When the Fund Facts point-of-sale delivery requirements finally kick in on May 30, that won’t be the end of the road for this long-running project: regulators are still considering how to mandate effective risk disclosure in these documents.

Although the delivery requirements have long been the investment industry’s chief concern with the regulators’ effort to enhance fund disclosure, investor advocates have been more agitated about the presentation of risk in Fund Facts. They are concerned about whether the way risk is reported is useful to investors, or could even be misleading.

In response to those long-standing worries, the Canadian Securities Administrators (CSA) are considering the introduction of a standardized methodology for disclosing risk in Fund Facts. The regulators hope that by mandating firms to use a standardized methodology for evaluating investment risk, investors will receive more consistent, comparable disclosure — which, regulators hope, will help inform investors’ decisions by making it easier for them to assess different funds.

This effort to develop a standardized methodology has been in the works since 2013, when the CSA issued its first set of proposals in this area. However, it will likely be next year before the CSA is prepared to settle on its approach.

Late last year, the CSA published a revised set of proposals that makes a number of changes from the 2013 version. The comment period on the latest proposals wrapped up in March, and, according to Kristen Rose, manager, public affairs, at the Ontario Securities Commission (OSC), the CSA is currently considering the comments that it received on the 2015 proposals. She says that the regulators expect to finalize a prescribed methodology by the end of their current fiscal year (which would be the end of March 2017).

In the meantime, fund managers are still free to choose a methodology for assessing the riskiness of a fund.

In general, the industry is supportive of the latest version of the CSA methodology. The CSA’s most recent set of proposals would, among other things, bring its proposed methodology more closely in alignment with the Investment Funds Institute of Canada (IFIC) methodology that many firms already use to rate their funds for Fund Facts reporting.

The latest proposals would also extend the standardized methodology to exchange-traded funds (ETFs); reduce the frequency with which firms are required to assess a fund’s risk level from monthly to annually; and, they would alter how firms are to assess risk for funds that have less than 10 years of performance history, or undergo fundamental changes, such as a fund merger, or a shift in investment objective.

In its comment on the 2015 proposals, IFIC notes that the changes regulators have made to their initial version address many of the industry’s concerns with the regulators’ original plan. And, as the latest version now more closely follows the IFIC methodology that many firms voluntarily use to evaluate and report risk in Fund Facts, the introduction of the new CSA requirements should not be particularly costly or disruptive to the industry.

Yet, investor advocates are less enamoured with the CSA’s proposed approach. They continue to argue that standard deviation (which is the basis for the CSA’s proposed methodology) is not a good measure of investment risk, and that it is not particularly informative for investors. They maintain that more comprehensive risk assessment is needed for this sort of disclosure to be truly useful to investors; and, that some sort of insight into the actual risk of losing money is a more practical objective for funds’ risk reporting.

It remains to be seen if regulators will be swayed by these objections to their proposed methodology. Since these sorts of concerns about the reliance on standard deviation were already raised with the CSA’s initial proposal, however, it appears unlikely that regulators will go back and revisit that fundamental decision at this point.

Even so, as the upfront delivery requirements finally take effect, the content of Fund Facts is still somewhat up in the air.

This is the third article in a three-part series on Fund Facts and Point of Sale Disclosure.