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06 July 2010

CESR’s guidelines on the methodology for the calculation of the synthetic risk and reward indicator


The methodology for the synthetic risk and reward indicator (SRRI) set out in these guidelines applies to all UCITS. It should be based on the volatility of the fund using weekly or monthly returns covering the previous five years.

CESR delivered its advice to the European Commission on the format and content of Key Information Document disclosures in October 2009. That advice was supplemented by two detailed technical methodologies on the risk and reward indicator and the ongoing charges figure that were delivered in December 2009. The Commission has indicated that it sees these methodologies as being more appropriately adopted via binding technical standards by the new European Securities and Markets Authority (ESMA) rather than as level 2 implementing measures. During the period leading up to the establishment of ESMA, CESR has agreed to adopt the methodologies as level 3 guidelines in order to provide clarity to the industry in implementing the new package of UCITS requirements.

The methodology for the synthetic risk and reward indicator (SRRI) set out in these guidelines applies to all UCITS. It should be based on the volatility of the fund using weekly or monthly returns covering the previous five years. In light of the outcome of the volatility calculation, the UCITS should be assigned to the appropriate category on a numerical scale of 1 to 7. The methodology sets out how the volatility intervals should be defined as well as detailed rules on how to assess migrations. There are specific rules on application of the methodology to absolute return funds, total return funds, life cycle funds and structured funds. In the latter case, the SRRI should be calculated on the basis of the annualized volatility corresponding to the 99% Value at Risk (VaR) at maturity.


© CESR - Committee of European Securities Regulators

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