Could an artificially created “synthetic” proxy be considered an appropriate proxy in accordance with the PRIIPs RTS Annex II and Annex IV?

A proxy can only be considered appropriate if it is based on actual available market data or prices of existing products, reference values or instruments that are comparable to the PRIIP or its underlying assets. The use of synthetic or artificial proxies (that are, for example, created using estimations, artificial intelligence models or algorithms) to generate price data is not consistent with the PRIIPs Delegated Regulation which refers to the use of actual historical prices. The prices of an appropriate proxy should be determined based on a relatively simple and established method (i.e. not based on an artificial intelligence model) and be verifiable. The PRIIPs Delegated Regulation, for example in points 5, 6, 9 and 10 of Part 1 of Annex II, states that a proxy is appropriate if that proxy provides the necessary data, which is not available for the PRIIP itself or its underlying assets. Point 4(c) of part 1 of Annex II of the PRIIPs Delegated Regulation covers the case that there is neither sufficient market data for PRIIP itself nor an appropriate benchmark or proxy with sufficient market data. While the ability to use an artificial proxy would imply that an appropriate proxy would always exist. The criteria in point 16 of Annex IV of the PRIIPs Delegated Regulation on the use of appropriate benchmarks and proxies are also based on the existence of actual and verifiable historical data for the proxy.