EUROPEAN UNION: Fund Disclosure Requirements under MiFID II and PRIIPS

Friday November 17 2017

It has been reported that one specific point that is attracting a lot of attention in relation to MiFID II is that product manufacturers/asset managers (and, by default, distributors) are required to define “target markets” for each of their funds. This is a new requirement.

Each EU Member State may have its own definition of target market, which adds to the complexity. This is a challenge for both the product manufacturer/asset manager and the distributor. Both will need to determine the appropriate strategy for defining target markets. It must then be produced and shared across the distribution chain.

Both parties have to put in place new communication, governance and cooperation arrangements to make sure the relevant information is shared. This is particularly the case if a fund is in breach of the target market rules and is therefore mis-sold.

Asset managers now have a larger scope of funds impacted by transparency regulations and need to ensure reporting updates when there is a significant variation in the costs of the product. They have to efficiently produce and check data on a regular basis, thereby managing larger data volumes will now be, without question, part of the process.

Differences in UCITS KIID and PRIIPS KID regulations are evident in the higher level of complexity of the latter. Particularly as regards the calculation of costs and charges, PRIIPS introduces additional requirements on transaction costs. Moreover, in the area of performance and risk indicators, PRIIPS does away with the past performance methodology and requires product developers to calculate future performance in different market scenarios.

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