Markets in turmoil and investor information

The Covid-19 pandemic and the lockdown put in place to contain the spread of the virus are a shock for the global economy and are resulting in high volatility in financial markets as well as in a large increase in market, credit and liquidity risks.

In such troubled markets, it is key to provide your investors, whether institutional or retail, with up-to-date information. It is especially key for retail investors as, as noted by ESMA in its public statement from May 6, 2020 on MiFID II code of business obligations, a significant increase in the number of investment accounts opened by retail clients and a surge in trading by these clients has been generally observed since the beginning of the Covid-19 crisis.

Impacts on UCITS KIIDs, PRIIPs KIDs and MiFID ex-ante investor information

The content of retail investor ex-ante information documents (KIIDs, KIDs or MiFID product information) is impacted by the market volatility:

  • The category of risk indicators (SRRI and SRI) may change (if we consider the calendar and how SRI and SRRI are calculated, changes of indicators may be observed from May or June),
  • A re-assessment of product risks may be required considering the market situation,
  • The PRIIPs KID moderate performance scenario may have changed by more than 5 percentage points,
  • The cost & charges of the product may have significantly varied.

It is particularly critical not to ignore changes in the PRIIPs KID performance scenarii as they give an indication of the fund future possible returns.

Such impacts may justify a re-publication of the investor information document and its dissemination to the distribution network in a timely manner.

ESMA reaffirms the importance of accurate ex-ante investor information in its public statement[1]:

[…]

4.  In this context, ESMA reminds firms of their obligation to act honestly, fairly and professionally in accordance with the best interests of their clients when providing investment or ancillary services and to comply with all relevant MiFID II conduct of business and related organisational requirements. In particular, ESMA points to the product governance, information disclosure, suitability and appropriateness requirements.

[…]

7.  Firms shall provide appropriate information in good time to clients or potential clients with regard, inter alia, to the investment firm and its services and the financial instruments offered. All information provided to clients shall be fair, clear and not misleading.

[…]

Importance of an ongoing monitoring of investor information

More than ever, in the current economic environment, it is of the upmost importance to have strong product governance and monitoring processes in place.

EFA is monitoring the UCITS KIID and PRIIPs KID risk and performance key indicators on behalf of its clients, is immediately alerting them on any change requiring the validation of new indicators and a document re-publication and is offering the flexibility to validate the revised indicators online.

In the same manner EFA is monitoring costs and charges published in these documents as well as in the EMT and is giving its clients the possibility to set-up their own variation thresholds to trigger alerts.

As a fund administrator, EFA has all necessary fund data to guarantee an ongoing and reactive monitoring process.

Upon client request, EFA is integrating without delay any change in the narrative parts of a document (investment policy, risks or target markets).

A swift production process and dissemination afterwards ensure that your investors have promptly access to updated and non-misleading information in compliance with the regulation.

Interested in discovering EFA’s strong experience and capabilities with UCITS KIIDs, PRIIPs KIDs or MiFID data?
Contact us : https://www.efa.eu/en/contact-us/luxembourg

 

[1] ESMA PUBLIC STATEMENT on “COVID-19: Reminder of firms’ MiFID II conduct of business obligations in the context of increasing retail investor activity” dated May 6, 2020