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CESR publishes today a consultation paper (CP) on ‘content and form of Key Investor Information disclosures for UCITS’ (Ref: CESR/07-669). The CP follows two calls for evidence and a questionnaire on related subjects published earlier in 2007, as well as discussion at a Retail Investor Workshop (see the Notes for Editors for further details). It is part of CESR’s ongoing work in response to a request for assistance from the European Commission (Commission), and should be seen in the context of the Commission’s wider work to revise the UCITS Directive by replacing the Simplified Prospectus with a document which will be more meaningful for retail investors.
The work on key investor information (KII) is split into three phases:
Phase 1 CESR will prepare and deliver its advice to the Commission following public consultation (April 2007 to February 2008)Phase 2 The Commission will carry out market testing throughout 2008 on the basis of the CESR submission.
Phase 3 CESR will then finalise its advice taking into account the results of the testing exercise and further consultation with market participants (by March 2009).
In the light of responses to the CP published today, CESR will finalise its advice to the Commission in February 2008 (marking the completion of Phase 1).
The European Commission requested assistance from CESR in April 2007 on the detailed content and form of key investor disclosures for UCITS funds, with a view to encouraging informed decisionmaking by potential retail investors. The request followed publication of the Commission’s initial orientations outlining future possible adjustments to the EU single market framework for investment funds (for further information on this, see the Notes for Editors). One of the key areas covered in the Commission’s orientations was the replacement of the Simplified Prospectus with the concept of key investor disclosures. The Commission’s request to CESR is designed to facilitate the early adoption of technical implementing measures once the revised UCITS provisions enter into force.
CESR has considered the factors that are likely to make disclosures of product information useful to retail investors and, in particular, the need for such information to be short, focused, expressed in plain language and presented in a way that enables comparisons to be easily made between different offerings. CESR makes specific recommendations on a number of points, while in some areas proposes alternative options where testing on retail investors is required to understand better how retail investors react to particular approaches. In developing its proposals, CESR has paid close attention to all the available evidence relating to the failure of the Simplified Prospectus and has placed strong emphasis on systematically analysing the pros and cons of the options it has considered.
A number of key points covered under the different sections of the paper are set out below.
- Objectives and scope of KII: CESR recommends that KII should contain only the essential elements for making and carrying out investment decisions, which excludes information serving only legal or regulatory requirements.
- Format and general content: CESR is of the view that KII should be a single document covering a maximum of two sides of A4, unless unusual features preclude this. There should be a standardised list of permitted contents in fixed order and hierarchy. The content of some elements (practical information, risk-reward and charges disclosure) should be more harmonised than others. Specific proposals are made for funds of funds, umbrella funds and multiple share classes.
- Risk-reward: CESR outlines two broad options: i) the inclusion of a synthetic risk-reward indicator (SRI) or ii) improved narrative disclosure. There is support from retail investor representatives for the concept of an SRI but further work is needed on questions of format and methodology. The improved narrative disclosure would focus on material issues by applying a set of general principles.
- Past performance: CESR’s proposals for past performance include that the information be presented using bar charts; percentages should be preferred to cash figures; and the performance of the benchmark should be shown, if the fund is managed against one. CESR recommends using up to 10 years’ data (if available) and allowing simulated performance only in specific cases.
- Charges: In the light of evidence which suggests retail investors can misunderstand even relatively simple information about charges, CESR proposes two options for consumer testing – the first an improved version of the existing SP disclosure, the second supplementing this information with a single ‘summary’ figure.
CESR will hold an Open Hearing at its premises (11-13 avenue de Friedland, 75008 Paris) on Friday 23 November from 10.30 to 13.30. The Hearing, which is open to all interested stakeholders, will be an opportunity to discuss the issues raised in this consultation. Those wishing to attend can register via the CESR website, in the section ‘Hearings’.
Readers are invited to consider the questions in the consultation paper and submit their response via the CESR website (www.cesr.eu) under the section ‘Consultations’. The consultation closes on 17 December 2007.
