CESR feedback on Key Information Document disclosures for UCITS
20 April 2010
Concerning risk and reward disclosure and in light of the results of the consumer testing exercise and stakeholder feedback, CESR confirmed its preference for a synthetic risk and reward indicator accompanied by a narrative text.
In this document CESR gives feedback on the responses received to the consultations on its technical advice on the format and content of Key Information Document disclosures for UCITS, published on 8 July 2009, and the methodology for the calculation of the synthetic risk and reward indicator, published on 4 August 2009.
In general, respondents were broadly supportive of the approach proposed by CESR. The number of substantive changes to the draft advice was therefore relatively small. More detail on the amendments is set out in the relevant section below.
· Format and presentation of the KID
A large majority of respondents agreed with the proposed appearance, use of plain language and document length of the KID. Some respondents asked for more clarity on the expected format and language to be used. CESR committed itself to undertake further work at level 3 on the development of a common glossary for the use of terms and good-practice guides for UCITS providers.
· Objectives and investment policy
Concerning the information related to the objectives and investment policy to be provided to investors, a majority of respondents supported the CESR’s proposals.
· Risk and reward disclosure
In light of the results of the consumer testing exercise and stakeholder feedback, CESR confirmed its preference for a synthetic risk and reward indicator accompanied by a narrative text. Detailed feedback is also given in relation to the proposed methodology for calculation of the indicator.
· Charges
CESR’s proposal to require inclusion in the KID of a table setting out clearly the different elements of the charging structure (in percentage terms) was overwhelmingly welcomed by respondents. This approach was therefore confirmed in the advice. Detailed feedback is also given in relation to the methodology for calculation of the ongoing charges figure.
CESR had proposed the inclusion of a charges disclosure in cash terms on the basis of results of the consumer testing exercise, as well as feedback from retail investor representatives at earlier stages of the KID project. However, given the largely negative feedback received on the proposal made in the July consultation, CESR decided not to require any disclosure of charges using cash figures.
· Performance
Respondents expressed a range of views on CESR’s proposals for the presentation of past performance. Taking particular account of the results of the consumer testing exercise, CESR decided to confirm its proposals for presentation of past performance using a bar chart displaying up to ten years’ performance.
· Practical information
The main comments received from respondents on this section of the KID concerned the liability regime and the information regarding any potential impact of a fund’s Home State taxation regime.
CESR slightly amended its advice to take into account both remarks. The sentence on the liabilitregime was redrafted and CESR recommended that information on the possible impact of a fund’s Home State taxation regime should be disclosed in the KID.
· Structured funds, capital-protected funds and other comparable UCITS
In its initial advice to the Commission, CESR noted that past performance was not adapted to all types of funds, especially for structured funds such as formula funds, capital protected funds and comparable funds. CESR considered that for those funds, the objectives and investment policy disclosure should be supplemented by performance scenarios which illustrate the risk and reward trade-offs of the fund.
The work carried out by CESR in that respect envisaged two possible options for performance scenarios:
· Option A: prospective scenarios showing the return of the fund under favourable, adverse and average market conditions;
· Option B: tables showing the probability of certain defined events: achieving a negative return or achieving a positive return worse, equal to or better than the risk-free rate.
A large majority of respondents to the consultations expressed a preference for Option A, prospective scenarios. Many of the respondents that supported Option A expressed strong disagreement with Option B on the basis that it would be misinterpreted as a guarantee and that the reliance on risk-neutral probabilities in the methodology was flawed. Option A was retained by CESR in its final advice
© CESR - Committee of European Securities Regulators
