InvestmentsJun 9 2020

Outdated investor documents to hit crunch point

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Outdated investor documents to hit crunch point

Warning bells have been sounded that four in 10 funds may need to reissue their fund documents imminently as the pandemic continues to cause volatility in financial markets.

Fund data company FE Fundinfo today (June 9) warned up to 40 per cent of Ucits funds would need to reissue their key investor information documents (Kiids) over the coming weeks as the price volatility indicator may be out of date.

Under current regulation, a fund’s Kiid needs to be updated and reissued if its synthetic risk and reward indicator (SRRI) is different from the published version in the Kiid for 16 consecutive weeks.

A Kiid is a two-page document specific to a Ucits share class which must be issued to all investors before the sale of a Ucits fund, while the SRRI is a measure of volatility of the fund’s prices over the previous five years. For daily-priced funds it should be calculated and monitored weekly.

FE Fundinfo said its database showed nearly 1,200 Ucits share classes had demonstrated at least ten successive weeks of change, with more than 700 of these set to approach the 16-week deadline within the next three weeks.

Although the production of Kiid documents is the responsibility of providers — and the platforms which hold the funds — this will affect any new recommendations of fund purchases brought forward by advisers.

Mikkel Bates, head of regulation at FE Fundinfo, said the coronavirus crisis was presenting the “first real test” where the markets were experiencing sustained periods of volatility and this was causing “a lot of regulatory and compliance issues among fund groups”.

He added: “With so many share classes approaching the 16-week cut-off point, it will be interesting to see how these service providers respond to the challenge. 

“As with any service which has not been effectively tested, there may be some bumps in the road ahead and some unforeseen challenges. Many providers might have to re-evaluate and adapt their offerings.”

Kiids, and the SRRI that comes with it, have been a controversial topic with advisers since the rules were introduced in 2012.

The European Securities and Markets Authority always maintained the Kiids had improved the quality of disclosures for retail investors but advisers remained less than impressed, describing the process as a “logistical nightmare” which added little value for clients.

SRRIs were also dismissed as “intuitively wrong” as funds with excellent track records were ranked ‘high risk’ through the system.

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