What aspects should be considered by the manufacturer when determining the RHP of a PRIIP? In accordance with Article 8(3)(g)(ii) of the Regulation and Articles 2(5) and 6 of the Delegated Regulation,

What aspects should be considered by the manufacturer when determining the RHP of a PRIIP? In accordance with Article 8(3)(g)(ii) of the Regulation and Articles 2(5) and 6 of the Delegated Regulation, as well as the RHP, the PRIIP manufacturer needs to consider if there is a minimum required holding period and if there is a maturity date when preparing the KID. The minimum required holding period covers the period of time where the PRIIP does not offer potential early exit or redemption possibilities, if any. The maturity date is the term of the product, where the product has a fixed end date. The RHP represents the view of the PRIIP manufacturer regarding a recommended period of time for the retail investor to hold the product. The dates of these time periods can coincide, e.g. in the case of open-ended products (i.e. where there is no maturity date) that the PRIIP manufacturer considers that the minimum required holding period can be recommended, or e.g. in the case of fixed-term products that the maturity date can be recommended. In many cases such coincidence may be reasonable, for example this is expected to be the case for many investment funds, insurance-based investment products and structured bonds. However, for some PRIIPs it may not be, for example it is expected that for certain derivatives it is not recommended to hold the product until the maturity date. Therefore, the RHP should not automatically be either the minimum required holding period or the maturity date. Rather, when deciding on the RHP, the manufacturer needs to consider how long it might be advisable for the targeted retail investor to be prepared to hold a product in view of the characteristics or underlying financial structure of the product, such as its risk/reward profile, capital guarantees and cost structure. There may also be other considerations, such as the tax implications where these apply at the level of the product, (for example this may be relevant for some insurance-based investment products). Considering that the risk indicator, as well as (some of) the return and costs figures are based on the RHP, the selection of a RHP that is markedly different from how the manufacturer can reasonably anticipate that the PRIIP is likely to be used by the targeted retail investors may increase the risk of misleading those investors as regards the true risks and returns that the PRIIP might provide. The manufacturer may also use evidence of how similar products have been used by the intended retail investors, or when reviewing the KID over time have evidence of how the product has been used by retail investors (in this respect there is a link to the product governance arrangements required by MiFID and IDD). For example in terms of the link between a product’s characteristics and the RHP, for “return target” and guaranteed products the RHP is expected to result from the analysis of the underlying mechanisms of protection or guarantee. Its calculation requires a careful analysis of each component comprised in the financial structure in order to get a clear picture of how any single protection or guarantee mechanism actually works. In “risk target” or “benchmark” products, the RHP is expected to be determined according to the criterion of the costs break-even, given the degree of risk of the product. From the retail investor’s perspective, the RHP is not expected to be less than the minimum time period within which the costs incurred may be amortized, taking into account the risks embedded in their financial engineering. In other words, the link between the risk and the potential returns of the PRIIP can be fully appreciated only over the RHP. The above elements should be considered when preparing the brief description of the reasons for the selection of the RHP (Article 6(a) of the Delegated Regulation) as well as the information on the main factors upon which the return of the product depends in accordance with Article 2(2) of the Delegated Regulation. At the same time, the selection of a RHP by the PRIIP manufacturer does not necessarily mean that only that period would be a reasonable holding period. There may be products where different holding periods are considered equally or similarly viable. This aspect could be reflected in this brief description (Article 6(a) of the Delegated Regulation), including by describing other possible holding periods. However, since the RHP is used as a basis for the risk, performance and cost figures, it should be clear in the section ‘How long should I hold it and can I take money out early?’ the time period that has been selected for the purposes of preparing the KID, including in the highlighted text ‘Recommended [required minimum] holding period: [x]’. Further, considering that retail investors may decide to use the product in a different way, or their personal circumstances may change, the relevant implications of not holding the PRIIP for the RHP should be clearly shown in the KID. For example, the investor should be warned if the risk of the PRIIP is significantly higher if it is held for shorter or longer than the RHP (see Article 3(2)(d) of the Delegated Regulation), as well as regarding the implications of disinvestment in the section ‘How long should I hold it and can I take my money out early?