Proposed Principles for Communicating Investment Risk

In 2011 a working party of the Society of Actuaries in Ireland produced a paper that considered the existing methods of communicating investment risks to consumers and the latest regulatory developments at an Irish and international level. In addition they carried out an analysis of the effectiveness of these methods for Irish life assurance unit linked funds. This work is presented in the paper entitled “Report of the Working Party on Communicating Investment Risk”.

A second working party was formed in May 2012 to consider this paper further, form a view on existing methods and to distil this view into proposed principles for Communicating Investment Risk. The results of their work are outlined in the document “Proposed Principles for Communicating Investment Risk” (attached). We have sent this document to the Consumer Protection: Banking and Policy Division of the Central Bank of Ireland and invited them to meet with us to discuss it.

In July 2012 the European Commission adopted a proposal for a regulation for a new Key Investment Document (KID) for Packaged Retail Investment Products (PRIPs). The proposal aims to address the uncoordinated and patchy nature of product disclosure requirements that exist at national and EU level.

The European Parliament and the Council are currently considering the Commission’s proposal under the co-decision procedure. Once agreement is reached, detailed work will be carried out by the Commission together with the input of experts and stakeholders on the implementing measures. The full proposal may be in place by the end of 2014.

It is comforting that there are many similarities between the Society’s proposed principles for Communicating Investment Risk and the Commission’s proposal for a new Key Investment Document (KID). Both approaches advocate fair, clear, short and standardised disclosures that will enable comparisons across products and product providers. In addition, both approaches recommend providing indicators of risk to be accompanied by warnings and a clear indication of costs.