Page 19 - MONECO Financial Training Catalogue

PRACTICAL REGULATORY RISK CALCULATIONS FOR EU FUNDS

• MRM + CRM aggregation matrix to final SRI (1–7 scale) PRIIPs Performance Scenarios − Case Studies
• Why UCITS typically receive CR1 (segregated assets) Case Study: Global Multi-Asset Fund Scenarios - Balanced
• Key differences between SRRI and SRI: lower risk numbers fund (60/40 equity/bonds), €1.2B AUM, 12-year history,
explained recommended holding period of 5 years
• Voluntary SRI increase provisions and industry practice
Case Study: SRRI vs. SRI Comparison Analysis for 5 different Data Provided:
UCITS funds transitioning from KIID to PRIIPs KID in 2023 • 5 years of weekly NAV returns (2019-2024)
• Includes COVID-19 crash and recovery
Analysis Tasks: • Recent period of elevated inflation and rising rates
• Calculate SRI for each fund using PRIIPs methodology
• Document MRM calculation process and category Analysis Tasks:
determination • Implement bootstrap simulation (10,000 iterations)
• Assess CRM for each fund (counterparty exposure analysis) • Apply drift correction methodology
• Compare resulting SRI vs. historical SRRI • Extract four scenarios for 1-year and 5-year horizons
• Identify funds where SRI is 2+ classes lower than SRRI • Compare scenarios calculated at different points in time:
• Develop communication strategy for investors seeing “lower − Pre-COVID (end 2019)
risk” − Post-COVID (end 2021)
• Consider voluntary SRI increase decisions − Current period (2024)
Group Discussion: • Assess how historical window affects scenario outcomes
• Industry reluctance to voluntarily increase SRI: why? • Calculate what €10,000 investment becomes under each
• Regulatory arbitrage concerns between UCITS KIID and scenario
PRIIPs KID • Discuss whether scenarios fairly represent potential
• How do distributors interpret the lower SRI numbers? outcomes
Case Study: Scenario Backtesting & Validation - Using same
30
12 −13 30 fund, evaluate historical accuracy of PRIIPs scenarios
Lunch break
30
13 −17 30 Analysis Tasks:
PRIIPs Performance Scenarios − Theory & Methodology • Rolling window backtest: calculate scenarios every 6
Regulatory Framework: months over 2015−2024
• Annex IV & V of PRIIPs Delegated Regulation 2021/2268 • Compare predicted scenarios vs. realized 1-year returns
• Bootstrap resampling methodology with replacement • Calculate “hit rates”: how often did returns fall in each
• 10,000+ simulation minimum requirement category?
• Historical window: 5 years of return data • Expected: Stress 1%, Unfavorable 9%, Moderate-Favorable
• Log return transformation and statistical rationale 80%, Above 10%
• Drift correction formula: • Measure prediction bias: optimistic or pessimistic?
• Risk-neutral expectations: removing historical trends • Construct transition probability matrix
• Four scenarios: Stress (1st/5th percentile), Unfavorable • Assess predictive power correlation
(10th), Moderate (50th), Favorable (90th)
Group Discussion:
Bootstrap Simulation: • What do backtests reveal about PRIIPs scenario reliability?
• How Bootstrap Works Step-By-Step • Should regulators require scenario backtesting disclosures?
• The Bootstrap Parameters: Sensitivity Analysis and • How can managers explain scenario limitations to investors?
Calibration
• Bootstrap Methods Variations THURSDAY, JUNE 25
• Key Advantages and Limitations VaR, Risk Metrics & Advanced Topics
00
09 −12 30
Presentation & Disclosure Requirements: Value-at-Risk for UCITS
• Multiple holding period calculations (1Y, RHP) Regulatory Framework:
• Stressed volatility methodology for stress scenario • ESMA guidelines on VaR calculation for UCITS
• Monetary presentation (€10,000 investment assumption) • Three VaR methodologies:
• Annualized percentage returns − Historical VaR (non-parametric, percentile-based)
• Narrative disclosure elements (A through F) − Parametric VaR (variance-covariance method, assumes
• Known limitations: optimistic bias after bull markets, normality)
pessimistic after bear markets − Monte Carlo VaR (simulation-based, flexible distribution)
• Regulatory Q&As and industry concerns • 99% confidence level, 20-day holding period standard
• Relative VaR: maximum 2x the VaR of reference portfolio
• Absolute VaR: maximum 20% of fund NAV
• Back-testing requirements and validation tests

Hybrid course – both classroom and online training available. 19