At an initial glance, MiFID II and PRIIPs may look like strange bedfellows, but they do share some characteristics which are worth noting in order to take a strategic view on how we should be addressing regulatory reporting and the ever increasing demands it places on us. The overlap between both regulations can be summarised in our presentation here.

1. MIFID II & PRIIPs:
A regulatory double act
At an initial glance, MiFID II and PRIIPs may look like strange bedfellows,
but they do share some characteristics which are worth noting in order to
take a strategic view on how we should be addressing regulatory report-
ing and the ever increasing demands it places on us. The overlap between
both regulations can be summarised on the following slides!
Content by CTO,
Ronan Brennan

2. MiFID II & PRIIPs : A regulatory double act
Scope
In essence, all PRIIPs in-scope products are MiFID in-scope, but not all MiFID in-scope products are PRIIPs
in-scope.The PRIIPs regulation has constrained scope at product type and investor type level. The retail investor
designation in PRIIPs does align with MiFID II, but MiFID II goes further and includes professional investors (and
applicable products) in scope.
Disclosures
Investor protection is at the heart of both MiFID/MiFIR II and PRIIPs. Both regulations place an onus on the
timely provision of a range of disclosure information to investors. This information is supplied to the investor
to facilitate the comparison of different products and to better understand the exposure of those products
to various risk vectors. While both regulations require specific content to be supplied prior to investment, the
prescriptive nature of this direction differs (with PRIIPs being more prescriptive).
Therefore, even though the terminology used in each regulation might be different, the disclosure requirements
for product manufacturers/distributors have some key similarities.The immediate focus for firms will be working
out where they have overlap between PRIIPs and MiFID regime products and working out if they can design the
PRIIPs KID in a way that meets the needs of both regulations.
The range of disclosure types is broad but can be summarised as follows – under cost, risk, performance &
complexity;

3. MiFID II & PRIIPs : A regulatory double act
Disclosures: Cost
Both PRIIPs and MiFID II focus on completeness and product cost disclosures, and indeed the sufficiency of said
disclosures.PRIIPs has a quite prescriptive approach to what exact costs should be disclosed,as well as very clear
direction on how it should be calculated and presented. MiFID II is less prescriptive and does take into account
disclosures which are made under a different EU regulation / directive being equivalent – where the sufficiency
requirement is met. This would mean for example a PRIIPs KID would be sufficient under MiFID II, where as a
UCITS KIID might not, as it does not include transaction costs.
Disclosures: Risk
Key with both regulations is that the disclosure of risk must pass the “fairness” test,with each of the regulations
also have requirements to ensure risk is prominently disclosed i.e.no micro-font footnote style disclosure allowed.
Clearly on PRIIPs, there is a rigid approach to how risks should be disclosed, right down to specific language to be
used as well as the calculation of the SRI analytic which then needs to be reviewed and monitored continuously.
MiFID II does not go as far as to prescribe a specific risk measure to be calculated, but does indicate one should
be developed and used by the firm. A key point on which firms should have a written policy is the situation
where a product is in-scope for MiFID II and PRIIPs – they should document their decision as to whether they
apply the same or a different approach when it comes to disclosing risks to investors.

4. MiFID II & PRIIPs : A regulatory double act
Disclosures: Performance scenarios
In the more recent history of the development of the PRIIPs regulation there has been a consistent
‘under-theme’ to remove and reduce the usage of ‘past performance’ data in the key investor documents.
PRIIPs under the guise of the rejected RTS proposed the use of forward looking performance scenarios from
favourable to moderate to unfavourable scenarios. This included a proviso to allow for the manufacturer to
choose an even more unfavourable scenario, with a growing expectation that this is one area the commission
may choose to look at in the revised RTS. MIFID II on the other hand also specifies standards for the use of
forward looking performance – such that firms have to take account of the following when using such data:
• Periods where performance was positive, as well as negative, have to be used
• Not be based on past performance
• Be based on reasonable assumptions
• Contain warnings on unreliability of the data, and it cannot be used as an indicator of expected future
performance
• Take into account the impact costs, fees & charges – demonstrating their impact on the performance in
question
• Reflect the nature and risks of the specific types of instruments included in the analysis

5. MiFID II & PRIIPs : A regulatory double act
Disclosures: Complexity
Within both PRIIPs and MiFID II there is a focus on highlighting complexity within the product disclosure. In
PRIIPs, there is a comprehension alert requirement to alert investors to products that are potentially more
difficult to understand by the average retail investor. In MiFID II, on the other hand, there is also a complex
product stipulation that prescribes the mandatory offer of advice before investment. Whether a product is
complex or not is driven by an understanding of the product framework itself, as well the percentage weight,
or indeed simple existence of complex underlying investments –with anything beyond exchange traded equity;
vanilla fixed income and money markets being potentially complex. Recent commentary from UK regulators
with respect to complexity treatment of NURS vis-à-vis UCITS under MiFID II has re-assured many firms that
the regulators are seeking a pragmatic path forward –with the position being that just because a NURS (Non-
UCITS retail scheme) is not a UCIT does not automatically make it complex under MiFID II.
Product Governance and Target Market Identification
There is a clear alignment of principles in both PRIIPs and MiFID II on the identification of the target market
for the product in question. Where MiFID II may go further is in the area of product governance and extending
the remit across manufacturer and distributor with indications around how each side should reconcile with the
other to ensure only investors from the target market are invested. The lobby groups are looking for the use of
common language regarding how target markets should be identified and described.This shared language is as
important for the investor, as it is for the industry, and one area in which we expect to see very close alignment
as the RTS/CP documents solidify understanding.

6. MiFID II & PRIIPs : A regulatory double act
Timing and nature of document/data delivery
PRIIPs requires that a Key Investor Document (“KID”) is delivered to the investor prior to investment contract.
MiFID II also requires disclosure of key facts before investment, but the form of the document is not prescriptive
– rather the directive states it must be “fair, clear and not misleading”. Both directives also require information
to be provided to investors “in good time”. PRIIPs aims are consistent with those of MiFID II, and the evolution
of both will address the unevenness of the playing field that funds were dealing with heretofore.
Review
PRIIPs mandates specific review processes and schedules that must be adhered to by product manufacturers.
While PRIIPs does have some specific pointers to specific thresholds thatwould trigger a recalculation/calibration
of the performance scenarios, it is more broad in terms of how managers would determine e.g. if there was
a material change in cost. The KID document and the data therein must be reviewed regularly by the PRIIP
manufacturer, with intervention expected when a review indicates that changes are in order – with a new KID
promptly re-published and pushed to all distribution channels. A similar although wider scoped ‘regular review’
obligation exists under MiFID II with firms required to maintain and operate a review process for the approval
of each product before it is presented to sale to an investor. Within MiFID II, the regulator explicitly directs firms
to ensure their regular review process take into account events “that could materially affect the potential risk
to the identified target market, to assess at least whether the financial instrument remains consistent with the
needs of the identified target market and whether the intended distribution strategy remains appropriate”.

7. MiFID II & PRIIPs : A regulatory double act
Conclusion:
There are some very obvious conclusions here:
• PRIIPs and MiFID are similar but not the same
• It is not a coincidence that industry response groups have teams looking at the overlap and exploring
operation efficiency for the industry
• MIFID II is broader, while PRIIPs is narrower but more prescriptive
• Disclosure requirements in both are very much aligned
• Uncertainty exists with both regulations, although this is expected to be fixed
• The dates for both are likely to line up EOY 2017/SOY 2018
• There is opportunity for the regulator to reduce industry burden by issuing specific written guidance on the
overlap areas
Finally–the investor wants a clean,easy to understand buying experience that allows them to compare products
in a simple manner and to understand risks before investment. Bombarding the client with tens of documents
to cover myriads of regulations, both national and supra-national only results in a confused investor as opposed
to an assured one. The industry players – the regulators, product manufacturers, product distributors and the
myriad lobby groups and associations – all need to work harder to ensure pragmatism wins out.