In its technical advice to the European Commission on the Key Information Document for UCITS (28 October 2009) the Committee of European Securities Regulators (CESR) proposed the use of a synthetic indicator (SRRI) for funds’ risk and reward disclosure, accompanied by a short narrative description of the limitations of the indicator and where relevant, the risks that were not fully captured by the indicator.
CESR has now published an Annex to its October technical advice which elaborates on the methodology for the computation of the SRRI. The methodology has been tailored to cover the particular features of the different types of fund and, in particular, to satisfy the following criteria and objectives:
- Provide investors with a meaningful indication of the overall risk and reward profile of the UCITS.
- Ensure an appropriate spread of UCITS across different risk classes.
- Be applicable to all types of UCITS.
- Leave no room for manipulation.
- Enable easy and cost effective implementation by UCITS providers.
- Be easily understood by auditors, advisers and distributors.
- Enable easy and effective supervision by regulators.
- Achieve an adequate degree of stability in the risk classification process with respect to normal trends and fluctuations of financial markets.
CESR has also published a second Annex to its October technical advice which sets out the methodology for the calculation of the ongoing charges figure. The management company of the UCITS shall:
- Be responsible for the calculation of the ongoing charges figure and for its accurate statement in the Key Information Document (KID).
- Establish procedures that are consistent with the methodology in Annex 2 and are adequately documented.
- Keep records of each calculation for a period of 5 years after the last date on which that version of the KID was available to be issued.
View Annex to CESR’s technical advice on the level 2 measures related to the format and content of Key Information Document disclosures for UCITS: methodology for the calculation of the synthetic risk and reward indicator, 22 December 2009