EUROPE: CESR publishes Risk-Reward Indicator Methodology

Tuesday December 22 2009

CESR has published its 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.

This advice follows on from its earlier technical advice to the European Commission on the Key Information Document for UCITS (CESR/09-949), published on the 28th October 2009 where the use of a Synthetic Risk Reward indicator ( SRRI) for funds ` risk and reward disclosure was proposed.

CESR has therefore elaborated the methodology for the computation of the SRRI, which is presented in this Annex to the Advice.

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.

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