Automatic updates and regulatory analysis with Daitomic: the PRIIPs use case

From MiFID II to Packaged Retail and Insurance-based Investment Products

Keeping up with financial regulatory updates is an activity that currently requires a lot of resources, both economic and human, and time. In recent years we have thoroughly analyzed banking compliance processes, so that we have reconstructed a standard workflow - which we present on a dedicated page on our website - that financial institutions follow in their regulatory updating and analysis activities. The huge and ever-increasing amount of changes made by regulators on financial regulations makes it necessary and very urgent the introduction of technological tools to automate those steps of the compliance processes that do not require human analytical and decision-making intervention. And that's exactly what Daitomic offers to compliance professionals. A very well-known example is represented by the PRIIPs, an acronym which, starting from the publication in 2018 of the MiFID II regulation - which we discuss specifically in another post in reference to the so-called "Quick fix" -, identifies Packaged Retail and Insurance-based Investment Products, namely a macro-category of pre-assembled financial products that are often found related to market fluctuations. The MiFID II is the Directive 2014/65/EU, which entered into force in 2018, as an update of the Directive 2004/39/EC, or the "Markets in financial instruments directive" - ​​hence the acronym MiFID. The name "Quick fix", on the other hand, identifies the Directive 2021/338, which represents the latest regulatory update published on this subject by the European Commission in February 2021, following the economic disruption caused by the COVID-19 pandemic.

How to get regulatory alerting and automated analysis on PRIIPs in a few clicks

Returning to the Packaged Retail and Insurance-based Investment Products, these latter can be defined as all those financial products which, regardless of the legal form of the investment envisaged, result in an amount subject to significant fluctuations for the retail investor, due to exposure to reference values ​​or to the yield of one or more assets that are not directly acquired by the retail investor, who is thus more exposed to possible losses. Some examples? PRIIPS includes financial products such as derivatives, mutual funds, convertible bonds, insurance products with an investment component, structured products and deposits, and also products issued by SPVs (Special Purpose Vehicles) - those companies specifically created to carry business financial products sold by third parties. Especially because of the fluctuation of the underlying stock, the PRIIPs are classified as high-risk financial products, prompting European regulators to introduce regulatory documents addressing this subject. In particular, as anticipated, the reference legislation on Packaged Retail and Insurance-based Investment Products is the MiFID II, but there are other relevant documents about this topic, which is clearly addressed in the summary analysis carried out by PWC. The analysis of the entire regulatory perimeter concerning PRIIPs implies constant updating activities for financial institutions, in order to assess the compliance of their products with the European guidelines expressed in other documents besides the already mentioned, such as the Delegated Regulation 2021/2268 (which amends the Delegated Regulation 2017/653). But how can this impact analysis be carried out accurately and in a reasonable time? Financial institutions have finally found a valid help in this challenge: Daitomic. This RegTech platform, created and developed by Aptus.AI, answers exactly to the needs for regulatory updates in real-time and for the automation of those compliance process steps - which we present schematically here - which fall within the so-called regulatory alerting, by exploiting Artificial Intelligence.

Optimizing compliance processes with quick and accurate information, thanks to Daitomic

The PRIIPs issue has therefore been at the center of the thoughts of financial compliance professionals for some time now. In this context, the ability to obtain rapid and accurate information is essential to be capable of making decisions safely and within a reasonable time. Thanks to its Artificial Intelligence engines, Daitomic creates an electronic and machine readable version of banking regulations, thus enabling an automated analysis on them which offers to compliance professionals the opportunity to focus on the decision-making and strategic aspects of their job. First of all, Daitomic allows users to interactively browse financial regulations and compare different versions of them, to identify - citing an example relating to PRIIPs - the changes introduced by the Delegated Regulation 2021/2268 in respect to the Delegated Regulation 2017/653.

Not only. Daitomic also includes a customizable email alert function, which notifies users of any update related to the regulatory areas of their interest. The message includes the most important general information relating to the update and also an overview of the impacted areas, but mostly the links that allow users to land directly in the regulatory consultation area described above.

The extraction of regulatory obligations relating to PRIIPs becomes automatic, with Daitomic

But Daitomic does not stop at regulatory alerting, as it can also prepare a first impact analysis related to Packaged Retail and Insurance-based Investment Products - and any other regulatory perimeter. Once the email alert notifying an update has been received, users can in fact exploit the platform to automatically extract the related regulatory obligations and sanctions, also and linking them with the internal processes impacted.

With the automatic regulatory obligations extraction, Daitomic also completes the last automatable step of the financial compliance processes, allowing human beings to carry out the activity in which they are essential and that no Machine Learning system will ever be able to do instead of them: make the right decisions and develop strategies.