1. (1)

   1As set out in more detail in article 4(1) of the PRIIPs Regulation, a packaged retail investment product or ‘PRIP’ means an investment, including instruments issued by special purpose vehicles, where, regardless of the legal form of the investment, the amount repayable to the retail investor is subject to fluctuations because of exposure to reference values or to the performance of one or more assets which are not directly purchased by the retail investor.

2. (2)

   The PRIP definition in the PRIIPs Regulation should be read together with the rules in this Chapter, which supplement article 4.

1. (1)

   1A debt security is not a PRIP if it meets the following criteria:

   1. (a)

      it does not fall within DISC 2.2.2R;

   2. (b)

      the issuer’s default risk is wholly or predominantly determined by the economic performance of the commercial or industrial activities of the issuer (or, where the debt security is guaranteed by a groupperson, that person); and

   3. (c)

      the terms of the debt security do not impose any modification, structuring, or conditionality on the issuer’s obligation to pay interest or repay the principal save for the effect of any feature listed under DISC 2.2.4R.

2. (2)

   For the purposes of (1)(b), lending, investment, and any other financial sector activities are not commercial or industrial activities.

1. (1)

   1A debt security is a PRIP where the level of interest payable, any conditionality of principal repayment, or the issuer’s default risk, is linked to or materially dependent on the following, whether or not modified by a pre-determined formula:

   1. (a)

      fluctuations in reference indices or benchmarks relating to investment assets or a class of investment assets, for example a stock market index;

   2. (b)

      the value or performance of reference investment assets, such as a basket of shares or specified commodities; or

   3. (c)

      the value or performance of investments held by the issuer (or by a person connected to the issuer).

2. (2)

   For avoidance of doubt, the following are excluded from (1)(a):

   1. (a)

      the Bank of England official Bank Rate; and

   2. (b)

      any benchmarks or indices tracking the rate of inflation, money market interest rates, or other indicators pertaining to the performance of the general economy.

1In DISC 2.2.2R(1)(c):

1. (1)

   the investments include, for example, derivatives, real estate holdings, a pool of receivables, or a portfolio of securities; and

2. (2)

   a person is connected to the issuer if it is a member of the same group as the issuer, has a relevant business relationship with the issuer, or otherwise does not have an arm’s-length relationship with the issuer.

1The following features do not cause a debt security to meet the criteria for a PRIP in article 4(1) of the PRIIPs Regulation:

1. (1)

   a fixed coupon rate, including where:

   1. (a)

      a set coupon rate applies until maturity, including a nil or zero rate; and

   2. (b)

      the coupon rate is subject to pre-defined changes at fixed times prior to maturity – that is, a stepped coupon;

2. (2)

   a floating or variable coupon, provided that:

   1. (a)

      the interest payable is determined by an index or benchmark of the kind described by DISC 2.2.2R(2), with or without a spread reflecting the credit risk of the issuer; and

   2. (b)

      the interest payable is not subject to any additional modification or structuring such as, for example, a cap, or a floor other than zero;

3. (3)

   a put option giving the investor a discretion to demand early repayment of the debt security on pre-agreed terms, or giving the investor the choice to convert or exchange their debt security into one or more shares of the same issuer at a pre-determined price;

4. (4)

   a call option allowing the issuer to redeem a debt security early at a price higher than or equal to par, where:

   1. (a)

      the option becomes exercisable due to changes in the financial health, market confidence in, or control of, the issuer, or general economic conditions, but not including options exercisable in response to fluctuations, price movements or performance of an index, benchmark, specified asset or underlying asset falling within DISC 2.2.2R(1); and

   2. (b)

      the mechanism to calculate the net present value of the future coupon payments is made clear to the investor in the terms of the debt security;

5. (5)

   a perpetual or indefinite term; or

6. (6)

   the debt security’s subordination in the creditor hierarchy in the event of the issuer’s insolvency.

1A financial instrument issued prior to 1 January 2018 is not a PRIIP.