The main difference between Category 2 and Category 3 is, in accordance with Annex II Part 1 Point
5, whether the condition of "constant multiple" is fulfilled. In the event where a UCITs product has:

Question

The main difference between Category 2 and Category 3 is, in accordance with Annex II Part 1 Point
5, whether the condition of "constant multiple" is fulfilled. In the event where a UCITs product has:
i) a RHP that is the same as the maturity of the product (e.g. 10 years) and
ii) the payoff at maturity is the redemption value (provided there is no credit default) of a pool of
bonds that have the same redemption date, would it be correct to treat the above product as not
fulfilling the definition of "constant multiple" (at maturity) and therefore belonging to Category 3?
If the PRIIP product is not qualified to be Category 3, hence it is Category 2:
1) How should the redemption value viewed in the performance scenarios (at maturity) in a
hypothetical scenario where negative returns exist throughout the lifetime of the product?
2) Shall we show the results as produced by the Category 2 scenarios (so not accounting for the
redemption value as a "floor") or we allow for the fact that the redemption value is the minimum to
be receive (hence we don't account for any credit event which is the case as the scenarios are
derived)?

ESA Joint Committee (EBA, ESMA, EIOPA) · Accepted Answer

The UCITS described in the question should be classified as a Category 2 PRIIP as it pays out a constant
multiple of the prices of the underlying investments. The performance scenario figures should reflect
the outcome of the calculation methodology. Where negative returns have been observed in the
historical data these would be reflected in the scenarios shown. The purpose of the minimum value or
floor shown in the performance scenarios, in accordance with point 4 of Annex IV and point 3(b) of Part
I of Annex V of the PRIIPs Delegated Regulation, is to highlight whether or not there is unconditional
capital protection. Therefore, in the case of products without such capital protection, it is necessary to
indicate that the retail investor could lose some or all of their investment, regardless of the results of
the performance scenario calculations. The redemption value for bonds does not constitute an
unconditional capital protection.

The main difference between Category 2 and Category 3 is, in accordance with Annex II Part 1 Point 5, whether the condition of "constant multiple" is fulfilled. In the event where a UCITs product has:

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