Risk rating system introduced for structured products

Risk rating system introduced for structured products

The UK Structured Products Association has introduced a new set of risk ratings to assist financial advisers in comparing products that match clients’ risk profiles more closely, following on from its product ‘codes’ series.

The UK Spa said the risk ratings reflect both the market and credit risk of a product, with the former calculated on the volatility of the product, ranging from 1-7 (similar to the SRRI rating commonly used by the fund industry), while the latter is based on the credit rating of the issuer or deposit taker of the product, ranging from A-G.

They have been designed specifically for adviser use and have been made available via association members’ websites.

Last month, the association published a series of standardised product ‘codes’, also aimed at helping advisers compare different members’ products more easily. They were broken down into four main sectors: protected growth, non-protected growth, protected income and non-protected income.

Zak De Mariveles, chairman of UK Spa, commented that whilst members have been clear at describing key risks in product literature, there has been “no alphanumeric risk value” assigned to each product, such as is available within the funds industry.

“The introduction of the risk ratings is therefore a landmark development in this market.

“These ratings not only give advisers the tools they need to be able to match products more closely to their clients needs, but they demonstrate the high levels of transparency that our members are committed to providing.”