PRIIPs Reporting Services
Since the start of 2018 producers and sellers of retail packaged products have been required to produce a Key Investor Document ("KID"), which replaces the old KIID document. This change (which will come to the UCITS world in 2020) has proven to be a challenge for smaller fund managers, as well as for some larger players. The regulatory technical standard combines exacting legislative requirements with complex and prescriptive quantitative analysis. The result is a single document that creates a clear overview of the product for the consumer, but the process of distilling all of the data and analytics down to a single document is a significant undertaking and requires a specialist skillset. RiskSave are led by a team of certified risk managers whose experience covers compliance, risk and quantitative modelling and are best placed to meet this challenge. RiskSave are the only firm in London who guarantee your KID will be signed off by a certified FRM.
RiskSave review the deal documentation, identifying the key features and developing an understanding of the mechanisms for risk acquisition and transmission to the end buyer. This will guide the key process of the categorisation of the PRIIP, which in turn will determine the process for constructing the Single Risk Indicator ("SRI").
Proxy Selection or Construction
For new products, without a long trading history, producing a KID requires the construction of a representative proxy. This can be relatively simple if the product is tracking a benchmark, but for truly innovative investments this may require a back-filled trading history based on trading signals from an algorithm - for instance, in the case of artificial intelligence or machine learning based allocations.
Depending on the categorisation of the PRIIP, the calculation of the Single Risk Indicator can require anything from statistical analysis of historical volatility to a full simulation of prospective returns and principal component analysis of yield curves, combined with a deep understanding of the embedded credit risk.
Quantitative risk is a core strength of RiskSave whose founders possess degrees in economics, mathematics and financial mathematics from universities such as the LSE and Cambridge.
The PRIIPs regulations require that new investors are given realistic information on the potential performance of the product in a variety of market conditions. With the detailed modelling already undertaken, RiskSave can produce a full range of return patterns according to the prescriptive rules in the technical standard.
Total Cost Analysis
The advent of the KID means that buyers of packaged products need to be given a full insight into the costs associated with investing - anything that will reduce returns needs to be included from bid-offer spreads and manager fees, to the cost of financing and liquidity facilities. The holistic understanding RiskSave gain from the rigorous modelling process means that you can have confidence that the calculated reduction in yield is clear, fair and not misleading to your customers.
Monitoring and Revision
The KID you receive at the end of this process will not be final. Regulations require that the information is checked for accuracy and updated at least annually. However, is is also necessary to have processes in place to monitor this risk ratings and other information on an on-going basis. RiskSave can provide a fully out-sourced solution for monitoring and updating the KID, reducing your regulatory risks.