In the hullabaloo of Christmas and getting our aggregated rate approved by the regulator, we missed this very important regulatory Q&A that was issued by ESMA on December 18th 2017.  Amongst the various clarifications, they deal with the following question in Section 9 under ‘Costs and Charges’:

Question 8 [Last update: 6 June 2017]

Should the PRIIPs methodology also be applied when calculating costs and charges of
financial instruments that do not fall within the scope of PRIIPs?

Answer 8

PRIIPs defines a ‘packaged retail investment product’ in Article 4(1). Some financial
instruments may be out of the scope of PRIIPs because (1) they are not packaged products; or (2) they are packaged products, but they are not sold to retail investors.

Examples of (1) are corporate shares or sovereign bonds. An example of (2) might be an alternative investment fund that is only available for sale to professional clients.

For financial instruments in category (1) above, it would be reasonable to conclude that the
PRIIPs cost methodology would not apply.

For financial instruments in category (2) above, the methodology described in Annex VI of the PRIIPs RTS appears relevant and investment firms would be expected to use it to calculate the financial instrument’s costs.

ESMA notes that the calculation of costs, for instance with regard to using simulated or historical data, would be expected to be performed in line with the requirements set out in PRIIPs.

Annex VI, Point 17 of the PRIIPs RTS reads as follows:

“In calculating the costs associated with foreign exchange, the arrival price must
reflect a reasonable estimate of the consolidated price, and must not simply be the
price available from a single counterparty or foreign exchange platform, even if an
agreement exists to undertake all foreign exchange transactions with a single
counterparty”.

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