ESMA’s latest Q&A: which key topics are covered and how has it impacted the AFG?

The European Securities and Markets Authority (ESMA) published on 17 November, together with EBA and IOEPA, a Q&A on the RTS of the SFDR Delegated Regulation (Commission Delegated Regulation (EU) 2022/1288), just six weeks before coming into force.

The Q&A clarifies a number of points, including those relating to principal adverse impacts (PAIs) and taxonomic alignment in pre-contractual documents, information on the SGP’s website and periodic reports.

PRIIPS: ESMA’s Q&A

The end of 2022 was marked by the publication of several Q&A aimed at clarifying the expectations related to the implementation of the PRIIPs regulation on 1 January 2023.

ESMA published an update of its Q&A on 14 November 2022.

Some 40 new questions are addressed under the following headings:

• General topics
• The “What is this product” section:
  • Distinction between active and passive management.
  • Information for index funds and UCITS ETFs.
• Determination of market risk:
  • Assessment of the level of risk for Tier 1 instruments that are priced less than once a month.
  • VaR calculation method for certain types of instruments.
• Performance scenarios.
• Past performance:
  • First year of a fund.
  • Change of benchmark during the period.
  • Presentation of historical performance of benchmarks.
• The treatment of derivatives:
  • Case of leveraged products
• Investment funds:
  • Details for multi-unit and umbrella funds
• Products with early redemption options:
  • Investment period to be considered in performance scenarios.
• Calculation of the synthetic cost indicator (Annex VI of the RTS):
  • Special case of a 0% net performance.
• Presentation of costs (Annex VII of the RTS):
  • Information to be included in the line “Performance-related fees” including when the net performance of the financial product is zero.

Publication by the AFG of its PRIIPs Q&A on 25 November 2022 following ESMA’s recent update

In response to ESMA’s new publication, the AFG has completed its own Q&A, originally published on 19 May 2022 and subsequently updated on 7 July 2022.

The main updates relate to:

• Performance scenarios:
  • Specific case of changes in investment strategy.
  • Special case of unlisted employee share ownership funds.
• Cost disclosure:
  • Clarification of the information to be used when the actual entry fees are not known.
  • Treatment of indirect costs for funds of funds.
  • Presentation of turnover fees.

ESMA’s revised version of answers given in previous PRIIPs Q&A

There was a subsequent revision of some answers given in previous Q&A’s. The key issues concerned are as follows:

• Performance scenarios.
• Presentation of the CID when the recommended investment period is less than one year.
• Treatment of derivatives:
  • Provision of “explanatory texts” as provided for in Annex III of the RTS adapted to the use of complex derivatives
• Transaction costs.
• The calculation of the synthetic cost indicator.
• The presentation of costs.