This consultation paper identifies the options available for the KID in the areas of risk and reward, past performance or performance scenarios, and charges. It provides a detailed description of the different policy options and describes their potential positive and negative effects.
On risk and reward, the consultation recalls the two options for risk and reward disclosure, an improved version of the narrative approach versus a synthetic risk and reward indicator – while focusing on the development of a harmonised calculation methodology for the latter.
The discussion on past performance can be sub-divided into disclosures for funds that have actual past performance data and disclosures for structured funds, for which by definition no meaningful past performance information can be displayed.
CESR proposals relate to the calculation of the past performance data, treatment of situations in which there has been a material change, the handling of benchmarks and the circumstances in which a track record extension may be used.
CESR’s proposals on charges cover several points related to the overall presentation of the disclosures, in particular the so-called ‘illustration of charges’ approach which uses cash figures instead of percentages. CESR sets out detailed proposals on harmonising calculation of the ongoing charges disclosure. Other issues covered include performance fees, portfolio transaction costs and the handling of charges information for new funds.
CESR plans to consult on the full package of its advice on the KID in summer 2009. That consultation will take into account, inter alia:
Ø the work done to prepare the initial advice to the Commission submitted in February 2008;
Ø the final results of the Commission’s testing exercise, which are due by the end of May;
Ø the final text of the revised UCITS Directive and the Commission’s mandate to CESR in relation to Level 2 measures; and
Ø the outcome of this consultation.
Also, the Commission will gather information on the likely costs of implementing the KID proposals in the course of 2009. A full assessment of the costs and benefits and a policy proposal will be included in the consultation on the final advice to the Commission later in the year.
Deadline for comments is 15 May 2009.