting in reduced operational headcount and cost.
– Operational effectiveness: Unifying data on one platform covering all essential output requirements can unlock unchartered territories of operational efficiency. Cross sharing of overlapping data from a single source improves consistency and quality of output data and accelerates time to market without compromising standards.
– Risk mitigation: Whereas other providers use junior staff and a number of manual processes, the platform leverages the full expertise of KNEIP’s experienced people in combination with automation.
– Sustainable compliance: One source of data, managed and shared on one platform opens new potential for governance and compliance activities and improvements. This can be achieved at the same time investment to cope with new regulations would be decreased.
One input…multiple outputs
We have defined standard specifications on the platform that allow us to quickly integrate clients because of the dovetailing of our MIFID II and PRIIPs data solution.
We cover the full value chain, in terms of data collection, calculation, translation, production, reformatting and dissemination of data to the necessary destination. Firms should not underestimate the complexity of those end destinations because they might have individual transfer methods, different formats in terms of how they want to receive the information and so on.
We handle all of that complexity. All the asset manager has to do is supply the data (one input). We then perform all actions to ultimately disseminate the required outputs to the end destination (multiple outputs).
Given the nuances of European regulation, knowing that all of their fund data simultaneously complies with PRIIPs and MIFID II should make asset managers’ lives a notch less stressful.