PRIIPS RTS (2017 version)

Information relating to the type of the PRIIP in the section entitled ‘What is this product?’ of the key information document shall describe its legal form.

Information stating the objectives of the PRIIP and the means for achieving those objectives in the section entitled ‘What is this product?’ of the key information document shall be summarised in a brief, clear and easily understandable manner. That information shall identify the main factors upon which return depends, the underlying investment assets or reference values, and how the return is determined, as well as the relationship between the PRIIP’s return and that of the underlying investment assets or reference values. That information shall reflect the relationship between the recommended holding period and the risk and reward profile of the PRIIP.
Where the number of assets or reference values referred to in the first subparagraph is such that specific references to all of them cannot be provided within a key information document, only the market segments or instrument types in respect of the underlying investment assets or reference values shall be identified.

The description of the type of retail investor to whom the PRIIP is intended to be marketed in the section entitled ‘What is this product?’ of the key information document shall include information on the target retail investors identified by the PRIIP manufacturer, in particular depending on the needs, characteristics and objectives of the type of client for whom the PRIIPs is compatible. This determination shall be based upon the ability of retail investors to bear investment loss and their investment horizon preferences, their theoretical knowledge of, and past experience with PRIIPs, the financial markets as well as the needs, characteristics and objectives of potential end clients.

The details of insurance benefits in the section entitled ‘What is this product?’ of the key information document shall include in a general summary, namely, the key features of the insurance contract, a definition of each benefit included, with an explanatory statement indicating that the value of those benefits is shown in the section entitled ‘What are the risks and what I could get in return‘ and information which reflects the typical biometric characteristics of the target retail investors, showing the overall premium, the biometric risk premium that forms part of that overall premium and either the impact of the biometric risk premium on the investment return at the end of the recommended holding period or the impact of the cost part of the biometric risk premium taken into account in the recurring costs of the 'Costs over the time table' calculated in accordance with Annex VII. Where the premium is paid in the form of a single lump sum, the details shall include the amount invested. Where the premium is paid periodically, the number of periodic payments, an estimation of the average biometric risk premium as a percentage of the annual premium, and an estimation of the average amount invested shall be included in the information.
The details referred to in the first subparagraph shall also include an explanation of the impact of the insurance premium payments, equivalent to the estimated value of insurance benefits, on the returns of the investment for the retail investor.

The information relating to the term of the PRIIP in the section entitled ‘What is this product?’ of the key information document shall include all of the following:

1. the maturity date of the PRIIP or an indication that there is no maturity date;
2. an indication of whether the PRIIP manufacturer is entitled to terminate the PRIIP unilaterally;
3. a description of the circumstances under which the PRIIP can be automatically terminated, and the termination dates, if known.

In the section entitled ‘What are the risks and what could I get in return?’ of the key information document, PRIIP manufacturers shall apply the methodology for the presentation of risk as set out in Annex II, include the technical aspects for the presentation of the summary risk indicator as set out in Annex III and comply with the technical guidance, the formats and the methodology for the presentation of performance scenarios, as set out in Annexes IV and V.

In the section entitled ‘What are the risks and what could I get in return?’ of the key information document, PRIIP manufacturers shall include the following:

1. the level of risk of the PRIIP in the form of a risk class by using a summary risk indicator having a numerical scale from 1 to 7;
2. an explicit reference to any illiquid PRIIP or PRIIP with materially relevant liquidity risk, as defined in Part 4 of Annex II, in the form of a warning to this effect in the presentation of the summary risk indicator;
3. a narrative below the summary risk indicator explaining that if a PRIIP is denominated in a currency other than the official currency of the Member State where the PRIIP is being marketed, the return, when expressed in the official currency of the Member State where the PRIIP is being marketed, may change depending on currency fluctuations;
4. a brief description of the PRIIP´s risk and reward profile and a warning to the effect that the risk of the PRIIP may be significantly higher than the one represented in the summary risk indicator where the PRIIP is not held to maturity or for the recommended holding period, where appropriate;
5. for PRIIPs with contractually agreed-upon early exit penalties or long disinvestment notice periods, a reference to the relevant underlying conditions in the section ‘How long should I hold it and can I take money out early?’;
6. an indication of the possible maximum loss, and information that the investment may be lost if it is not protected or where the PRIIP manufacturer is unable to pay out, or that necessary additional investment payments to the initial investment may be required and that the total loss may significantly exceed the total initial investment.

PRIIP manufacturers shall include four appropriate performance scenarios, as set out in Annex V in the section entitled ‘What are the risks and what could I get in return?’ of the key information document. Those four performance scenarios shall represent a stress scenario, an unfavourable scenario, a moderate scenario and a favourable scenario.

For insurance-based investment products, an additional performance scenario shall be included in the section entitled ‘What are the risks and what could I get in return?’ of the key information document reflecting the insurance benefit the beneficiary receives where a covered insured event occurs.

For PRIIPs that are futures, call options and put options traded on a regulated market or on a third-country market considered to be equivalent to a regulated market in accordance with Article 28 of Regulation (EU) 600/2014 of the European Parliament and of the Council, performance scenarios shall be included in the form of pay-off structure graphs as set out in Annex V in the section entitled ‘What are the risks and what could I get in return?’ of the key information document.

PRIIP manufacturers shall apply the following in the section entitled ‘What are the costs?’ of the key information document:

1. the methodology for the calculation of costs set out in Annex VI;
2. the ‘Costs over time’ and ‘Composition of costs’ tables to information on costs, as set out in Annex VII in accordance with the relevant technical guidance therein.

In the ‘Costs over time’ table in the section entitled ‘What are the costs?’ of the key information document, PRIIP manufacturers shall specify the summary cost indicator of the total aggregated costs of the PRIIP as a single number in monetary and percentage terms for the different time periods set out in Annex VI.

In the ‘Composition of costs’ table in the section entitled ‘What are the costs?’ of the key information document, PRIIP manufacturers shall specify the following:

1. any one-off costs, as entry and exit costs, presented in percentage terms;
2. any recurring costs, as portfolio transaction costs per year, and other recurring costs per year, presented in percentage terms;
3. any incidental costs, such as performance fees or carried interest, presented in percentage terms.

PRIIP manufacturers shall insert a description of each of the different costs included in the ‘Composition of costs’ table in the section entitled ‘What are the costs?‘ of the key information document, specifying where and how such costs may differ from the actual costs the retail investor may incur or may depend on the retail investor choosing to exercise or not exercise certain options.

PRIIP manufacturers shall indicate in the section entitled ‘Other relevant information’ of the key information document any additional information documents that may be provided, and whether such additional information documents are made available based on a legal requirement or only at the request of the retail investor.

The information included in the section entitled ‘Other relevant information’ of the key information document may be provided in summary format, including a link to the website where further details other than the documents referred to in paragraph 1 are made available.

In the section entitled ‘What are the risks and what could I get in return?’, by way of derogation from paragraphs 2(a) and 3 of Article 3, PRIIP manufacturers shall specify the following:

1. the range of risk classes of all underlying investment options offered within the PRIIP by using a summary risk indicator having a numerical scale from 1 to 7, as set out in Annex III,
2. a statement indicating that the risk and return of the investment varies on the basis of the underlying investment option;
3. a brief description on how the performance of the PRIIP as a whole depends on the underlying investment options;
4. an indication where the specific information on each underlying investment option is to be found.

Where PRIIP manufacturers use the key investor information document in accordance with Article 14(2), for the purposes of specifying the risk classes referred to in point (a) of paragraph 1, they shall use the synthetic risk and reward indicator pursuant to Article 8 of Regulation (EU) No 583/2010 in relation to UCITS or non-UCITS funds as underlying investment options.

In the section entitled ‘What are the costs?’, by way of derogation from Article 5(1)(b), PRIIP manufacturers shall specify the following:

1. the range of costs for the PRIIP in the 'Costs over time' and 'Composition of costs' tables set out in Annex VII,
2. a statement indicating that the costs to the retail investor vary on the basis of the underlying investment option;
3. an indication where the specific information on each underlying investment option is to be found.

Notwithstanding the requirements laid down in Article 5(1)(a), and by way of derogation from points 12 to 20 of Annex VI, where PRIIP manufacturers use the key investor information document in accordance with Article 14(2), they may apply the methodology set out in point 21 of Annex VI to existing UCITS or non-UCITS funds.

Where PRIIP manufacturers use the key investor information document in accordance with Article 14(2) with UCITS or non-UCITS funds as the only underlying investment options, by way of derogation from Article 5, they may specify the range of charges for the PRIIP in accordance with Article 10 of Regulation (EU) No 583/2010.

In relation to the specific information referred to in Articles 11, 12 and 13, PRIIP manufacturers shall include for each underlying investment option – all of the following:

1. a comprehension alert, where relevant;
2. the investment objectives, the means for achieving them, and the intended target market in accordance with paragraphs 2 and 3 of Article 2;
3. a summary risk indicator and narrative, and performance scenarios in accordance with Article 3;
4. a presentation of the costs in accordance with Article 5.

By way of derogation from paragraph 1, PRIIP manufacturers may use the key investor information document drawn up in accordance with Articles 78 to 81 of Directive 2009/65/EC to provide specific information for the purposes of Articles 11 to 13 of this Delegated Regulation where at least one of the underlying investment option referred to in paragraph 1 is a UCITS or non-UCITS fund referred to in Article 32 of Regulation (EU) No 1286/2014.

PRIIP manufacturers shall review the information contained in the key information document every time there is a change that significantly affects or is likely to significantly affect the information contained in the key information document and, at least, every twelve months following the date of the initial publication of the key information document.

The review referred to in paragraph 1 shall verify whether the information contained in the key information document remains accurate, fair, clear, and non-misleading. In particular, it shall verify the following:

1. whether the information contained in the key information document is compliant with the general form and content requirements under Regulation (EU) No 1286/2014, or with the specific form and content requirements laid down in this Delegated Regulation;
2. whether the PRIIP´s market risk or credit risk measures have changed, where such a change has the combined effect that necessitates the PRIIP´s move to a different class of the summary risk indicator from that attributed in the key information document subject to review;
3. whether the mean return for the PRIIP’s moderate performance scenario, expressed as an annualised percentage return, has changed by more than five percentage points.

For the purposes of paragraph 1, PRIIP manufacturers shall establish and maintain adequate processes throughout the life of the PRIIP where it remains available to retail investors to identify without undue delay any circumstances which might result in a change that affects or is likely to affect the accuracy, fairness or clarity of the information contained in the key information document.

PRIIP manufacturers shall without undue delay revise the key information document where a review pursuant to Article 15 concludes that changes to the key information document need to be made.

PRIIP manufacturers shall ensure that all sections of the key information document affected by such changes are updated.

The PRIIP manufacturer shall publish the revised key information document on its website.

The person advising on or selling a PRIIP shall provide the key information document sufficiently early so as to allow retail investors enough time to consider the document before being bound by any contract or offer relating to that PRIIP, regardless of whether or not the retail investor is provided with a cooling off period.

For the purposes of paragraph 1, the person advising on or selling a PRIIP shall assess the time needed by each retail investor to consider the key information document, taking into account the following:

1. the knowledge and experience of the retail investor with the PRIIP or with PRIIPs of a similar nature or with risks similar to those arising from the PRIIP;
2. the complexity of the PRIIP;
3. where the advice or sale is at the initiative of the retail investor, the urgency explicitly expressed by the retail investor of concluding the proposed contract or offer.

The overall summary risk indicator (SRI) is assigned according to the combination of the CRM and the MRM classes, in accordance with the following table:

The PRIIP manufacturer shall monitor market data relevant to the calculation of the MRM class and, if the MRM class changes to a different MRM class, the PRIIP manufacturer shall attribute the corresponding MRM class to the MRM class which the PRIIP has matched for the majority of the reference points over the preceding four months.

The PRIIP manufacturer shall also monitor credit risk criteria relevant to the calculation of the CRM and, if according to these criteria the CRM would change to a different CRM class, the PRIIP shall re-attribute the CRM to the relevant CRM class.

A review of the MRM class shall always be carried out following a decision by the PRIIP manufacturer in respect of the PRIIP´s investment policy and/or strategy. In those circumstances, any changes to the MRM shall be understood as a new determination of the PRIIP´s MRM class, and consequently, be carried out according to the general rules concerning the determination of an MRM class for the PRIIP category.

A PRIIP shall be considered as having a materially relevant liquidity risk where either of the following criteria are fulfilled:

1. the PRIIP is admitted to trading on a secondary market or alternative liquidity facility and there is no committed liquidity offered by market makers or the PRIIP manufacturer, so that the liquidity depends only on the availability of buyers and sellers on the secondary market or alternative liquidity facility, taking into account that regular trading of a product at one point in time does not guarantee the regular trading of the same product at any other point in time;
2. the average liquidity profile of the underlying investments is significantly lower than the regular reimbursement frequency for the PRIIP, when and to the extent liquidity offered by the PRIIP is conditional to the liquidation of its underlying assets;
3. the PRIIP manufacturer estimates that the retail investor may face significant difficulties in terms of time or costs for disinvesting during the life of the product, subject to specific market conditions.

A PRIIP shall be considered illiquid, whether contractually or not, if either of the following criteria are fulfilled:

1. the PRIIP is not admitted to trading on a secondary market, and no alternative liquidity facility is promoted by the PRIIP manufacturer or a third party, or the alternative liquidity facility is subject to significant limiting conditions, including significant early exit penalties or discretionary redemption prices, or where there is an absence of liquidity arrangements;
2. the PRIIP offers potential early exit or redemption possibilities prior to the applicable maturity, but these are subject to significant limiting conditions, including significant exist penalties or discretionary redemption prices, or to the prior consent and discretion of the PRIIP manufacturer;
3. the PRIIP does not offer potential early exit or redemption possibilities prior to the applicable maturity.

A PRIIP shall be considered liquid in all other cases.

The performance scenarios shall be presented in a way that is fair, accurate, clear and not misleading, and that is likely to be understood by the average retail investor.

Where performance scenarios may be shown only at maturity or at the end of the recommended holding period, as for the PRIIPs referred to in point 21 of Annex IV, that shall be clearly explained in the narrative set out in element E in part 2 of this Annex.

In all cases, the narrative explanations set out in elements A, B, C, D and F in part 2 of this Annex shall be included, except in the case of Category 1 PRIIPs referred to in point 17 of Annex IV, where the narrative explanations set in elements G to K shall be used instead.

Transaction costs shall be calculated on an annualised basis, based on an average of the transaction costs incurred by the PRIIP over the previous three years. Where the PRIIP has been operating for less than three years, transaction costs shall be calculated using the methodology set out in point 21 of this Annex.

The aggregate transaction costs for a PRIIP shall be calculated as the sum of the transaction costs as calculated in accordance with points 9 to 23 of this Annex in the base currency of the PRIIP for all individual transactions undertaken by the PRIIP in the specified period. This sum shall be converted into a percentage by dividing by the average net assets of the PRIIP over the same period.

When calculating the transaction costs incurred by the PRIIP over the previous three years, actual transaction costs must be calculated using the methodology described in points 12 to 18 of this Annex for investments in the following instruments:

1. transferable securities as defined by Article 2 of Commission Directive 2007/16/EC;
2. other instruments that there are frequent opportunities to dispose of, redeem, or otherwise realise at prices that are publicly available to market participants and that are either market prices or prices made available, or validated, by valuation systems independent of the issuer.

Estimates of transaction costs using the methodology described below in points 19 to 20 of this Annex must be used for investments in other instruments or assets.

Where a PRIIP has a pricing mechanism that offsets the impact of dilution from transactions in the PRIIP itself, the amount of benefit accruing to the ongoing holders of the PRIIP from anti-dilution mechanisms may be deducted from the transaction costs incurred within the PRIIP using the following methodology:

1. the monetary amount of any anti-dilution levy, or other payment in connection with a transaction in the PRIIP itself, that is paid to the PRIIP may be subtracted from the total transaction costs
2. the benefit to the PRIIP of issuing units (or otherwise enabling investment in the PRIIP) at a price other than the mid price, or of cancelling units (or otherwise enabling redemption of funds from the PRIIP) at a price other than the mid price, provided that the PRIIP itself receives the benefit, shall be calculated as follows and may be subtracted from the total transaction costs:
   1. the difference between the price of units issued and the mid price, multiplied by the net number of units issued;
   2. the difference between the price of units cancelled and the mid-price, multiplied by the net number of units cancelled.

The actual transaction costs for each transaction shall be calculated on the following basis:

1. for each purchase undertaken by the PRIIP, the price of the instrument at the time the purchase order is transmitted to another person for execution (the purchase ‘arrival price’) shall be subtracted from the net realised execution price of the transaction. The resulting value shall be multiplied by the number of units purchased;
2. for each sale undertaken by the PRIIP, the net realised execution price of the transaction shall be subtracted from the price of the instrument at the time the order to sell is transmitted to another person for execution (the sale ‘arrival price’). The resulting value shall be multiplied by the number of units sold.

The net realised execution price shall be determined as the price at which the transaction is executed, including all charges, commissions, taxes and other payments (such as anti-dilution levies) associated with the transaction, either directly or indirectly, where those payments are made from the assets of the PRIIP.

The arrival price shall be determined as the mid-market price of the investment at the time when the order to transact is transmitted to another person. For orders that are transacted on a day that is not the day that the order was originally transmitted to another person, the arrival price shall be determined as the opening price of the investment on the day of the transaction or, where the opening price is not available, the previous closing price. Where a price is not available at the time when the order to transact is transmitted to another person (due to the order initiated outside market opening hours or in over-the-counter markets where there is no transparency of intraday prices for example), the arrival price shall be determined as the opening price on the day of the transaction or, where the opening price is not available, the previous closing price. Where an order is executed without being transmitted to another person, the arrival price shall be determined as the mid-market price of the investment at the time when the transaction was executed.

Where information about the time when the order to transact is transmitted to another person is not available (or not available to a sufficient level of accuracy), or where information about the price at that time is not available, it is permissible to use as the arrival price the opening price of the investment on the day of the transaction or, where the opening price is not available, the previous closing price. When calculating transaction costs using data prior to 31 December 2017, intra-day prices may be considered as not available.

Costs associated with transactions undertaken by PRIIPs and concerning financial instruments that fall within one of the categories referred to in items 4 to 10 of Section C of Annex I to Directive 2014/65/EU shall be calculated in the following way:

1. for instruments that are standardised and where there is regular trading in the instrument itself (for example an index future on a major equity index), transaction costs shall be calculated with reference to the instrument itself. The arrival price shall be determined as the mid-price of the instrument;
2. for linear instruments that are customised, and where there is no price transparency or regular trading in the instrument itself, transaction costs shall be calculated with reference to the underlying asset(s). The arrival price shall be calculated based on the price(s) of the underlying assets, using appropriate weightings if there is more than one underlying asset. Where the cost of transacting in the instrument is materially higher than the cost of transacting in the underlying asset, this must be reflected in the transaction cost calculation;
3. for non-linear instruments, it is permissible to calculate the transaction costs as the difference between the price paid or received for the instruments and the fair value of the instrument, on the basis described in points 36 to 46 of this Annex.

In calculating the costs associated with foreign exchange, the arrival price must reflect a reasonable estimate of the consolidated price, and must not simply be the price available from a single counterparty or foreign exchange platform, even if an agreement exists to undertake all foreign exchange transactions with a single counterparty.

In calculating the costs associated with orders that are initially entered into an auction, the arrival price shall be calculated as the mid-price immediately prior to the auction.

When estimating transaction costs for assets other than assets as referred to in point 9 of this Annex, the methodology in point 12 of this Annex shall be used and the arrival price shall be calculated as follows:

1. for a sale:
   1. the arrival price shall be calculated as the previous independent valuation price of the asset, adjusted for market movements, where appropriate, using an appropriate benchmark index;
   2. where a previous independent valuation price is not available, the transaction costs must be estimated based on the difference between the transaction price and an appraisal of the fair value of the asset prior to sale;
2. for a purchase:
   1. the arrival price shall be calculated as the previous independent valuation price of the asset, adjusted for market movements, where appropriate, using an appropriate benchmark index, where such a price is available;
   2. where a previous independent valuation price is not available, the transaction costs must be estimated based on the difference between the transaction price and an appraisal of the fair value of the asset prior to purchase.

The transaction cost estimate must not be less than the amount of actual identifiable costs directly associated with the transaction.

For PRIIPs that have been operating for less than 3 years and that invest predominantly in assets as referred to in point 9 of this Annex, transaction costs may be calculated either by multiplying an estimate of portfolio turnover in each asset class with the costs calculated according to the methodology referred to in point (c), or as an average of the actual transaction costs incurred during the period of operation and a standardised estimate on the following basis:

1. for the highest multiple of six months that the PRIIP has been operating, transaction costs shall be calculated on the basis described in points 12 to 18 of this Annex;
2. for the remaining period up to three years, transaction costs shall be estimated by multiplying an estimate of portfolio turnover in each asset class according to the methodology referred to in point (c);
3. the methodology to be used differs depending on the asset class and shall be determined as follows:
   1. For the asset classes indicated in the table below, transaction costs shall be calculated as the average of the estimated cost of transaction (based on bid-ask spreads divided by two) for the relevant asset class under normal market conditions.
      To estimate the cost, one or more reference indexes shall be identified for each asset class. Then, the average bid-ask spreads of the underlying indexes shall be collected. The data collected shall refer to the closing bid-ask spread at the tenth business day of each month during the last year.
      The bid-ask spreads collected shall then be divided by two to obtain the estimated cost of transaction for each point in time. The average of those values is the estimated cost of transaction in each asset class under normal market conditions.
      Asset Classes
      • Government bonds
        • Government bonds and similar instruments developed market rating AAA-A
        • Government bonds and similar instruments developed market different rating below A
      • Government bonds emerging markets (hard and soft currency)
      • Investment grade corporate bonds
      • Other corporate bonds
        • High yield corporate bonds
   2. For the asset classes indicated in the table below, transaction costs (including explicit costs and implicit costs) shall be estimated either by using comparable information or by adding estimates of explicit costs to estimates of half the bid-ask spread, using the methodology described in point (i).
      Asset Classes
      • Liquidity Money
        • market instruments (for the sake of clarity, money markets funds not included)
      • Shares developed markets
        • Large-cap shares (developed markets)
        • Mid-cap shares (developed markets)
        • Small-cap shares (developed markets)
      • Shares emerging markets
        • Large-cap shares (emerging markets)
        • Mid-cap shares (emerging markets)
        • Small-cap shares (emerging markets)
      • Listed derivatives
   3. For the asset classes indicated in the table below, the transaction cost is the average of the observed cost of transaction (based on bid-ask spreads divided by two) in this asset class under normal market conditions.
      When identifying the observed cost of transaction, results of a panel survey may be taken into account.
      Asset Classes
      • OTC
        • OTC Exotic options
        • OTC Plain vanilla options
        • OTC IRS, CDS and similar
        • OTC Swaps and similar instruments (different from IRS, CDS and similar)
        • OTC FX Forwards developed markets
        • OTC FX Forwards emerging markets

Estimates of portfolio turnover for a PRIIP that has been operating for less than one year must be made on a consistent basis with the investment policy disclosed in the offering documents. Estimates of portfolio turnover for a PRIIP that has been operating for more than one year must be consistent with actual portfolio turnover.

For PRIIPs that have been operating for less than three years and that invest predominantly in assets other than assets as referred to in point 9 of this Annex, the PRIIP manufacturer shall estimate the transaction costs on the basis of the fair value method using comparable assets.

To calculate performance related fees, the following steps shall be taken:

1. compute the fees on the basis of historical data covering the last 5 years. The average annual performance fees shall be computed in percentage terms,
2. where a full performance fees history is not available because the fund/share class is new or the fund’s terms have changed due to the introduction of the performance fee or the change of one of its parameters, the abovementioned method shall be adjusted according to the following steps:
   1. take the relevant available history of the performance fees of the fund/share class;
   2. for any years for which data is not available, estimate the return of the fund/share class and, in case of a relative performance fee model, take into account the historical series of the benchmark/hurdle rate; for new funds, their return shall be estimated using the return of a comparable fund or of a peer group. The estimated return shall be gross of all the costs charged to the new fund. Therefore peer groups´ returns need to be adjusted by adding the average relevant costs charged according to the rules of the new fund. For instance, in case of a new class with a different fee structure, the returns of this new class shall be adjusted taking into account the costs of the existing class;
   3. compute the fees from the beginning of the sample period, as required in point (a), until the date of availability of the actual performance fee data of the fund, applying the relevant algorithm to the abovementioned historical series;
   4. concatenate both performance fee series to one series over the full sample period as required in point (a);
   5. compute the performance fees using the methodology referred to in point (a) (average of annual performance fees).

To calculate carried interests, the following steps shall be taken:

1. compute the fees on the basis of historical data covering the last 5 years. The average annual carried interests shall be computed in percentage terms;
2. where a full carried interests history is unavailable because the fund/share class is new or the fund’s terms have changed due to the introduction of carried interests or the change of one of its parameters, the abovementioned method shall be adjusted according to the following steps:
   1. take the relevant available history of the carried interests of the fund/share class;
      • for any years for which data is not available, estimate the return of the fund/ share class,
      • for new funds, their return shall be estimated using the return of a comparable fund or of a peer group. The estimated return shall begross of all the costs charged to the new fund. Therefore peer group’s returns need to be adjusted by adding the average relevant costs charged according to the rules of the new fund. For instance, in case of a new class with a different fee structure, the returns of this new class shall be adjusted taking into account the costs of the existing class.
   2. compute the carried interests from the beginning of the sample period, as required in point (a), until the date of availability of the actual carried interests data of the fund, applying the relevant algorithm to the abovementioned historical series;
   3. concatenate both carried interests series to one series over the full sample period as required in point (a);
   4. compute the carried interests using the methodology referred to in point (a) (average of annual carried interests).

If no carried interests are taken throughout the investment, a warning needs to accompany the indication of zero carried interests in the composition of costs table in order to clarify that a payment of x % of the final return shall take place subsequently to the exit of the investment.

A one-off cost is an entry and exit cost which include initial charges, commissions or any other amount paid directly by the retail investor or deducted from a payment received by or due to the retail investor.

One-off costs are borne by a PRIP other than an investment fund, whether they represent expenses necessarily incurred in its operation, or the remuneration of any party connected with it or providing services to it.

One-off entry costs and charges include, but are not limited to, the following types that shall be taken into account in the cost amount to be disclosed for PRIPs other than investment funds:

1. sales commissions;
2. structuring costs, including market-making costs (spread) and settlement costs;
3. hedging costs (to ensure that the PRIIP manufacturer is able to replicate the performance of the derivative component of the structured product – these costs include transaction costs)
4. legal fees;
5. costs for capital guarantee;
6. implicit premium paid to the issuer.

One-off exit costs and charges include, but are not limited to, the following types that shall be taken into account in the amount to be disclosed for PRIPs other than investment funds:

1. proportional fees;
2. bid-mid spread to sell the product and any explicit costs or penalties for early exit applicable. The estimation of the bid-mid spread shall be done in relation to the availability of a secondary market, to the market conditions and the type of product. In the situation where the PRIIP manufacturer (or a related third party) is the only available counterparty to buy the product on the secondary market, it shall estimate the exit costs to be added to the fair value of the product according to its internal policies;
3. contract-for-difference (CFD) related costs such as:
   1. commissions charged by CFD providers – general commission or a commission on each trade - i.e. on opening and closing a contract;
   2. CFD trading such as bid-ask spreads, daily and overnight financing costs, account management fees and taxes which are not already included in the fair value.

Recurring costs are payments regularly deducted from all payments due to the retail investor or from the amount invested.

Recurring costs include all types of cost borne by a PRIP other than an investment fund whether they represent expenses necessarily incurred in its operation, or the remuneration of any party connected with it or providing services to it.

The following list is indicative but not exhaustive of the types of recurring charge that, where they are deducted or charged separately, shall be taken into account in the amount to be disclosed:

1. costs related to coupon payments;
2. costs of the underlying, if any.

One-off exit costs and charges are exchange fees, clearing fees and settlement fees where known.

Recurring costs are hedging costs borne under normal market conditions and stressed market conditions.

For the purposes of the calculation of the implicit costs embedded in PRIPs, the PRIIP manufacturer shall refer to the issue price and, after the subscription period, to the price available to purchase the product on a secondary market.

The difference between the price and the fair value of the product is considered as an estimation of the total entry costs included in the price. If the PRIIP manufacturer is unable to distinguish the relevant implicit costs to be disclosed as referred to in point 29 of this Annex using the difference between the price and the fair value, it shall liaise with the issuer of the different components of the product, or the relevant body, in order to gather the relevant information on those costs.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions (i.e. an exit price) regardless of whether that price is directly observable or estimated using another valuation technique.

The fair value policy that governs the measurement of the fair value shall set a series of rules including in the following areas:

1. governance;
2. methodology for the calculation of the fair value.

The rules referred to in point 39 of this Annex shall aim at outlining a valuation process that:

1. complies with the applicable accounting standards, in relation to fair value;
2. makes sure that internal pricing models for PRIPs are consistent with the methodologies, modelling and standards used by the PRIIP manufacturer to value its own portfolio under the hypothesis that the product is available for sale or held for trading;
3. is consistent with the level of complexity of the product and the type of underlying;
4. takes into account the issuer credit risk and the uncertainty about the underlying;
5. sets the parameters to identify an active market in order to avoid risk mispricing that could lead in extreme cases to significantly inaccurate estimates;
6. maximises the use of relevant observable market inputs and minimizes the use of unobservable inputs.

The fair value of a structured product shall be determined on the basis of:

1. market prices, where available or efficiently formed;
2. internal pricing models using as an input market values which are indirectly connected to the product, derived from products with similar characteristics (comparable approach);
3. internal pricing models based on inputs which are not derived directly from market data for which estimations and assumptions must be formulated (markto-model approach).

If the fair value cannot be derived from market prices, it shall be calculated using a valuation technique that is able to represent properly the different factors affecting the product payoff structure making maximum use of market data.

The valuation technique referred to in point 42 of this Annex shall consider the following according to the complexity of the product:

1. the use of recent arm’s length market transactions between knowledgeable, professional counterparties;
2. reference to the current market price of another instrument that is substantially the same;
3. the use of an appropriate discounted cash-flow model where the likelihood of each cash flow is determined using an appropriate model of asset price evolution.

In the case of subscription products, the fair value shall be calculated on the date when the product terms are determined. This valuation date shall be close to the beginning of the subscription period. Where long offering periods or high market volatility exists, a criterion to update cost information shall be defined.

Where preliminary terms are used, costs shall be calculated by using the minimum terms of the product.

Where variable subscription prices are used, a procedure on how to incorporate and disclose the cost effect of the varying subscription price shall be defined.

A one-off cost is an entry and exit cost which includes initial charges, commissions or any other amount paid directly by the retail investor or deducted from the first payment or from a limited number of payments due to the retail investor or from a payment upon redemption or termination of the product.

One-off costs are borne by an insurance-based investment product, whether they represent expenses necessarily incurred in its operation, or the remuneration of any party connected with it or providing services to it.

One-off costs include, but are not limited to, the following types of entry costs and charges that shall be taken into account in the amount to be disclosed for insurancebased investment products:

1. structuring or marketing costs;
2. acquisition, distribution, sales costs;
3. processing/operating costs (including costs for the management of the insurance cover);
4. cost part of biometric risk premiums referred to in point 59 of this Annex;
5. costs of holding required capital (up front part to be disclosed insofar as they are charged).

Recurring costs are payments regularly deducted from all payments from the retail investor or from the amount invested or amounts that are not allocated to the retail investor according to a profit sharing mechanism.

The recurring costs include all types of costs borne by an insurance-based investment product whether they represent expenses necessarily incurred in its operation, or the remuneration of any party connected with it or providing services to it.

The following list is indicative but not exhaustive of the types of recurring charge that shall be taken into account in the amount of the 'Other ongoing costs' in table 2 of Annex VII:

1. structuring or marketing costs;
2. acquisition, distribution, sales costs;
3. processing/operating costs (including costs for the management of insurance cover);
4. cost part of biometric risk premiums referred to in point 59 of this Annex;
5. other administrative costs;
6. costs of holding capital (recurring part to be disclosed insofar as they are charged);
7. any amount implicitly charged on the amount invested such as the costs incurred for the management of the investments of the insurance company (deposit fees, costs for new investments, etc.);
8. payments to third parties to meet costs necessarily incurred in connection with the acquisition or disposal of any asset owned by the insurance-based investment product (including transaction costs as referred to in points 7 to 23 of this Annex).

Where an insurance-based investment product invests a part of its assets in UCITS or AIFs, in a PRIIP other than UCITS or AIFs or in an investment product other than a PRIIP, points 5(l), 5(m) and 5(n) of this Annex shall be applied respectively.

Biometric risk premiums are those premiums paid directly by the retail investor or deducted from the amounts credited to the mathematical provision or from the participation bonus of the insurance policy, that are intended to cover the statistical risk of benefit payments from insurance coverage.

The fair value of biometric risk premiums is the expected present value, according to the interest rates referred to in point 71(a) of this Annex, of the future benefit payments from insurance coverage taking into account the following:

1. best estimate assumptions on these benefit payments derived from the individual risk profile of the portfolio of the individual manufacturer;
2. other payoffs related to insurance cover (rebates on biometric risk premiums paid back to the the retail investors, increase of benefit payments, reduction of future premiums, etc.) resulting from profit sharing mechanisms (legal and/or contractual).

Best estimate assumptions on future benefit payments from insurance coverage shall be set in a realistic way.

The estimated future benefit payments shall not include prudency margins or costs for the management of the insurance cover.

For manufacturers within the scope of Directive 2009/138/EC these best estimate assumptions shall be consistent with the respective assumptions used for the calculation of the technical provisions in the Solvency II balance sheet.

The cost part of biometric risk premiums is the difference between biometric risk premiums charged to the retail investor referred to in point 54 of this Annex and the fair value of the biometric risk premiums referred to in point 55 of this Annex.

A PRIIP manufacturer may include the full biometric risk premiums in the calculation of one-off costs or recurring costs in the place of the cost part of those premiums.